Ten Reasons Marketers Should Establish Generally Accepted Brand-Valuation Standards

Envisioning Future Marketing Environment Where Brands Are Launched, Built, Tracked, Valued With Precision

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The gap between a company's market capitalization and its hard assets is often immense. Consider Coca-Cola Co. According to its 2009 annual report, Coke's total hard assets were valued at $48.6 billion, whereas its year-end market capitalization was $132.8 billion. The huge difference between these two numbers -- more than $84 billion -- represents the value of the company's intangible assets, largely its brands.

Given the significant contribution that brands make to the value of so many companies, isn't it time for the marketing and financial communities to establish generally accepted brand-valuation standards? Shouldn't there be a more consistent way that businesses across the marketing ecosystem track the value of their brands and make strategic decisions about how best to build and protect them?

The Association of National Advertisers and leading branding consultancies such as CoreBrand and Interbrand support advanced brand-valuation techniques. As the marketing industry celebrates the ANA's 100th anniversary -- 100 years of building the world's most valuable brands -- we envision a future marketing environment in which brands are launched, built, tracked and valued with great precision. For some, the ultimate goal is to have brand values appear on the balance sheets of all businesses in accordance with clearly understood and accepted financial principles. Setting aside possible tax and legal implications, at a minimum the marketing industry should advocate for more clearly defined and sophisticated measures of a brand's contribution to the financial health of its business.

Here are 10 reasons brand valuation matters, and why the entire marketing community should embrace the goal of establishing more rigorous brand valuation standards in the coming years:

Underscores marketers' accountability.
With brand valuation, marketers can be measured on their stewardship and management of an intangible asset over the long term. This type of evaluation will help moderate the difficult tradeoff that often takes place between short-term sales growth and long-term brand equity development, enabling business leaders to see the bigger picture.

Legitimizes investment.
Brand valuation creates strong support for the principle that marketing is an investment vs. a "necessary expense." As the relationship between investments and returns becomes more transparent and manageable, companies will make better decisions about how and where to invest their marketing dollars to achieve the best possible outcomes.

Enhances integrated marketing.
Brand valuation will help marketers strategically determine which media and marketing disciplines contribute the most to short- and long-term brand value.

Reinforces management alignment.
Brand valuation provides empirical reinforcement for the fact that strong brands generate strong operating results, leading to higher shareholder equity. This financial support gives marketing an equal seat at the management table because the effort and return for branding can be clearly identified and aligned with other core business goals.

Helps determine compensation.
With brand-valuation standards in place, it becomes easier to assess the contributions of different brand- building resources -- internal brand managers and external agency partners -- to the overall growth of the brand. Tying compensation to brand valuation then becomes a meaningful way to motivate and reward great performance.

Builds corporate brands.
Understanding the contribution corporate brands and individual brands make to a company's total valuation is important in allocating resources and making investments in disciplines such as advertising, PR, investor relations, social media and customer relations.

Identifies growth opportunities.
Brand valuation helps companies spot revenue streams that may exist outside their core businesses. It also helps determine the upside potential as well as downside risk of brand extensions and strategic alliances. Importantly, understanding the value of one's business assets informs negotiations in mergers, acquisitions and partnerships, enabling management to make smart strategic decisions.

Keeps tabs on competition.
By understanding the value of your brands vs. your competitors', as well as the factors that drive brand value, you gain invaluable intelligence that can help your company navigate the marketplace.

Protects brand equity.
Sometimes production problems, quality issues, distribution difficulties and external forces can damage a brand's standing. Brand valuation helps businesses make wise decisions about what's required to protect or restore a brand's equity.

Enhances the marketing profession.
Brand valuation elevates the role of the CMO within the C-suite and enhances the status of the marketing function, including its supporting ecosystem of agencies and media. Well-defined, broadly accepted brand-valuation standards will enable the entire marketing profession to receive the recognition it so justly deserves.

ABOUT THE AUTHOR
This is the sixth in a series of 10 columns being published in celebration of the Association of National Advertisers' 100th Anniversary. This was co-written by Bob Liodice, president-CEO of the ANA, along with Jez Frampton, global chief executive of Interbrand and James Gregory, founder-CEO, CoreBrand.
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