A few years ago I wrote about the wild and concerning variances across different brand valuations. In my usual understated style, I suggested that despite the power and prestige of big valuation firms Interbrand, Millward Brown and Brand Finance, there was a possibility that much of what they do was bollocks. My point was based on the fact that their published estimates of brand equity were wildly different from each other. For example, there was more than $100,000,000,000 of difference between what Interbrand said Apple was worth and Millward Brown’s estimate.
To be fair, I pointed out that there was no way of knowing if one of these firms was actually more accurate than the other two because we lacked any Archimedean point of comparison. Perhaps we would have to wait for examples of brand acquisition to come along, I concluded, before we could find out which, if any, was on the money.
Trademark specialists Markables has called my bluff and those of the big valuation firms. It has found 68 examples of big brands that have been valued using a purchase price allocation approach or, in layman’s terms, instances where a real financial transaction of a brand was conducted. Markables was able to compare a valuation firm’s estimates of brand equity versus the actual price paid for the brands in the year the transaction took place. The difference between the two figures gives a fascinating insight into the general accuracy of brand valuation and a clue as to who does it better.
So how did the valuations stack up? Terribly is the short answer. The overall difference between the actual prices paid and the estimated values of the brands was a whopping 254%, meaning that if a brand was sold for $200m, it was likely, on average, to have been valued at about $500m. That’s pretty crap, even if you allow for some understandable variance.
If you asked me how tall our Marketing Week editor Russell Parsons is and I told you he was about 15 feet, you’d be quite disappointed to discover that he is (a very athletic) 5ft 11 inches.
For the most part, as you can see above, there was a greater chance of overestimation taking place – at an astonishing level. The average valuation was as likely to overstate a brand’s value by more than 500% than it was to get within 20% of the actual price paid. Intriguingly, and perhaps provocatively given the number of big banks and telecommunications companies that pay top dollar to have their brands valued, these two sectors showed the greatest disparity between estimated value and actual price paid. So while consumer retail brands and consumer brands only varied by 39% and 60% from the estimated brand value respectively, the average telecoms brand or bank was overstated by almost 400% by the valuation firms.
So which of the three firms had the most accurate valuation? Or perhaps that should be least inaccurate one. The clear winner was Millward Brown, which managed to overstate its valuation by only 119% more than reality. Interbrand, which was 261% off target and Brand Finance, which overvalued by 301%, were well behind. A clear justification, if ever one was needed, for using large amounts of global consumer data – as Millward Brown do – to drive their valuations.
It’s a pyrrhic victory. With such huge disparities between each other and the stated prices sometimes paid for these brands, it’s difficult not to conclude that the entire brand valuation game is unfortunately another example of ‘fluffy marketing’. Sadly, most marketers reading this column and, indeed the original report from Markables, won’t even understand what I am talking about. They will look at the league tables, accept the inane explanations for why one brand is bigger than another and take everything at face value.
Well fuck that. I would argue that if you can’t agree on the value of something within a $100bn of your peers and if your estimates are shown to be 250% inflated over reality, it’s time to declare the value of valuation to be nil.