- “Brands are (perhaps) the biggest business phenomena of the last century”
- “Brands are value creators”
Whilst many of the definitions of brands, as previously discussed, focus on their relationship with their customers, the other side of the coin is equally important. Why are businesses so interested in brands?
The answer is simple, they help create value. As the various brand valuation surveys show, successful brands help deliver higher prices and better loyalty and so allow the companies that own them to deliver better margins. These brand valuation surveys are based on creating a comparison with a brand’s profit versus what the equivalent profit might have been if the product was unbranded for any year and then multiplying this up to allow for a brand’s ability to deliver this over time.
For example the Interbrand methodology measure what it calls the “conceptual role of the brand”, namely “the portion of demand for a branded product or service that exceeds what the demand would be for the same product or service if it were unbranded”. The estimated annual difference is then increased by a multiplier based on the brand relative size and competitive strength. Interbrand uses what it calls the Brand Strength Multiplier which it bases on 10 factors and reflects “the ability of the brand to secure the delivery of expected future earnings”.
The results give the current No. 1, Coca-Cola, a brand value of over $74billion suggesting that the annual increment in profits for the owners of the largest brands equates to billions of dollars.
So it’s not surprising that John Stuart, one time chairman of Quaker said: “If this business were to be split up, I would be glad to take the brands, trademarks and goodwill and you could have all the bricks and mortar – and I would fare better than you.” Brands may be an intangible, lacking the solidity of bricks and mortar but as numerous analyses have shown, the value of an organisation is increasingly based on intangibles and primary amongst those intangibles are the brands.
Whilst the debate continues about if and how you can measure the value of a brand and whether or not that value should be included in the balance sheet, it is undoubtedly true that businesses pay premiums to acquire brands.
Consider the $57bn P&G paid for Gillette and the $3.7bn that Unilever have just paid to acquire the brands owned by Alberto Culver. Commenting on the purchase, Paul Polman, chief executive of Unilever, said: “We are delighted to be acquiring Alberto Culver. Their people have done an excellent job of building an impressive range of brands such as Tresemmé, VO5, Nexxus, St Ives and Simple. These will complement Unilever’s existing portfolio of iconic brands like Dove, Clear and Sunsilk in hair care and Pond’s and Vaseline in skin care, and will help build on our strong global positions in hair care and skin care categories.”
So whilst brands build relationships with their customers they also build big businesses.