The process of brand valuation is more an art than a science, or at least that is the conclusion of research done by 24/7 Wall St. The most well-regarded “brand evaluators” rarely come up with similar figures–except for among the very largest brands. Some of their opinions diverge dramatically.
24/7 Wall St. looked at the brand valuations and methodologies of BrandZ, Interbrand, and Brandirectory. The first two list 100 brands each in their public studies. Brandirectory lists 500. Each would defend its valuations which use different “black box” systems for calculating value. That is probably because all three charge hefty fees for their services.
The explanations for their methodologies are even more convoluted.
Here is what BrandZ says: “The brand value published is based on the intrinsic value of the brand – derived from its ability to generate demand. The dollar value of each brand in the ranking is the sum of all future earnings that brand is forecast to generate, discounted to a present-day value. Given the high volatility of financial markets over the past 12 months, the brand value is in some cases high relative to current market capitalization, reflecting true value rather than current market swings.” Where is the heart of that exercise? It is impossible to say.
Interbrands has three criteria: “1) Financial performance measures an organization’s raw financial return to the investors, 2) Role of brand measures the portion of the decision to purchase that is attributable to brand – this is exclusive of other aspects of the offer like price or feature, and 3) Brand strength measures the ability of the brand to secure the delivery of expected future earnings.” Without the exact data that Interband uses and details of how it is arranged to derive a value, it is impossible say how its process works.
Brandirectory describes its methodology this way: “The methodology employed in the BrandFinance Global 500 uses a discounted cash flow (DCF) technique to discount estimated future royalties, at an appropriate discount rate, to arrive at a net present value (NPV) of the trademark and associated intellectual property: the brand value.”
All three brand valuation companies admit that sales play a critical role in brand valuation. All three claim that their forecasts of future contributions of the brands to earnings are part of their proprietary analysis. All link brand value to the overall value of a brand’s parent company.
Again, the most telling part of the comparison among the three firms is that they differ very little on the 20 most valuable brands. Oddly enough, the best way to highlight the flaw in the three valuations methods is to look at Marlboro. Its value is ranked seventh best by BrandZ at $57 billion, 18th on the Interbrand list with a value of $20 billion and 499th on the Brandirectory list with a valuation of $2.3 billion. Marlboro is the primary brand of both Philip Morris and Altria. Altria has annual sales of $24 billion. Philip Morris sales are $67 billion a year. Even in the most cerebral and bizarre world, Marlboro could not be worth as little as $2.3 billion.
24/7 Wall St., to make its point about whether brand values can be fairly measured, looked at ten brands which are ranked high on one of the three brand value lists and much lower on others. We considered the brand value from the lists, the extent to which each brand is internationally known based on overseas sales, total annual revenue, and in many cases the age and durability of the brand.
Each of the brands on the 24/7 Wall St. list is not only a well-known name in the US but also in most places around the world. A review of the BrandZ, Interbrand, and Brandirectory lists leads to the conclusion that most brands are not valued properly. The ten we have chosen are particularly notable because the so-called experts have widely differing views on how much they are worth.
1. Xerox
Interbrand Brand Value: $6.109 billion
Total Sales: $15.2 Billion
% sales international: 46%
Market Cap: $14.2 Billion
The name “Xerox” has become synonymous with photocopiers, as well as the act of photocopying. The company, which has been around for more than a century, invented the first electro-photography plain paper photocopier. Xerox is in the top 200 of the Fortune 500, and remains a well-known brand around the world. The company’s revenue was more than $15 billion in 2010, with just over $7 billion coming in from outside of the United States.
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2. Yahoo!
Interbrand Brand Value: $4.958 billion
Total Sales: $6.3 Billion
% sales international: 33%
Market Cap: $21.4 billion
Yahoo! was one of the first major web portals. Founded in 1995, the company survived the burst of the dot-com bubble and remains valuable today. Yahoo! is the second largest search engine in the US behind Google. Yahoo!, as of 2010, had the largest market share of online display advertising in the world, according to JP Morgan. Of the $6.324 billion the company made in 2010, just over $2 billion was made internationally.
