The value of brands

Throughout my advertising career, I constantly had to justify advertising budgets. The comment (attributed to John Wanamaker) that “half the money I spend on advertising is wasted; the trouble is I don't know which half” was often banded about. This drew me into all sorts of statistical gymnastics, using econometric modelling and digging into the intricacies of multiple linear regression analysis. But, there are so many variables that affect price and market share that I found it impossible to provide a precise ROI on advertising or any other activity that builds brands.

The valuation methodologies of companies like Interbrand, Millward Brown's BrandZ, and BrandFinance are fascinating (I partnered with BrandFinance in Hong Kong a few years ago). However, their valuations vary considerably, which opens them up to criticism. And I have questions, such as how to distinguish the effect of a strong brand from a trade monopoly.

But, just because something cannot be measured easily does not mean it does not exist.

IPO and M&A activity show how the perceptions people have of a product, service, or corporation can price a company at several times its tangible assets. We have also all seen what happens to the market cap of a company when perceptions dramatically shift against it. This can happen due to a reputation-destroying scandal or, as markets and trends change, a gradual failure to make sure the brand stays relevant and up-to-date.  

Added thought in Dec 2019: never underestimate the importance of Intellectual Property: brand trademarks and/or copyrights (in the right hands) provide monopoly power that can add to enterprise value many times over. I have been a shareholder of Disney for many years for this reason.