Back in the dark ages of 1987 I was working at an ad agency where my clients were The Prudential and its stockbrokerage, Prudential Bache. Our offices were on the 20th floor of 1515 Broadway, overlooking Times Square itself. It was a glorious view from there, particularly at night. The military recruiting station was still there. The seedy parts of the neighborhood were still in ascendance. While we didn’t have the internet we had something even better — the news ticker on the side of the One Times Square.
One day my boss called me over the windows looking out on the square. On the news ticker was the announcement of the stock market crashing, dropping hundreds of points. By the end of trading the market was down about 508 points — over 22%. It was stunning.
When we could pull ourselves away from the windows, we turned to the business of setting up a market research study for our clients to assess the impact of this drop on willingness for people to buy stocks, mutual funds and universal life insurance. Back then, a relatively small percentage of people actually owned stocks or even mutual funds.
The agency quickly rushed out new Prudential Bache advertising to reassure investors with the tagline, “Rock solid. Market wise.”
No one was particularly thinking that the stock market collapse would have any bearing on the strength, equity and value of brands in general. What did the stock market have to do with brand valuation?
Flash forward to 2008 when the stock market tanks. By this time there are well established measures and indexes of brand value tied directly to stock values. For more than a decade brand consulting companies such as Interbrand have been selling brand valuation studies showing how many billions of dollars this or that brand is worth. This listing is published every year in a the top global brands in Business Week.
In this past 2008 ranking Citi was valued at $20 billion. The stock market valuation of Citi today is about $14 billion.
Does that mean if you took the Citi brand away that the rest of the company is worth negative $6 billion?
Or that the Citi brand itself is now worth a negative $6 billion? In other words, the bank would be better off without the Citi name attached to it. Certainly in Wednesday’s testimony the head of AIG indicated that they would be better off without their brand. At Citi the recent advertising campaign of “Live Richly” have contributed to making the company a target. And the same is true for Bank of America’s “Bank of Opportunity” campaign.
The standard approach to marketing, the Brand Positioning approach, would say that you cannot change the minds of people about these brands. You need to change the brands since you cannot change minds.
So we now see two standard marketing tools failing companies today. Brand valuation is setting up the wrong benchmark. And Brand Positioning is directing companies to dump their brands instead of changing their marketing approach.
Rather than changing the brands, it would be more effective for the banks to change their approach to marketing. If they reinvent marketing so that it is better integrate and aligned with the rest of the organization, then they would begin to see a change in how people perceive them. It would not solve the underlying financial problems. But it would go a long way to creating public sympathy instead of the current anger.
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Hi Randall, I work with Interbrand. Firstly, let’s be clear that there is no link to stock market prices and brand valuation. As you know, stock markets set a price on a company based on investors’ perceptions of whether share price will go up or down. Effectively it’s a measure of confidence in the business, within its market, within the overall economy. For obvious reasons the stock market valuations of many organisations are pretty low right now; whether they’re low enough to represent a good buy is a personal decision but perfectly illustrates how market capitalisation works.
On the other hand brand valuation forecasts the brand’s value as an economic asset. We do this by marrying a financial analysis to a market driven analysis, that measures how the brand influences demand and the brand’s ability to secure and sustain future earnings. There’s loads of stuff on this on our website, http://www.interbrand.com , but you can see that in this context brand valuation is perhaps a better measure of how effective a team is in managing the brand to create value, whereas the stock market is basically showing the market’s appetite, or lack of appetite, for investment.
Overall its therefore quite possible to have discrepancies between how the stock market values an organisation and the value the brand represents to the organisation in securing future earnings.