Mark Ritson: What is the point of brand valuations if those doing the valuing are so off target?
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.
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.
Estimated brand value of the average bank overstated by 400%,
who would have thought that? Because we all know that we can trust the banks.
I have an 8 inch c@ck.
This is a really
interesting discussion that raises some common misunderstandings about brand
It’s not entirely appropriate or meaningful to compare one valuation method
more or less favourably with another however: any valuation methodology is
based on assumptions that are specific to the brand and its situation on the
date of valuation.
Valuations have to be different. Valuation is a subjective exercise;
practitioners and analysts put a value on an asset or business according to the
expected benefits that could be generated in the future – and this is based on
a set of assumptions about what the future is going to look like. Morgan
Stanley’s view of how the Apple Watch will affect the value of Apple as a
business in the future will be very different from that of UBS, hence the
different target prices set by the two banks on ‘AAPL’.
What someone will pay for a brand may not reflect its true value. A brand’s
‘worth’ to one person will be very different from its worth to another. And the
value placed on a brand through the PPA methodology may be a result of a
company selling at distress, or on terms that are not fair.
It is measuring brand strength, as well as financial value, that gives the
truest picture of a brand’s value to the business and potential for growth,
both now and in the future. Conducting annual surveys into consumers’
perception of brands (which is what we do at Millward Brown) is the most
objective and systematic way to track change in brand equity, and provide a
validated measurement of how the brand impacts consumer purchase and long-term
engagement. It has the additional benefit of being diagnostic of exactly what
the appeal of one brand is over another, indicating where the value might be
improved and maximised.
Brand is without a doubt something to value. It’s vital to understand how
brand creates value in the business through its impact on the customer purchase
decision, and to measure the effectiveness of brand strategy and marketing
initiatives by tracking their success in growing company financial value. More
importantly for marketers, putting a financial figure on the brand sends a
signal to CEOs, CFOs and boards that brand matters, and is in fact one of
the major financial assets of the business.
We at Brand Finance would echo Elspeth’s comments.
Most accountants are very conservative and habitually under estimate
the level of income attributable to brands they value. They also tend
to assume very short useful economic lives, low growth rates and high
discount rates. It is therefore no surprise that an analysis of brand
values calculated for balance sheet purposes tends to undervalue
The assertion that purchase price allocations necessarily represent a
fair value of brands is therefore deeply flawed. In addition, several
brands that form part of Markables’ analysis have been transferred
internally, making the figure highly unlikely to represent the true
Brand Finance, Interbrand and Millward Brown all agree that Apple is
the most valuable brand in the world. In 2014 Brand Finance valued the Apple brand at $104 billion. Interbrand said $119 billion. Millward
Brown said $148 billion. That is a variance of only 42%, which is hardly
surprising in my view. For other brands the variance may be much
greater, but that is no surprise either.
There are many reasons for the variance: assumptions about long term market growth, specific brand growth, the proportion of revenue
attributable to the brand, the useful economic life of the brand and the
implied cost of capital. We inevitably have different opinions on many
valuation assumptions, which results in quite different valuation
There has been a global brand valuation standard (ISO 10668) for 5
years, which lists several acceptable valuation approaches and methods. The Income approach is widely recognised as the best approach to brand valuation and all three major firms use it in their league tables.
We differ in the specific methods used for estimating what income is
attributable to the brand. Interbrand and Millward Brown use the Income Split method. Brand Finance uses the Royalty Relief method. Otherwise we agree on how to value the brands.
Brand Finance will be conducting an analysis over the coming days and weeks to thoroughly investigate Markables’ research. We propose a public debate when the newly convened ISO brand valuation committee reconvenes in London between the 9th and 12th June to set the record straight.
The Purchase Price Allocation is a retrograde perspective influenceable
by a certain grey zone of accounting principles. To shift propotions of
the allocated brand value to other “intanglible assets or goodwill” and
vice versa is not that major problem. Many Pre-PPA and final PPAs
showed this discrepancy. Means there could be a certain volatility with a
breath of individual motives in PPAs driven by various accounting
Brand Value is always a reflection of the market, of consumer behaviour,
of loyalty, etc. and not a reflection of tax advisers & auditors
who allocate assets in a retrospective way exploiting the existing scope
of tax optimization, external presentation & dividend policy.
Nevertheless PPAs give good indications from a different perspective.
While it’s good to see one of the brand valuationers (sic) – Millward Brown – joining the discussion, I find Elspeth’s assertions in paras 2 and 3 a little disingenuous.
The metrics used to valuate (sic) a brand – regardless of the methodology used and the assumptions made should – and I repeat should, lead to a relatively consistent valuation.
Brand value however IS subjective and will reflect the market value ie. the price a buyer is actually prepared for the brand.
Anyway that’s one man’s viewpoint
Nobody doubts that there is some degree of acceptable variation. From my understanding, brand valuations are mainly made for CMOs, CFOS, auditors, or tax authorities. They are not meant for stock brokers, pension funds, Wall Street journalists, or day traders. And they are not published under the personal name of the analyst, whose pay and employment depend on the accuracy of his predictions.
In my view, the analogy with equity analysts does not lead us to the core of the discussion.