There’s a fascinating article in the FT: How number crunchers put a price on a name, that discusses brand valuation. If you don’t shell out for the subscription fear not. The gist is that finance and marketing don’t talk to one another(yawn), that accountants prefer DCF calculations based on brand investment figures that are otherwise dumped in goodwill while marketers prefer measures based on surveying attitudes to brand.
The discussion is in the context of IFRS, which places a requirement on companies to report acquired brands using value based measures. Interestingly, there isn’t a single comment from an accountant or auditor in the piece. Ho hum.
There is a real set of problems with this. First, brand holders are not required to apply valuation rules to internally generated brand costs. Why not? As IFRS stands, it creates artificiality within the numbers.
I’ve long argued that applying artificial calculations – like DCF – is a bad idea. It doesn’t make sense for something intangible and ephemeral like a brand. How do you explain discounted cashflow to the man in the street? Or net present value. I’d argue that service industries brands have no value. Think about what happened to Arthur Andersen following the Enron scandal. Almost overnight, the world’s benchmark for ethical standards imploded.
Where does brand value reside in (most) service businesses? To me it is in the possession of trusted individuals and as such, is non-transferable. In contemporary terms think about Scoble. Those that don’t know – he is Microsoft’s best-known blogger. He’s on his way to a new company. It was big news when the story broke. Is there any brand value attached to Microsoft’s share price as a result of his departure? No. But Scoble’s personal brand value is huge among the blog community. To anyone else?
You can say that the association between an individual and a company has a value. Think about how Gerald Ratner almost destroyed the high street jewelry chain that carries his name with his ‘We sell crap’ remark. In share price terms I’ve never seen significant value attributed to brand. But I have seen share prices affected by the comings and goings of specific individuals.
Now turn your attention to the current crop of so-called A-list bloggers. Some, like Mike Arrington, Om Malik and Nick Denton, are creating businesses out of their brand name reputation. Scott Adams has spawned an entire industry. As has David Beckham. I suspect Vinnie Mirchandani will do the same and Hugh MacLeod is certainly making a play. All the time, we’re talking about individuals, without whom the world would be a different place. All of whom who will pass into memory at some point.
But in the meantime, while they hold value for certain markets, surely we should be considering the value of these human assets (sorry to the HR people who hate the expression – come up with something better – someone – please) in their contribution to the brands they represent or create.
Given this perspective is it therefore possible or for that matter desirable to attempt brand valuation? In my view, only in a very limited and narrow set of circumstances. Coca-Cola is one example where the name is a global reference point for soft drinks. Not so Pepsi. But maybe Bacardi. Microsoft Windows is perhaps another example but even then I’d hesitate, despite its global domination. Not Oracle but possibly IBM. None of the car makers.
But – according to IFRS, they don’t need valuing anyway.
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