Q: What is the value of a brand? How do we know it's valuable to a business? Alternatively, what does a world without brands look like? (While the source of the inquiry is unknown, we later learned that it was originally posed in a book called "Physics of Brand," co-authored by the managing principal of a local agency, Capsule.)
A: Brand consulting businesses have been built in the pursuit of determining brand value. Interbrand Consulting uses a formulaic approach by factoring the business earnings, the percent of earnings associated with the brand (highly subjective) and the strength of the brand to determine the discount factor of projected future earnings, which is then used to arrive at brand value. The upside to this approach is that progress can be tracked longitudinally and it can rally a company to do the right things to build their brand value. The downside is that it can only be done for public companies and it is still highly subjective.
Another approach is to evaluate a brand's value during an acquisition, when the physical assets are subtracted from the purchasing price to arrive at goodwill, or brand equity. The downside here is that the value of the brand/company is in the eyes of the beholder, and contextual factors may impact this perceived value.
Finally, the Brand Asset Valuator model by Young & Rubicam measures various facets of a brand and tracks the brand "life cycle." Interestingly, Jean-Noël Kapferer, author of "The New Strategic Brand Management" argues that if properly managed, brands should not have life cycles and instead should be kept alive with introductions of contemporary, innovative products. For example, should the Twinkies brand, not the product, ever die?
A world of no brands is almost ludicrous to think about. First of all, brands provide identification and organization. Imagine going to a grocery store and trying to fill your marketbasket with goods that had no names. Brands also offer consumers trust and provide emotional benefits, which are fundamental to maximizing the value of the business.
Stephen Vuolo is a marketing professor and Avinash Malshe is associate professor of marketing at the University of St. Thomas Opus College of Business.
