Measuring a brand's worth


  • Business
  • Saturday, 29 Mar 2003

BY M. HAFIDZ MAHPAR 

 

 

DEUTSCHE Telekom, in opposing the Telekom Cellular-Celcom merger, said, “the proposed valuation (of Celcom) does not reflect the true value and enormous potential of the restructured and listed Celcom.” So, how much is brand Celcom worth? 

Savvy marketers know that a brand’s intrinsic value can be worth more than the company’s net tangible assets, but measuring a brand’s worth is a complex task. Traditionally, the task has been given to accounting firms and design-based companies, but in recent years, firms specialising on brand valuation have sprung up. 

One of them is London-headquartered Brand Finance plc, which will open its Kuala Lumpur office next month. 

Brand Finance chief executive David Haigh says accountancy firms don’t really know much about marketing and tend to be very technical, while design-based companies tend to be creative-led, which may give rise to conflict of interest as their primary business is not valuation. 

“We’re kind of in the middle,” Haigh tells BizWeek in Kuala Lumpur. He adds that the company’s consultants are professional marketers, often with an MBA, and they have good accounting and valuation skills. 

Haigh himself was a chartered accountant at Price Waterhouse and the finance director of ad agency WCRSMM Euro RSCG before he joined Interbrand as global brand valuation director. In 1996, he left to launch Brand Finance plc, which has since expanded to Singapore, New York, Sao Paulo, Barcelona and Stockholm. Its clients included Ericsson, Vodafone, Shell, Heineken and British American Tobacco

The KL practice will complement the activities of sister company Temporal Brand Consulting Sdn Bhd, a brand strategy consultancy whose managing director Paul Temporal also sits on Brand Finance’s board. 

Brand valuation is a relatively new industry compared with other types of consultancy, and Haigh says his main challenge is educating potential buyers. “We’re developing the market, and the more we develop the market, the more people would understand and the more business there would be,” he says. 

Temporal, who is overseeing the development of Brand Finance in Asia, says companies in Malaysia don’t normally track brand value. However, they are efficient in tracking brand awareness and recall things associated with advertising and promotion. 

According to Haigh, it is a myth that building brands is all about advertising. “Absolutely not. A lot of the real icon brands are built absolutely without advertising. Laura Ashley was, Virgin was. The advertising came later,” he says. 

There are many reasons for valuing brands. Among others, chief executives can use it to decide which of their many brands to focus marketing activities on. Some may even decide to take their high-potential brands to a tax haven. 

Haigh notes that his company has done “two or three” valuations for English companies that have grown in Britain where tax rates are quite high. “They want to take the brands to, say, Switzerland before they go global, because when they go global, they don’t want all the revenue coming back from other parts of the world and being taxed at Britain's rates,” he says. 

Brand value changes when measured for different purposes, such as whether it is for a current use (say for example Kit Kat as a chocolate bar) or for a potential use (the brand used on ice-cream). But even when measuring for the same purpose, different consultants will arrive at different estimates. 

“There is no absolute valuation for a brand as it depends (on) what assumptions the consultant makes,” says Haigh.  

“That is why when you (the consultant) deliver a brand valuation report, you have to state what are your assumptions; and the client, if they wish, is at liberty to question your assumptions and you usually have a debate with the client. And we might change our opinion based on that debate.” 

Doesn’t that compromise the consultancy’s professional integrity? “What I’m trying to do as an independent consultant,” replies Haigh “is to put the most reasonable value on whatever the assets are that I’m valuing. In doing that, you have to talk to the management. You have to understand their assumptions and you have to put that into the valuation. But in the end, I decide whether I agree (with their assumptions).”  

Currently there does not exist an institute of brand valuation that legislates for all types of brand valuation. But there are, Haigh points out, different bodies that look after specific applications. For instance, with regard to takeover activities in Britain, the Takeover Panel polices what the consultancies are allowed to put into their reports. 

Haigh also stresses that consultancies can be sued for giving wrong valuations that lead somebody to lose money. 

Brand Finance has a good record. “In the seven years we have been going, we’ve never had a claim. We’ve never even had anyone try to make a claim because, I think, our standards are extremely high,” says Haigh.  

While advocating brand valuation, he nonetheless cautions companies not to rush into it unless they have some objectives in mind.  

“There is no point valuing one’s brand just for the sake of it,” he says. 

Each company must be absolutely clear what its particular reasons are for doing brand valuation, Haigh says.  

“Think: ‘What is it going to do for me?’ If you can’t answer that question, don’t do it. It’ll be just a waste of money, and sadly, over the years, I’ve seen people commission brand valuations for no reason.  

“They just wanted to know what their brand was worth. Totally pointless exercise. I’ve done those valuations but at the end, I felt very dissatisfied. I try to consult and clarify with people before they start so we’re all completely clear about why they’re doing it. Then there’re no surprises at the end.” 

Haigh says that as brand valuation is still a developing industry, brand valuation firms owe it to their clients to help the latter buy the right products.  

“They (the clients) must know why they’re doing it, what level of detail they want to go into, what are the objectives. If they got that straight, they can add really great value to their companies. This is not about just saying, ‘The value is X’. It’s about finding a path to creating value.” 

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