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3. MTV
Interbrand Brand Value: $6.719 billion
Parent Company Viacom’s Total Sales: $13.4 billion
% sales international: N/A
Parent Company Viacom’s Market Cap: $27.2 billion
MTV has grown into an international media giant since its beginning in 1981. According to owner Viacom, the channel reached approximately 99 million television households within the United States in September 2010. On an international level, MTV Networks’ operations reached approximately 635 million households in more than 160 countries in September 2010. MTV has also expanded into film with its MTV Films division, which has produced such popular films as Zoolander and Jackass.
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4. Heinz
Interbrand Brand Value: $7.534 billion
Total Sales: $10.5 Billion
% sales international: 62%
Market Cap: $15.6 billion
Heinz’s 57 is easily the most recognized brand of ketchup the United States, and is featured on most restaurant and diner tables in the U.S. While it is the most recognizable in the U.S., more than half of the company’s $10.5 billion in annual sales comes from abroad. Besides ketchup, Heinz sells a variety of condiments, including mustard, relish, and horseradish. The last of these was actually the first product Heinz produced.
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5. Kellogg
Interbrand Brand Value: $11.041 billion
Total Sales: $12.4 Billion
% sales international: 37%
Market Cap: $19.7 billion
Battle Creek, Michigan-based Kellogg was founded in 1906, and is responsible for some of the most popular breakfast cereals in the world, including Corn Pops, Corn Flakes, Crispix, Frosted Flakes, Raisin Bran and Rice Krispies. Kellogg competes with General Mills as one of the two largest breakfast food makers in the world, producing other extremely successful products such as Eggo waffles and Pop Tarts.
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6. Phillips
Interbrand Brand Value: $8.696 billion
Total Sales: $25 billion
% sales international: ~98%
Market Cap: $31.3 billion
Dutch-based Philips Electronics is one of the largest electronics companies in the world, competing against Sony and Panasonic. The company employs about 120,000 people around the world and sells merchandise in more than 60 countries. The company invented or helped invent nearly every modern form of media storage. Along with Sony, the company has been the go-to brand for the compact cassette, the CD, the DVD, and the Blu-Ray disc. The company also sells electronics, including a popular line of televisions and sound equipment.
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7. KFC
Interbrand Brand Value: $5.844 billion
Parent Company Yum! Brands Total Sales: $11.343 billion
% sales international: N/A
Parent Company Yum! Brands Market Cap: $23.76 billion
Originally founded in 1930, KFC is now one of the largest brands owned by Yum! Brands, along with Pizza Hut. According to Yum!, as of the end of 2010 there were 5,055 KFCs in the United States and 11,798 in other countries. A surprising 3,244 of these restaurants are in China. KFC has restaurants in 110 countries and territories worldwide. In 2010, Yum! Brands had a total revenue of $11.34 billion.
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8. Danone
Interbrand Brand Value: $6.363 billion
Total Sales: $24.2 Billion
% sales international: 75% or more
Market Cap: $28.6 Billion
Group Danone, the French food-products company which markets its products in the United States under the brand name Dannon, had sales of just over $24 billion in 2010. According to the company, Danone is “the world’s leading producer in volume of Fresh Dairy Products.” The company is best known for its yogurts and bottled water. It moved into baby food after purchasing Numico in 2007.
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9. Caterpillar
Interbrand Brand Value: $4.704 billion
Total Sales: $42.5 Billion
% sales international: 70%
Market Cap: $68.2 Billion
Caterpillar is the largest manufacturer of construction equipment in the world, with annual sales of more than $42 billion, more than 100,000 employees and 178 dealers. Caterpillar’s “Cat” brand is well- known among the public and construction firms alike.
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10. Adidas
Interbrand Brand Value: $5.495 billion
Total Sales: $17.03 Billion
% sales international: N/A
Market Cap: $18.45 Billion
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©2011 24/7 Wall St.
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