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Record: 1
Title: What's your brand worth?
Authors: Simms, Jane
Source: Marketing (00253650); 10/4/2006, p26-27, 2p
Document Type: Article
Subject Terms: *BRAND name products
*BRAND equity
*MARKET penetration
*EXECUTIVES
Company/Entity: BRITVIC Soft Drinks Ltd.
People: MARSDEN, Andrew
Abstract: The article focuses on the brand valuation. Category director of Britvic Soft
Drinks Ltd. and incoming president of The Marketing Society, Andrew
Marsden believes that brands are important as they give flexibility to
economic stress. Marketers can contribute in measuring, growing and
managing brand value and demonstrate their own value into the bargain.
Full Text Word Count: 1607
ISSN: 0025-3650
Accession Number: 22702883
Database: Business Source Complete
Section: Intangible assets
What's your brand worth?
Brands are key to a company's value, but few boards have systems in place to quantify
the contribution of these intangibles, writes Jane Simms
'When chief executives think about brands, their brains hurt,' said advertising guru Jeremy
Bullmore recently. A report launched this week by the Institute of Practitioners in Advertising
(IPA) sets out the challenges involved in understanding, managing and measuring the
contribution made by intangible assets, including brands, to a company's performance, and
provides pointers for marketers and advertising agencies on how to ease bosses' brainache.

The IPA report — 'The intangible revolution: how intangible assets are transforming
management and reporting practice' — points out that such assets, including brands, have
never been more important. Survey after survey has shown that brands and other intangibles
typically account for between 30% and 70% of a company's market value; in certain sectors,
including luxury goods, this figure can be even higher.

Brands are the key intangibles in most businesses. Based on Brand Finance's 'Global

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Intangible Study 2006', a survey of more than 5000 companies, the consultancy's chief
executive, David Haigh, estimates that brands represent on average 20% of the intangible
value of the businesses quoted on the world's 25 major stock markets. The figure is
significantly higher in consumer-facing businesses.

When it comes to individual brands, the BusinessWeek/Interbrand 2006 survey of Best Global
Brands, published in July, found that 66% of the Coca-Cola Company's market capitalisation
is accounted for by the Coca-Cola brand, while the Ford brand represents 87% of the market
capitalisation of the Ford Motor Company; the value of the McDonald's and Kodak brands
represent 67% of those companies' market values.

The proportion of tangible to intangible assets has changed dramatically over the past 50
years, as corporate performance is driven increasingly by the exploitation of ideas rather than
physical assets.

Andrew Marsden, category director of Britvic Soft Drinks and incoming president of The
Marketing Society, believes that brands are important because they provide resilience to
economic stress. 'They represent a deal between a supplier and purchaser and offer
consistency and credibility,' he says. 'Their predictability means that forecasts of investor
returns can be more robust, thereby moderating risk for shareholders.'

Yet intangibles, including brands, remain poorly understood by investors and management
alike. This leads to poor decision-making by companies and systematic mispricing of stock by
investors.

Michael Bleakley, beverages analyst at Credit Suisse First Boston, says analysts generally do
not take a sensible view about how long brands will survive. 'A common assumption is that
they will disappear in five to 10 years,' he says, adding that companies' failure to quantify the
absolute and relative success of their advertising and promotion does little to help their cause.

In May, Gianni Ciserani, vice-president and managing director of Procter & Gamble UK &
Ireland, criticised firms' ignorance about the drivers of brand value, slating their propensity to
pour money into promotions to generate short-term sales at the expense of innovation,
marketing and advertising, which build long-term brand equity.

The IPA report outlines a number of initiatives that are combining to force companies to get a
grip on their intangibles. One of these is IFRS3, an international financial reporting standard to
be introduced on 1 January 2007 that will require companies to break down the value of the
intangibles they acquire in takeovers into five categories, including customer- and market-
related intangibles, rather than lumping them together under the catch-all 'goodwill', as they
have in the past.

Critics argue that while IFRS3 might focus attention on brands, it is limited in the extent to

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which it reflects the value of a company's intangible assets. Only acquired intangibles can be
recorded on the balance sheet, giving an incomplete view of a company's value. What's more,
the value of those assets can only stay the same or be revised downward in each subsequent
year, thus failing to reflect the additional value that the new owner's stewardship ought to be
creating.

David Kappler, formerly finance director of Cadbury Schweppes and now chairman of Premier
Foods and HMV, describes the discrepancy as bizarre 'It drives me spare,' he says. 'Cadbury
Schweppes has something like £5bn of intangible assets sitting on its balance sheet as a result
of the acquisitions of brands such as Halls, 7-Up, Dr Pepper, Trident and Snapple, but neither
of its inherited brands — Cadbury and Schweppes — gets a look-in. If you do a return on
capital employed (ROCE) calculation that is based purely on balance-sheet figures, you come
up with all kinds of weird and wonderful numbers — and make lousy decisions as a
consequence.'

