I took part of the summer off -- but now it's back to work, and back to blogging. One item in my mailbox that deserves note is the August 6 issue of Business Week, with its annual ranking of Top Brands. BW usually presents this article with a big splash on its cover -- but this year the story is found midway in the issue, beginning on p.56, while the cover is given over to a story about "The Pet Economy" and features a rather imposing bulldog. Maybe BW is losing a bit of confidence in the way it evaluates brands? That would be a step in the right direction, as its approach appears to be flawed.
Once again, BW has worked with a company called Interbrand to identify and rank the Best Global Brands. The top five include Coca-Cola, Microsoft, IBM, GE, and Nokia, and are followed by Toyota, Intel, McDonald's, Disney, and Mercedes. These are well-known companies with strong images, which is what brand is all about, no? Who could argue with a list like this?
But let's take a closer look. First of all, Interbrand notes that in 2007, it has changed its methodology, dropping airlines from consideration because "it's too hard to separate their brands' impact on sales from factors such as routes and schedules." An interesting argument, and perhaps sensible, since an objective and detached assessment of brand ought to be independent of features such as routes and the like. But then why stop at airlines? By the same logic, we should also drop Microsoft, whose software products can hardly be valued in isolation from their dominant position as loaded onto most PCs when purchased. To arrive at a fair ranking of Microsoft's brand, we should have people rate is products in a blind test, and see how much their preference changes when they know who the software maker is. In fact, by this logic, we ought to drop all products except those that can be traced to perceptions inferred from the brand itself and nothing more. That, after all, is what brand is all about.
How does Interbrand calculate brand value? It explains that it "strips out operating costs, taxes, charges for the capital employed, to arrive at the earnings attributed to intangible assets. The brand's role is then estimated within those earnings vs. other intangible assets such as patents and management strength."
And therein lies the rub. The first sentence quoted above is fine -- that is a fine way arrive at intangible assets. But the article is not about intangible assets, but about brands. So how do we get from intangible asset value to brand value? The second sentence doesn't tell us. We need more elaboration -- just how is the role of the brand calculated relative to other intangible assets? My guess is that such intangible assets are calculated conservatively, leaving all that remains as a plug called brand. That explains why BW arrives at the whopping sums listed in its article -- $65 billion for Coca-Cola, $58 billion for Microsoft, and so forth. Impressive figures, yes, but mainly an attribution based on success, and hardly a driver of success. Companies achieve results like these from strategic choices and strong execution, leading an attribution of brand strength.
Taking a more careful approach would, however, make for a much less eye-catching story, and probably less interest in the specialty of Interbrand -- namely brand building. So let's not expect a story like that any time soon. But in the interest of clear thinking, brand value should not be calculated as a plug, but as the value that is directly attributable to consumer choice when all else is held constant. Such a calculation may indeed be difficult to achieve for airlines -- but the same logic, and the same difficulties, bedevil other industries. Shame that Business Week and Interbrand don't want to address that fact.
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