What is the true value of a brand?

Google, Apple, Microsoft, US telecoms group AT&T and Facebook are the world’s most valuable brands in that order. Or are they? The latest BrandZ global rankings compiled by advertising agency WPP and Millward Brown say so but other brand reputation charts don’t agree. Amazon tops the latest RepTrak 100 list of America’s most reputable companies from the Reputation Institute, a Boston-based reputation management consultancy.

Apple, meanwhile, tops the latest Global 500 rankings of brand valuation consultancy Brand Finance and also the latest Best 100 Brands survey of consultancy Interbrand, which ranks it ahead of Google, Coca-Cola, Microsoft and IBM.

However, the iPhone-maker has not even made the RepTrak 100 for the past two years, having received poor marks for its workplace culture, governance and corporate citizenship. It’s a similar story in the UK, with Vodafone top of BrandZ’s British list, yet not deemed worthy of a place in the top 100 of Britain’s Most Admired Companies, a reputational value list drawn up by Management Today.

Unilever tops the magazine’s latest rankings, while Superbrands has put British Airways top of both the consumer and business versions of its 2016 British list.

The business of rankings and lists is a broad church. It only takes 100 people to mention a company to the Reputation Institute for the organisation to begin to rank it.

The BrandZ database, meanwhile, claims to be the world’s largest brand database, for which Millward Brown has interviewed more than three million consumers and business-to-business customers about 100,000 brands in more than 50 markets.

Each list compiler cites robust methodology behind its selection. BrandZ says its consumer-focused look at brand valuation gives it a clear edge.

The compilers meld its vast body of consumer research with publicly-available financial data and projections from analytical sources such as Bloomberg. Its 2016 list credits ‘continual innovation’ for pushing Google back to the top spot with a brand value up 32 per cent at $229 billion ‘We put what consumers think about the brand at the centre of the valuation,’ says global strategy director Peter Walshe.

‘Our valuation gives a clearer and more accurate view of the trends that drive consumers’ preferences. We think their opinion is hugely important in the financial valuation of brand.’

The Millward Brown method is the only one to put the customer at the heart of the valuation. ‘We believe that the perception of consumers is the key factor determining the success or failure of a brand.’

The Reputation Institute, meanwhile, assigns each company a score, the RepTrak Pulse, for its annual survey.

It then takes into account how the general public within a country feels about the company in seven categories: products and services, innovation, workplace, governance, citizenship, leadership and performance.

The 2016 UK study collected more than 50,000 ratings from more than 14,000 members of the public and focused on 450 major companies.

Ed Coke, the Institute’s director for the UK, says: ‘Our model is academically-grounded and has been regularly used by companies, the public sector and the global academic community since its inception in 1997. The longevity of the study, its comprehensive nature and the robustness of the model enable us to measure reputation at a ranking level of 100 respondents per company.’

Interbrand’s annual study is calculated via a fivestep economic value-added methodology that assigns a worth to each brand’s financial performance, the role that it plays in influencing consumer choice and its strength or ability to command a premium price or secure earnings for its owner.

Any survey, however well constructed, is limited to the number of people surveyed, which is invariably a relatively small number

In order to qualify, brands must be present on at least three continents, with broad coverage in developing markets, and obtain 30 per cent of their revenues from outside their domestic market. No more than half a brand’s revenues must come from a single continent.

Brand Finance, meanwhile, has a wordy and complicated model. Defining brand value as ‘denoting the value of a transferrable asset but not the total value that a brand brings to the company’, it holds that a brand should be viewed in the context of the business in which it operates. Therefore, it says it always conducts a valuation of the branded business, which it defines as ‘the value of a single business operating under the subject brand or trademark’ – something that’s equal to enterprise value in the case of a single branded business.

Brand Finance also factors in calculations of the ‘brand contribution’ – the value of the wider effect of the brand that cannot be transferred. Finally, the agency comes up with a specific asset valuation which calculates the value of the transferable element of the brand.

Its methodology of conducting its analysis is just as complex, with the firm calculating ‘royalty relief’, a process that involves expressing the strength of a brand as a score out of 100 (brand strength index).

This is multiplied by a ‘sector royalty rate range’, applied to forecast revenues to determine brand revenues and then discounted after taxation to provide a net present value that represents a brand’s value.

Brand valuation remains a subjective exercise, however, with valuations being taken at different times of the year and each analysing different parts of overall business performance. Brand Finance therefore also surveys customers about their perceptions of brands as part of its research.

‘In our view it is essential that consumers are polled,’ says marketing and communications officer Robert Haigh. Some firms take a different view, however. ‘Any survey, however well constructed, is limited to the number of people surveyed, which is invariably a relatively small number,’ says Edwina Dunn, chief executive of social media predictive insight firm Starcount.