Part of the problem, Kappler acknowledges, is that there is no robust or consistent

methodology for valuing brands. 'Give the same brand to five different brand valuation
consultants and they will come up with five different values,' he says.

Another driver for businesses to gain a better understanding of brands is the new Business
Review, the replacement for the Operating and Financial Review (OFR), which was scrapped
by chancellor Gordon Brown last year. The review requires directors to provide non-financial
as well as financial details on areas such as customers, employees and the environment, to
give stakeholders a more meaningful picture of a company's current and future sources of
competitive advantage.

It is here, arguably, that marketers can make potentially their biggest contribution to managing,
measuring and growing brand value — and demonstrate their own value into the bargain. Many
companies are using the wrong information to run their businesses, according to Tim Ambler,
senior fellow at London Business School. 'The typical board spends 10% of its time on the
marketplace — the sourcing and harvesting of cashflow — and 90% discussing what to spend
money on,' he says. 'If you want to know what your future cashflow looks like, you have to
investigate where it comes from: the market.'

Every quarter Rob Malcolm, president of global marketing, sales and innovation at Diageo,
reviews with the company's executive committee the effectiveness of Diageo's advertising by
brand, medium and market for all its global brands. 'When I first shared this information I was a
bit nervous as it put on the line for all to see one of the most closely guarded marketing
secrets — does our advertising really work? Does it really grow the business?' he says.

The chief executive's response was overwhelmingly positive, marking what Malcolm calls 'the
start of the journey for the kind of professionalism and trust that we need to build for the

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marketing function and for justifying continuing investment in brand-building'.

In the final analysis, however, intuitive brand management is arguably more important than
trying to place an absolute value on your brands. 'You need a bunch of operational key
performance indicators to see how your brand is performing in the marketplace, but those
should be for effectiveness rather than valuation purposes,' says Martin Glenn, former
president of PepsiCo UK. 'We measured lots of things at Walkers, such as customer
complaints, why things moved and so on. But we took brands seriously not for the purpose of
a balance-sheet valuation exercise, but because they were our lifeblood.'

P&G 28%
Value of brand portfolio as percentage of total intangible assets

Brand portfolio value £38,400m

Total intangible assets £136,309m

HSBC
25%
Value of brand portfolio as percentage of total intangible assets

Brand portfolio value £17,760m

Total intangible assets £71,099m

VODAFONE
25%
Value of brand portfolio as percentage of total intangible assets

Brand portfolio value £11,590m

Total intangible assets £46,473m

TESCO
47%
Value of brand portfolio as percentage of total intangible assets

Brand portfolio value £10,050m

Total intangible assets £21,391m

BT
20%
Value of brand portfolio as percentage of total intangible assets

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Brand portfolio value £4,400m

Total intangible assets £21,546m

MARKS & SPENCER

25%
Value of brand portfolio as percentage of total intangible assets

Brand portfolio value £2,400m

Total intangible assets £9,686m

WHAT MARKETERS SHOULD BE MEASURING

The number of critical brands that are growing market share at a given point in time
The percentage of advertising budget being spent on campaigns that are proving effective
Yield on innovation
Speed to market
The percentage of marketing spend that the company has analysed and then made more
efficient
The percentage of marketing people who have mastered core training courses
The continuity and talent profile of key people and jobs
How talent stacks up against the needs of the business now, and targets for three years hence
Source: Rob Malcolm, president of global marketing, sales and innovation, Diageo.

ESSENTIALS BRAND VALUATION

The pros and cons of brand valuation
'There is too much navel-gazing about this kind of stuff, and I am not sure what tangible
decisions get made on the back of it. The brand-valuation people have an interest in turning it
into an industry, but the only thing that really matters is that the real value of the company
grows when you get sustainable top-line growth, and that will add capital value if the company
floats on the stock market.'

MARTIN GLENN

former president, PepsiCo UK

'Brand valuation consultants have a role to play in valuing brands for accounting purposes, but
the more important job of understanding and growing economic value, which takes into
account all of a company's intangible assets, not just those that are reflected on the balance
sheet, should be based on the management's own calculations.'

KEN LEVER

finance director, Tomkins

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'The reason for determining the value of brands and other intangibles is not to find a number,
but to identify the best way to manage the business, get better statistics, invest better and
thereby grow the value that marketing adds to the business.'

JOANNA SEDDON

executive vice-president, Millward Brown

~~~~~~~~
By Jane Simms

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