Interbrand vs. Millward Brown

     This learning journal entry is devoted to gaining an understanding of the methodology behind the two largest global brand consultancy firms, Interbrand and Millward Brown. Both firms publish annual lists revealing their assessment of the world’s most valuable brands. In examining the lists I see some similarities, but I also see some significant differences. For example, on Interbrand’s ‘Best Global Brands 2011’ the brand Google is ranked #4 and is valued at $55,317 billion. Conversely, Millward Brown’s ‘BrandZ Top 100 Most Valuable Global Brands 2011’ has the Google brand ranked #2 with a value of $111,498 billion. The difference between the two is $56,181 billion. That is hardly insignificant. Additionally, the Heinz brand was ranked #49 by Interbrand, but was nowhere to be found on the Millward Brown list. Thus began my small quest to find out how these firms determine brand value.

Interbrand

                Interbrand was founded in 1974 and claims to be the “world’s largest brand consultancy”. With 40 offices in 25 countries the firm’s mission is to both create and manage brand value by “making the brand central to the business’s strategic aims”.

                The Interbrand valuation method contains three key aspects.

Financial Performance

               

                The financial component attempts to uncover the economic profit of a brand, economic profit being defined as the raw financial return that the brand brings to its investors. The formula for economic profit is essentially net operating profit after taxes (NOPAT) less capital used to generate brand revenues. The capital charge rate is set by the Weighted Cost of Capital (WACC). A financial forecast is analyzed for five years to get to a terminal value (or the brand’s expected performance beyond the forecast period).

Role of Brand

               

                Role of brand measures the portion of the decision to purchase that is attributed solely to the brand. In other words, it is the demand for a product or service that exceeds what demand would have been had the product been unbranded. Three methods in gathering information for the role of brand includes primary research, a review of the historical role of the brand, and an expert panel assessment.

Brand Strength

               

                The brand strength component measures the ability of the brand to secure the delivery of expected future earnings. Reported on a 0 to 100 scale (100 being perfect), brand strength is based on an evaluation across dimensions of brand activation relative to other brands in similar industries across the globe.



Interbrand Brand Valuation Methodology source: http://www.interbrand.com/





Interbrand’s hope is that the final value can be used as not only a brand management guide, but also a decision-making tool for management.

Millward Brown

                Founded in 1973, Millward Brown’s mission is to “provide research-based consultancy to help marketers successfully manage their brands, optimize the return on their media and communications’ investments and create value for their business employees and shareholders”. The firm operates 79 offices in 51 countries and publishes the annual ‘BrandZ Global Top 100’. Like Interbrand, Millward Brown has a three component strategy in determining brand value.

Earnings

                The firm conducts financial statement analysis of a corporation’s earnings. From the corporation’s earnings the branded earnings are extracted. Branded earnings are the portion of earnings attributable to the brand. From branded, taxes are removed to get to branded intangible earnings.

Brand Contribution

                This component of the calculation identifies the portion of the branded intangible earnings that are attributable to brand alone (excluding items such as price, distribution, etc.). In the part of the process, the firm attempts to develop an assessment of brand loyalty.

Brand Multiple

               

                The final component is a calculation based on market valuations and brand growth potential.

source: http://www.millwardbrown.com/

 

The critics

                On the surface the methodology appears to be the same and I am not the only one who thinks so. In his Marketing Week article “Brand valuations do not always tell the full story”, Mark Ritson is critical of the brand valuation process. The genesis of the confusion, Ritson explains, is the wide gap between valuations such as those between Interbrand and Millward Brown. Ritson argues that both firms have access to the same data and while Millward Brown hinges on research expertise and Interbrand in the oldest and the one most CEO’s gravitate to the varations shouldn’t be as great as they are. At one point, when will marketers start to question the credibility of brand valuation firms? Ritson paints the following analogy – if a real estate agent comes along and values your home at $500,000 and then several days later another real estate agent values your house at $1,000,000 wouldn’t you be more confused that anything? Ultimately, you might seek other valuation methods or just value the home on your own thinking that will be good enough. These firms have been in business for over 35 years and have credibility, but if they continue to publish lists that are so different at what point will people stop paying attention?

Sources:

www.interbrand.com

www.millwardbrown.com

Ritson, Mark, “Brand valuations do not always tell the full story” MarketingWeek September 29, 2011 (accessed February 3, 2012) http://www.marketingweek.co.uk/sectors/industry/brand-valuations-do-not-always-tell-the-full-story/3030524.article