Brand Value and the real economy

For the past ten years Brand Valuations have mirrored the real economy.  There are several ways of estimating the value of a Brand.  For this chart I’ve used data supplied by Interbrand.  Looking at the data you can clearly see that just like the real economy there was also a bubble in the value of Brands in the Financial Services sector relative to any other products or services. If they continue their steep decline then Financial Service brand values will fall below both Consumer Packaged Goods and Retail Brands.  Financial Service brand values have already fallen below Luxury Brands for the first time in ten years.  Interestingly the value of Financial Service brands started their fall a good year before the Lehman Brothers crash that happened on 15th October 2008. With a global economy stagnating and only rare pockets of growth existing it is quite possible that Retail Brands, Consumer Packaged Goods Brands and the Luxury sector that are all dependent on consumers’ spending money in shops, will also find that their brand value level off or possibly decline.  Just like the Automotive Brands whose value has declined for the last two years.  In any recession the Food and Beverage Brands usually hold their value because food expenditure declines very little relative to any other sector.  Some Food and Beverage brands though will be more exposed than others because lunch visits to restaurants have already declined with 47% US of consumers reporting that they are bringing their lunch to work.  Even where people are eating out 36% of US consumers report drinking tap water rather than ordering bottled water. (source: Harris, (2009), Interactive Poll, October).  Some beverages are more addictive than others and will be more resilient in a recession, for example the same survey showed that only 20% of US consumers were forgoing their purchase of a coffee in the morning.  Coffee is the national drink in the United States and therefore can be seen as a much more staple product, not least because of the addiction to caffeine that the drink creates. Using Interbrand’s valuation methodology, Coca Cola has consistently held the number one position for the last ten years.  The fastest rise in the last ten years has been Google who entered the Top 20 of the most valuable brands in 2007 and is now in seventh position.  This is in contrast to Microsoft who has fallen from number two position to third, a spot they have held for the last two years.  Apple is on the up and joined the top 20 Index halfway through 2008 and may soon overtake Samsung who holds 19th position. On this data brand value does seem to mirror the real economy.  But the really interesting fact is that no CEO is held to account when a brand’s value falls.  Accountants have trouble measuring the performance of intangibles such as brand value, however significant this is for a company.  As a consequence the Balance Sheet of a company accounts for the monetary income or debt because it is tangible and therefore easily measured.  But an intangible like Brand Value or the quality of service a company provides is much harder to measure and therefore does not appear in the company’s accounts.  Although as we can see on this chart Brand Value is a very good indicator of likely future performance and something investors should seriously consider.  Certainly Warren Buffet, considered the world’s shrewdest investor by many people, has realised this and as a result is heavily invested in Coca Cola stock. February 2010
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2010

Brand Value and the real

economy

For the past ten years Brand Valuations have mirrored the real economy.  There are several ways of estimating the value of a Brand.  For this chart I’ve used data supplied by Interbrand.  Looking at the data you can clearly see that just like the real economy there was also a bubble in the value of Brands in the Financial Services sector relative to any other products or services. If they continue their steep decline then Financial Service brand values will fall below both Consumer Packaged Goods and Retail Brands.  Financial Service brand values have already fallen below Luxury Brands for the first time in ten years.  Interestingly the value of Financial Service brands started their fall a good year before the Lehman Brothers crash that happened on 15th October 2008. With a global economy stagnating and only rare pockets of growth existing it is quite possible that Retail Brands, Consumer Packaged Goods Brands and the Luxury sector that are all dependent on consumers’ spending money in shops, will also find that their brand value level off or possibly decline.  Just like the Automotive Brands whose value has declined for the last two years.  In any recession the Food and Beverage Brands usually hold their value because food expenditure declines very little relative to any other sector.  Some Food and Beverage brands though will be more exposed than others because lunch visits to restaurants have already declined with 47% US of consumers reporting that they are bringing their lunch to work.  Even where people are eating out 36% of US consumers report drinking tap water rather than ordering bottled water. (source: Harris, (2009), Interactive Poll, October).  Some beverages are more addictive than others and will be more resilient in a recession, for example the same survey showed that only 20% of US consumers were forgoing their purchase of a coffee in the morning.  Coffee is the national drink in the United States and therefore can be seen as a much more staple product, not least because of the addiction to caffeine that the drink creates. Using Interbrand’s valuation methodology, Coca Cola has consistently held the number one position for the last ten years.  The fastest rise in the last ten years has been Google who entered the Top 20 of the most valuable brands in 2007 and is now in seventh position.  This is in contrast to Microsoft who has fallen from number two position to third, a spot they have held for the last two years.  Apple is on the up and joined the top 20 Index halfway through 2008 and may soon overtake Samsung who holds 19th position. On this data brand value does seem to mirror the real economy.  But the really interesting fact is that no CEO is held to account when a brand’s value falls.  Accountants have trouble measuring the performance of intangibles such as brand value, however significant this is for a company.  As a consequence the Balance Sheet of a company accounts for the monetary income or debt because it is tangible and therefore easily measured.  But an intangible like Brand Value or the quality of service a company provides is much harder to measure and therefore does not appear in the company’s accounts.  Although as we can see on this chart Brand Value is a very good indicator of likely future performance and something investors should seriously consider.  Certainly Warren Buffet, considered the world’s shrewdest investor by many people, has realised this and as a result is heavily invested in Coca Cola stock. February 2010
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