Which Best Brand List Is Right?
BrandZ just published its annual brand valuation report weeks after Forbes released its best brand list. The dramatic differences between the lists caused some head scratching among businesspeople. When Interbrand‘s report comes out later this year and inevitably reports more different numbers, confusion is likely to grow. Unfortunately if you want to know which best brand list is right, the answer is: it depends.
These lists intend to tell brand managers and business leaders how much their brands are worth by putting a dollar figure on the brand’s value. This information is supposed to inform financial decisions such as investments, M&A, and licensing/royalty rates as well as brand management decisions such as brand spending, brand portfolio management, and sponsorship and partnership deals. Brand valuation is considered a more quantitative, and therefore more accurate and reliable, measure of brand equity than market research studies provide.
The problem is that brand valuation methods still incorporate a great deal of subjectivity — and that is, in part, why there are such significant differences between lists. As the above table shows, some of the brands that make it into the top 10 of one list are near the bottom or don’t even register on others.
And consider the valuations that the lists provide for three of the top brands, in which Google’s brand value differs by $140 million+ between BrandZ’s and Forbes’s calculations:
Differences between lists are a result of various factors including:
Criteria for inclusion in the list. Each of the three lists uses different criteria for the brands it analyzes. BrandZ includes more than 100,000 different brands in over 50 markets, while Forbes takes a more modest approach by examining 200+ global brands that have a presence in the U.S. (thereby excluding some big brands like multinational telecom firm Vodafone.)
And Interbrand qualifies its brands for being truly global, having successfully transcended geographic and cultural boundaries, which includes criteria such as at least 30% of revenue must come from outside of the brand’s home region and the brand must have a public profile and awareness across the major economies of the world. As you can imagine, starting at such varied points shapes the outcomes.
Calculation of earnings. Each of the companies starts its calculation with an estimate of a company’s earnings. But their numbers vary depending on where they source those numbers and what discounts or multiples they apply. Interbrand uses a measure of a company’s “economic profit,” the after-tax operating profit of the brand, minus “a charge for the capital used to generate the brand’s revenue and margins.”
Forbes says it determines revenue and earnings before interest and taxes for each brand “from company reports, Wall Street research and industry experts.” Then it applies the maximum corporate tax rate in the parent company’s home country to that net earnings figure based on tax tables from KPMG.
BrandZ says it uses financial information from annual reports and other sources, such as Kantar Retail and Kantar World panel to yield an “Attribution Rate.” They then multiply corporate earnings by the attribution rate to arrive at “branded earnings,” the amount of corporate earnings attributed to a particular brand.
Estimate of brand contribution. All three companies factor into their analysis a measure of how much the brand actually contributes to the business. The thinking, they say, is that brands are more valuable in some categories in general and for some brands specifically. Forbes doesn’t explain exactly how it adjusts its calculatation, saying only that it allocates a percentage of net earnings based on the role brands play in each industry.
Interbrand says it uses “primary research, a review of historical roles of brands for companies in that industry, or expert panel assessment” to come up with its Role of Brand Index (RBI). This measures the portion of the purchase decision attributable to the brand as opposed to other factors (for example, purchase drivers such as price, convenience, or product features). Then it factors in an additional subjective measure, “Brand Strength” based on an evaluation across 10 factors that it believes constitute “a growing brand,” thus accounting for “the ability of the brand to create loyalty and, therefore, sustainable demand and profit into the future.”
BrandZ says it develops its Brand Contribution factor by focusing on the three aspects of brands that they have found to make people buy more and pay more for brands: “Being Meaningful (a combination of emotional and rational affinity), being Different (or at least seeming that way to consumers), and being Salient (coming to mind quickly and easily when people are making category purchases).” It identifies the purchase volume and any extra price premium delivered by these brand associations, using findings from “worldwide ongoing, in-depth, and consistent quantitative consumer research.”
Other variables between the lists exist, so this just gives you a glimpse into why their results are so different. Brand valuation, no matter what the analysts say, is still as much an art as it is a science.
And don’t overlook other “best brand” lists that don’t attempt measure financial brand value but provide an important analysis of brand worth. There’s the Prophet Brand Relevance Index which measures brands on four dimensions: customer obsession, pragmatism, inspiration, innovation, based on customer research. It reports that the most relevant brands on its index have outperformed the S&P 500 average for profitable growth by 12% over the last decade.
Another list developed from customer research is Siegel+Gale Global Brand Simplicity Index. It measures simplicity because “Simplicity is the ultimate driver of brand loyalty. It inspires people to spend more, motivates employees to deliver on the brand promise—and ultimately drives financial gain for companies that embrace it.” Siegel+Gale reports that since 2009, a stock portfolio comprised of the publicly traded simplest brands in its global top 10 has outperformed major indexes including S&P and Dow Jones.
So all of this to suggest that it’s less important which best brand list is right — and more important to pick the one with the scope and methodology that seems the most appropriate for your business. And then, instead of fixating on actual dollar figures, track changes in those figures over time and focus more on the comparisons between brands.