Brand Valuation and the Stock Market

A couple of days ago I was making some observations about the way brand valuations seem to be disconnected from the values of companies.

In response we received a comment from a member of Interbrand saying,

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. 

However Interbrand does make an argument that there is a connection between the valuation of a brand and the stock price based on their own study with JP Morgan.

Several studies have tried to estimate the contribution that brands make to shareholder value. A study by Interbrand in association with JP Morgan (see Table 2.1) concluded that on average brands account for more than one-third of shareholder value. The study reveals that brands create significant value either as consumer or corporate brands or as a combination of both.

Table 2.1 shows how big the economic contribution made by brands to companies can be. The McDonald’s brand accounts for more than 70 percent of shareholder value. The Coca-Cola brand alone accounts for 51 percent of the stock market value of the Coca-Cola Company. This is despite the fact that the company owns a large portfolio of other drinks brands such as Sprite and Fanta.

 

 

 

 

This is an interesting connundrum.  

If there is no connection between stock prices and brand valuation, then the Interbrand/JP Morgan study is wrong.  But if there is a connection, then there is a tremendous disconnect between the valuations put on brands by Interbrand and others and the market valuations of the companies.  

I do not mean to single out Interbrand.  Brand Finance and others have similar measures. It is just that Interbrand is the most public in their efforts with BusinessWeek.

It is well established by this time that brands have value (sometimes a negative value!).  No disagreement there.  So how does a company place a value on that?  It has been and will continue to be debated for quite some time.  The brand valuation method of Interbrand is among the best in the market.  Even so — there is a commonsense logic that the brand valuations published in BusinessWeek are highly inflated.  

The relative values of one brand to another probably hold true.  But the actual numbers?  Unlikely. Is the Cit brand really worth $20 billion?

Can a brand be valued by the stock price?

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.

BRITE Day One

The first day of the BRITE conference up at Columbia University was a series of 25 minute presentations on 4 groups of themes.  The speakers were from a wide range of companies, large and small, including: SAP, Linked In, Clickable, Wired, Boxee, Bravo, Edelman and Citibank.

Some ideas that were raised at the conference that I found to be notable:

First of all, not once during the day did anyone use the phrase “brand positioning.”  That was refreshing.

Max Kalehoff of Clickable observed that in the current economic crisis, “Brands are more important than ever before.”  He went on to discuss the conundrum of how companies are now cutting back on their spending behind branding.   He also brought forth a fact I had not know before, which is that search accounts for about 1/2 of online advertising.  And the % is rising. 

Kalehoff also made a point of saying that companies are moving away from “brand advertising” and towards “goal-based advertising.”  After listening to his clarification during the Q&A session, I came to the conclusion that he raises a false dichotomy.  The best advertising is both “brand” and “goal-based” at the same time.  It is not a trade-off.  Perhaps he was simply making the observation that some advertisers — or agencies — are making a distinction between one and the other instead of doing both together.

Professor Sanjay Sood of UCLA made the very cogent observation that there are many pieces of branding tools such as Brand Mantra, Brand DNA, Brand Soul and so forth that just don’t all fit together.  

He was looking at branding from the movie business perspective — how do the studios build excitement and interest in the movies in the time leading up to the release date.  It was a perspective on branding that I had not heard before.  And the examples that he provided are a refreshing break from the usual Google, Apple, Nike case studies that we have all heard so often and seen used to support many, many different viewpoints.  He said that “the Power of Storytelling” is the one think that companies can own and manage.  From his own research this is particularly important for word of mouth.

He also discussed the importance of crafting the brand mythology, the creation story or backstory of the brand.  It doesn’t have to be found in the product itself but can be found online or in some portions of the communications.  

Lisa Hsia of Bravo spent a lot of time discussing the struggles that “old” media companies are having integrating with new media.  She provided some examples of how Bravo is doing this successfully where viewers are both online and watching a program at the same time, then continuing their discussion about the show and characters later.  

Jeff Howe of Wired gave his presentation on Crowdsourcing, a term which he coined for an article in Wired and which is now a new book.  He began his talk with a brief and very entertaining video that you can see by clicking on the link or going to YouTube.  

Mark Yolton of SAP began his presentation by discussing the ways SAP has begun to provide ways for their community of users to connect with the people inside of the company.  It was forcing a cultural change within SAP, according to Yolton.  In a follow-up conversation I had with him, he discussed some of the challenges internally of such an opening up of the company to the outside community.  Traditionally marketing and sales were the main points of contact with customers.  Now many parts of the organization have direct connections to customers, requiring a whole new set of internal behaviors and coordination.  It raised a number of questions such as who “owns” the brand in such a world?  And how do companies overcome the organizational silos?

Umair Haque gave a presentation which, frankly, I could not comprehend.  He was talking about something called “thin value” and “fat value.”  In my own semi-informed opinion — as someone who spent years studying economics — Haque’s economic understanding of the current world crisis was a bit shaky.  He calls it the “great compression.”  Clever term but not particularly illuminating. 

But he did have a very cool presentation tool that you can get from prezi.com.  I warn you, it is not for those of us who suffer from motion sickness!

For someone who posits himself as driving radical innovation, and critiquing 20th Century capitalism, he has a peculiar gap  the core ideas of that biggest radical of all, Karl Marx.  When asked by a member of the audience how his ideas are different from “dialectical materialism” Haque confessed to being unfamiliar with the phrase or ideas behind it.  You can judge for yourself if Haque is brilliant or simply bullshit by going to his blog. Perhaps he is both simultaneously?

These were my highlights of Day One, along with meeting some very wonderful people attending the conference and seeing some old acquaintances. Tomorrow I’ll debrief on Day Two.  

For those of you who want to attend next year but are on a budget, a friend gave me the tip that volunteering for a couple of hours at the conference will get you free admission.

Should Citi be advertising with Federal bailout money?

It’s an outrage!

With people suddenly saving more money than any time in the past 6 years, why don’t the big banks can cut their advertising and promotional spending?

Why don’t they shift their dollars into more effective forms of advertising?  Or adopt a more effective set of marketing tools to replace the old brand positioning approaches?

Citi has now taken over $350 billion in a combination of direct capital infusions from the Federal TARP funds and Federal guarantees.  That a lot of billions.  

Why is Citi spending nearly $400 million dollars for naming rights to the new Mets stadium, according to our friends at the NY Times?

For that matter, the same goes for Bank of America, Wells Fargo and everyone else who has received Federal funds both on Wall Street and elsewhere.

Now Citi says that none of the TARP money is going into advertising and sponsorships.  That they have a wall separating out these funds.  And that might be true, technically.  But certainly TARP funds into one side of the bank frees up funds in other areas.  

In these dramatic times, Citi can stand apart by taking bold approaches to their marketing.

There is a good case to be made that Citi could cut all of their television advertising by 2/3rds, introduce more effective marketing approaches such as Narrative Branding, and see an improvement in their ROI on marketing.

That would also buy them invaluable good will with Congress and the White House — their most important audience today.