Friday 30 April 2010

What Should We Do With Brand Rankings?

How qauntifiable are brands? I sometimes hear from MBA students the lament that, after courses in finance, operations research, micro-economics and the like, their branding course can seem a bit too touchy-feely, more art than (psuedo-) science. Numbers and data speak for themselves. If that is the perceived sense, then what better than to find better and more elaborate ways to express branding in quantifiable terms.

The most recent exposition of this approach is set out as part of the special report on "Global Brands" that was published in the April 28 issue of the Financial Times. As part of the special report, the FT set out the "Global Top 100", relying on the 2010 BrandZ Top 100 report.

According to the report, the top 10 brands by value are: (i) Google; (ii) IBM; (iii) Apple: (iv) Microsoft: (v) McDonald's; (vii) Marlboro; (viii) China Mobile: (ix) GE and (x) Vodafone.

Sliced differently, at the sector level, the leaders in year-on-year growth are: financial institutions (12%); beer (10%) and technology (6%). The three sectors with the greatest decline are: coffee (-6%); insurance (-7%) and cars (-15%). Newcomers to the list (in order of their ranking on the general top 100 list) are BP; ExxonMobil; Shell; ICICI; PetroChina; Telcel; Petrobas and USBank. See more generally the FT report here. How exactly does the BrandZ report do about its work? Permit me to quote from the article:
"The BrandZ Top 100 is the only ranking based on a brand valuation methodology that is grounded in quantitative customer research and in-depth financial analysis....

Insights into customer behavior and brand strength come from WPP's unique BrandZ database -- the world's largest repository of brand equity data. Covering thousands of brands and based on more than a million interviews, it provides a detailed, quantified understanding of customer decision-making the world over. Financial data are sourced from, analyst reports, Datamonitor regulatory bodies, Millward Brown Optimor's consultants then prepare financial models for each brand that link brand perceptions to company revenues, earnings, and ultimately shareholder and brand value.

The valuation methodology is similar to that employed by analysts and accoutants. Brand value (BV) is derived from each brand's ability to generate demand. The dollar value of each brand in the ranking is the sum of its predicted future earnings, discounted to a present day value. An important element of the overall calculation is brand contribution (BC), the portion of earnings that can be considered to be driven by brand equity, which is presented as an index from 1 to 5 (5 is the highest); an additional metric is brand momentum (BM), which indicatews each brand's short-term growth potential. This is presented as an indexed figure that ranges from 1 to 10 (10 is the highest)."
Whatever you want to say, "touchy-feely" this isn't. And yet----

1. There seems to be a real "black box" aspect in the creation of the ranking. I cannot but think of all of those AAA bond ratings that helped percipitate the subprime securtization crisis. I am not suggesting that BrandZ is subject to any potential conflict of interest such as that which hovers over bond rating agencies (who apparently are paid to rate the bonds of their clients for use by third parties). I also fully appreciate that it might want to keep some of its methodology and data confidential. Still, there is this lingering concern that, without the ability to reasonably evaluate the process of fact-gathering and the empirical robustness of the valuation models, there is a threat that the ultimate branding metrics may have a bit of misplaced quantitative certitude about them.

2. As a result, I would like to see more reporting and comparison of ranking methods in addition to a discussion of the end results. The FT is not alone in relying on a single report to base its report. I believe that Business Week, which has also published a yearly review on brands and brand values, also relies on a single source. The time for such reports to give equal billing to a more critical appraisal of not only the "what", but also the "how", of brand rankings.

3. Since BrandZ claims to carry out more than 1,000,000 interviews about brand decision- making, it would be most instructive to summarize the process of such decision-making. Who makes the decisions and does the process differ across sectors?

4. Further, how is brand information used and transmitted within a company? Are the BV, BC and BM metrics used within the company to make branding decisions; if so, how? Or are they merely snapshots of where the company has been, brand-wise, over the last year?

5. Circling back to my initial obervations about training brand professionals, the ultimate question is how answers to all of the above will make us better able to train individuals to carry out the corporate brand function.

More on black boxes here and here.
More on touchy-feely here.

1 comment:

Tom Blackett said...

Brand league tables are just like 'Rich List' reports. They have little or no value to anyone because they are subjective and prone to gross errors and omissions. This is not to denigrate the value of understanding your brand and how its financial value is built up. But this is best done in private, away from the glare of high profile publications whose objectives are to play upon the narcissism of the participants and the voyeurism of readers.

But the subject per se is fascinating; perhaps the writer and his MBA students might find this a worthy area for applied research? It's about time we had a methodology for valuing brands that everyone agrees upon.

Tom Blackett
Siegel+Gale Europe