Financial World recently released its "brand value report," and in it Microsoft bests Kellogg's, and Newport (a cigarette brand) tops IBM. In fact, IBM is at the bottom of a 290-brand list, and Newport ranks No. 20! Philips, the Dutch electronics giant, came in way ahead of Apple Computer and Weight Watchers. Why? Philips slashed operating costs.
Since this exercise seems to be based solely on a numbers-cruncher's report, we have to wonder how the worth of what is essentially a marketing-generated asset can be determined without consideration of allocated marketing dollars--past, present and future?
FW's formula, our story says, is based on branded products' worldwide sales, profitability and growth potential minus costs such as plants, equipment and taxes. How about advertising media expenditures as part of the mix? How about consumer awareness scores? Wouldn't they be more telling than taxes?
In the U.K., Martin Sorrell moved to better the balance sheet of his WPP Group by attaching brand value to its primary assets, including J. Walter Thompson Co., Ogilvy & Mather and Hill & Knowlton (totaling, in WPP's 1993 annual report, about U.S. $517,825. Talk about conservative!).
Back when brand valuation was the rage in the U.K., various marketers worked with a company called Interbrand. Its imperfect procedure enabled Ranks Hovis McDougall to value 60 brands collectively at $1.2 billion. Grand Met put the Smirnoff brand alone at $1 billion.
We aren't privy to that formula, but here's what the WPP annual report says on that subject: "Intangible fixed assets comprise certain acquired separable corporate brand names. These are shown at a valuation of the incremental earnings expected to arise from the ownership of brands. The valuations have been based on the present value of notional royalty savings arising from [ownership] and on estimates of profits attributable to brand loyalty."
While that sounds like an accountant's feeble attempt to recognize the value of past and future marketing, at least it's a start. To ignore marketing input in brand valuation is to ignore reality.
Want proof? Answer this not-so-tough question: If you could have either the Newport or IBM brand, which would you choose?