STRONGBRANDS    Professor Tim Calkins, Kellogg School of Management

The new brand rankings are out!  This is big news for people interested in brands and branding, but the rankings should be taken with a very healthy dose of salt.

Every year Business Week publishes a list of the world’s most valuable brands.  The list is developed in conjunction with Interbrand, a large global branding firm.  The latest rankings are published in Business Week’s September 28, 2009 edition.  You can also read the article here:

https://www.businessweek.com/magazine/toc/09_39/B4148brands.htm?chan=magazine+channel_top+stories

This year’s ranking includes many of the usual suspects.  Topping the list is Coca-Cola, with a brand value of $68.7 billion, up 3% versus year ago.  Second is IBM, with a brand value of $60.2 billion, an increase of 2%.  The rest of the top ten include Microsoft, GE, Nokia, McDonald’s, Google, Toyota, Intel and Disney.

This is all interesting news, but it is important to take the analysis as directional at best; the calculations behind the numbers are highly subjective indeed.

The valuation process has four steps.  First, Interbrand tosses out brands that receive over 66% of earnings from their home country, and brands that are owned by companies that don’t disclose financial information.  Second, Interbrand then calculates profits by brand.  This requires a lot of assumptions; P&G, for example, owns lots of different brands and doesn’t break out financial information by brand, so calculating the profits on a brand by brand basis is a major challenge.  Interbrand then calculates profits by brand for the next five years.  This requires a lot of assumptions.  Third, Interbrand determines the share of profits on a brand that are due to the brand itself.  This requires a lot of financial analysis and many assumptions.  Fourth, Interbrand discounts the earning back against a risk adjusted interest rate.  Calculating this risk adjusted interest rate requires, yes, a lot of assumptions.

The problem, of course, is that one assumption is piled on top of another assumption, which is piled on top of another assumption.  The result is that the figures are far from precise.  Indeed, declaring that the value of Coke has increased +3% over the past year borders on the absurd.

Still, there isn’t a better methodology available right now; brand valuation and measurement are difficult undertakings indeed. 

So let’s salute Coke for heading up the list this year.  One can quibble with the ranking and the exact value, but there is no question that Coke is one of the world’s great brands.

---