Tear up the top 100 brand lists and ditch the value metrics there can never be a formula to sum up what your brand is worth.
Every so often The Economist writes about marketing. It sometimes even writes about branding, quite often metaphorically holding its nose. A few months ago it published the results of a study carried out by a couple of researchers in the Netherlands which seems to prove what most of us know already that we don’t only buy designer labels like Tommy Hilfiger or Lacoste because we like the look and feel of them but also because of the status they confer on us.
The research (2 April 2011, p86 Science & Technology section) is entertaining but hardly groundbreaking. It will be published shortly in Evolution and Human Behavior a US scientific magazine. But what is interesting about it is that it reopens that can of worms we’d do far better to keep shut: what is the value of the brand?
Research companies, agencies and publications including Marketing Week would have it believed that every brand has an objective value that can be derived from mathematical formulae, and that based on these we can rank brands from top to bottom. What rubbish.
The Economist says: “A work of art’s value can change radically, depending on who is believed to have created it, even though the artwork itself is unchanged. And people will willingly buy counterfeit goods, knowing that they are knock-offs, if they bear the right label.”
In other words, brands matter and what you are prepared to pay for them is what you perceive they are worth.
It’s just a grander way of saying people are prepared to pay much more for the T-shirt that says ’Made in Italy’ than the one that says ’Made in Turkey’. Or more for a T-shirt with a crocodile label than another with a polo pony on it, even if nobody can spot differences in quality. Status is transferred, as The Economist puts it, to the label.
So when it comes to deciding how much a label is worth and how much you should pay for it, the answer is: whatever it’s worth to you at any given moment.
There can’t be an objective value to something so personal. You bought that dress for £900. You loved the label. You wore it once and now you don’t like it. The label isn’t so fashionable anymore. You’ve gone off the designer. For you, the brand is now worthless.
The brand’s value, in other words, is entirely in the eye of the beholder.
Yet, a number of organisations claim to be able to give accurate measurements of the value of a brand often of a corporate brand using complex and, to me, entirely incomprehensible but, apparently, objective econometric measurements.
Not only, they say, can they tell you what the corporate brand is worth today compared with yesterday but they can also calculate your brand’s value over the years compared with others, frequently in areas of activity that are entirely unrelated to each other.
All this stuff must be extremely comforting for those organisations whose main value resides in their brand or brands and other intangibles; it makes their balance sheet look healthy and it gives their senior executives a feeling of relaxed self-confidence when they talk to investors. But I’m afraid to say it’s just a lot of hot air.
What do these numbers, these so-called metrics, actually mean in real life? Anything can affect share price the Eurozone financial problems, US political problems, shifty behaviour from senior executives, phone hacking in a newspaper you happen to own, a blow-out in an oil field, a batch of nasty stuff in soft drinks anything. The current financial crisis is a pertinent reminder of that.
And what that means is that the value of a brand, be it a corporate or a product brand, is both volatile and subjective and it embraces a whole world of uncertainties political, social, cultural, economic, financial and physical.
The fundamental issue is whether quantification based on a level of apparent certainty represents any kind of reality or whether it just makes you feel comfortable.
I believe that many people are deluded by the information that numbers attempt to convey. Numbers like these attempt to quantify the unquantifiable, to give the illusion of certainty to something that is fundamentally uncertain the way we all think, feel, react and emote.
So don’t trust so-called objective brand valuation and remember, a brand is worth only what you are prepared to pay for it. That applies to a T-shirt, a painting or, as we found out a few years ago, to Lehman Brothers.
It’s worth bearing in mind that it was the Gaussian copula function (if you want to know more about this, read John Lanchester’s ’Whoops! Why everyone owes everyone and no one can pay’), the precise formula worked out by the then mathematical geniuses who worked for the hedge funds, that killed Wall Street just a few years ago. The theory was that nothing could go wrong because the formula was so precise and foolproof. But, as it subsequently turned out, it wasn’t.