CoreBrand featured on UTalkMarketing.com
18 May 2010
In UTalk Marketing, James Gregory, CEO, CoreBrand talks about the importance of valuing the corporate brand, and its place on a company's balance sheet. He details the basic steps to take in valuing a corporate brand over time.
Why it's time to put "brand" on the balance sheet
Original article at www.utalkmarketing.com
Putting the corporate brand on the balance sheet is an audacious proposition that can revolutionize marketing, change the role of brand management, and make the US economy more competitive.
The gap between marketing and finance has never been greater. And, the chasm will never shrink unless the intangible brand is added to the balance sheet. The problem is financial standards don’t account for increased value when intangible assets are key drivers. Corporate financial statements are insufficient for assessing the performance of the brand value.
In 2007, I spearheaded a blue ribbon committee that approached the Financial Accounting Standards Board (FASB) with a petition to change the way they account for brand value. One result was FAS 157, which values the corporate brand only when a company is bought or sold. Unfortunately, it does not value the brand over time, or consider how brand equity is created. While a step in the right direction, it didn’t give us the tools we need.
Today, we have an opportunity to create a win/win situation for marketing and finance. Every professional communicator understands the value of branding. We experience its value creation daily.
Unfortunately, we have no way to account for this value and when marketing budgets are not accountable they tend to be under-funded.
The opportunity arises because accounting standards are changing. FASB and IASB (International Accounting Standards Board), in Europe, have been coordinating efforts to develop one global accounting standard. IASB has an open-minded view of brand value, which is an encouraging development.
The metrics for measuring brand value have advanced by light-years. Interbrand, Millward-Brown, CoreBrand, and others have been refining brand value metrics for two decades.
But as competitors we all lock our analytics inside black boxes. I suggest a change to the status quo. Let’s find the best value measurement practices in the industry and cooperatively identify how value is created, then devise the best possible way to value brands.
We know that everything a company says and does impacts its corporate brand, which impacts financial performance in two ways: revenues and stock performance. Product branding relates to the revenue side of the equation. Brand power, measured as “familiarity” and “favorability” toward the brand impacts sales, earnings, cash flow, and ultimately, stock performance.
There’s also a direct relationship between corporate brand building and stock performance. This impact is the “reputation” portion of the intangible asset, or goodwill, a very stable number that should be on the balance sheet.
Drilling deeper one can analyze both sides of these value equations using two models. On the product side, review market share and business share analysis, then project market share at different spending levels. Then, through discounted cash-flow analysis, evaluate Return on Investment (ROI).
On the corporate branding side, consistent, quantitative research over time is key. Model against industry peers and the stock market, then project ROI based on improving the position and market capitalization. Finally, evaluate ROI performance based on improving brand equity.
The benefits of valuing your brand are significant; this intangible asset represents the reputational portion of goodwill and averages 5–7% of market cap of companies in the CoreBrand 800 Corporate Branding Index. The corporate brand can be accurately measured and valued over time by managing it like other business assets.
A recent Wall Street Journal (April 10, 2010) article, “Reality Stars go on to Stock Success” discussed CEOs appearing on Undercover Boss and the fact that their stock price increased after each episode. As my daughter says, “Duh.”