‘Market research surveys also require people to consciously respond to given questions. Nowadays, people are far too savvy about this process, and are all too inclined to provide answers that construct a certain identity. They want to be seen as more affluent, sophisticated or cultured than they really are.’

Dunn, who is still best-known for the phenomenal success of Tesco’s Clubcard at her previous data-crunching company DunnHumby, also feels that consumers are experiencing surveyfatigue and becoming cleverer at foxing pollsters.‘Survey respondents are aware of the answers you want to hear,’ she says. ‘For instance, they come up with obvious brand associations that position your brand unambiguously in a certain consumer group.‘But it’s only when you see your brand being consumed alongside those that you never would have associated with your audience that you really start to understand your consumers.’

Stephen Cheliotis, chief executive of The Centre for Brand Analysis (TCBA), which compiles the annual Superbrands list, has other concerns.‘There are tables that just focus on the financial values of brands by doing discounted cashflow analysis to determine net present value,’ he says. ‘They are quite interesting for chief executives and finance directors but I’m not sure how useful they are from a marketing perspective. They don’t tell you how brand value develops or how you can accelerate it.’

Cheliotis says Superbrands combines the use of consumer panels with research among independent experts and online panels. ‘Superbrands is about showing existing perceptions across different audiences,’ he adds. Others have their doubts, however. ‘Informed individuals are important and their views are more significant than the average consumer,’ says Haigh.

‘However, they are nonetheless subject to individual biases and those used by some firms arguably have insufficient credentials to be described as ‘informed’ or ‘expert’.’ If consumers and experts cannot be trusted to accurately rank the reputations of the companies they buy products and services from, are business rivals likely to come up with more reliable rankings?

Management Today thinks so. It is working with Leeds Business School to ask Britain’s largest public companies in 25 sectors to evaluate their peers.

Each sector comprises a maximum of ten companies, with participants rating their sector rivals using nine criteria on a scale of zero to ten. Analysts at leading City investment firms are also polled. On the basis of these scores, ratings are issued, with companies ranked in total order of those measured, by each criterion and by sector.

In sectors where there are insufficient qualifying listed UK companies, selected privately owned firms, international businesses with significant presence in the UK, and publicly or employee-owned organisations are included. Respondents are also asked to name their most admired leader.

Dunn, however, says Starcount prefers a consumer data-driven approach, similar to that behind the Tesco Clubcard.

‘The greater advantage is that you can measure millions of people across the globe instantaneously,’ she says.

‘Though market research is supposedly representational, nothing can compete with a data-set that extensive, which at once supplies far more granular, robust and revealing insight. The sheer accuracy from the numbers outweighs any sophisticated modelling that exists.

‘Being able to monitor brand consumption without conspicuous questioning, as Starcount does with social media data, we’re able to see through the eyes of the consumer. It’s only when you’re able to see from the consumer’s point of view in this way that you can develop a realistic understanding of brand reputation and audience base.’

Does any of this really matter? It’s tempting to think that reputational league tables and rankings are consumed most readily and enthusiastically by the companies themselves, with few other outputs.

The surveyors, of course, disagree, arguing that consumers are much more likely to buy from companies with good reputational rankings.

It’s only when you’re able to see from the consumer’s point of view in this way that you can develop a realistic understanding of brand reputation and audience base

The Reputation Institute goes as far as to claim that a five percentage points gain in its RepTrak Pulse score in the US leads to a six per cent increase in the probability that a consumer will recommend a company. Firms with a score of 80 or above found respondents to the institute’s latest survey saying they were 84 per cent more likely to recommend their wares, with this figure dropping to 49 per cent for companies scoring between 70 and 79 per cent.

Dunn also concedes that market research is still better than raw sales data when it comes to understanding why consumers behave as they do.

There’s another reason too, with Walshe at BrandZ arguing that brand reputation surveys can also be useful in convincing companies themselves of the value that their brands hold, influencing investment decisions about the allocation of capital.

‘Brand valuations play a very important role in demonstrating both the value of that brand to the parent business but also their potential for growth,’ he says. It’s a lot of effort to go to if one of the main audiences is going to be internal. Yet, in a world where the obsession with measurement is likely to grow more than less intense, the ranks of the current confusing array of reputational rankings looks set to be swelled further.

With the globalisation of brands still having further to run, the most enthusiastic of reputational rankers may even espouse a kind of marketing existentialism.

Maybe one day the unranked or lowly ranked, without remedial action, will diminish to the point where they are irrelevant and unnoticed. That day seems some way off, though. Try telling the hordes in your local Apple store that the company is not in the RepTrak 100. This debate has a lot further to run.

This article first appeared in issue 108