Lesson 4/Week 10: Intro to Brand Valuation

Materials that I read/watched for this week include:

• Article on Brand Valuation
• Article "Why it's time to put brand on the balance sheet"
• Article "Avoid the Four Perils of CRM"
• Article "The mismanagement of customer loyalty"
• Watched CRM Camtasia video
• Watched Brand Valuation Breeze video

I also hopped on the quiz early and did it at the start of the week since this will be a very busy week in my other class.  As a result, this will probably be the only blog for this week.

The four questions were were asked to consider this week were:

1. What makes a brand valuable?
2. What do brands do?  How do they create value?
3. What are some of your most favorite brands?  Why?
4. Should Brands be on the balance sheet?  Why?  Why not?

First, brands are valuable because they create economic profits for the company and prolong the lifecycle of products.  They can help keep products differentiated indefinitely, and represent the best way to avoid competing on price.  A brand is perhaps the strongest method of building loyalty, and it encourages repurchases, referrals, and positive word-of-mouth.  Additionally, it allows a company to charge premiums compared with undifferentiated generic products. Brands are also valuable because they can contribute to organic growth.  For customers, brands create the benefit of forcing companies to innovate more frequently, and spend more on R&D.  This means customer needs are met quicker and more fully.

Next, a brand helps consumers sift through the endless choices.  With so many retailers developing private brand labels, it is becoming harder for shoppers to discern what differences actually are between competing products. They all seem to offer the same basic features and functionality.  A brand cuts through all this and offers a simple and lasting message that sticks with customers.  They create value by building trust, and customers become reluctant to purchase an unknown unless they are absolutely sure they are getting the same quality.  Brands also create value by conferring status on the buyer.  Even if jeans are functionally the same, the pair from Abercrombe will carry with it more social status than the generic brand from Wal-Mart.  Finally, brands also create value because they can last for extremely long periods of time, sometimes over a 100 years, like Coke.  

As some of my previous posts have probably hinted at, one of my favorite brands is Google.  It doesn't matter what they do, they are disruptive and always have the cool factor.  I like them over Apple, because Google's products are just as well designed, but they aren't trying to go after huge premiums from end users.  I'm sure they get great margins from their ads, but they make the world a better place by allowing all of us to get to information easily.  One of my favorite products is simply Google Maps.  I cannot live without it, and it's free.  I choose Android phones because of it.  My last posts discussed my affinity for Google Fiber.  The multicolored rabbit is a great symbol for their product.  To me, it conveys happiness and speed.  Finally, although expensive right now, Google Glass is just really cool.  I know that Google's brand image means it will work well, and it will be cutting edge.  

                

Another of my favorite brands is Chic-Fil-A.  Their commercials are just awesome.  I have been amazed, eating at various locations throughout the country, how they manage to create such a consistent experience.  They always have the best customer service, and the food is always the highest quality for fast food.  Their restaurant areas convey a sense of family, with large indoor children's play areas, and the booths and chairs are padded.  I've asked owners why this is, and they explain that they are not trying to get people to come in, eat quick, and make room for more volume.  They want to engage with the customer and build a relationship.  If I could pick any franchise to purchase, it would be one of these.  Their brand is all about family and a wholesome atmosphere.  

  

Finally, I absolutely think that brands should be on the balance sheet.  It seems ridiculous reading the articles for this week that IFRS and other parts of the world have embraced this already, and GAAP hasn't.  At least, not with respect to internally created brands.  M&A has always been an area where brands were recognized as goodwill.  Why would they not be included when they are organically created?  Maybe there isn't a great valuation methodology yet, but the articles we read seem to show that there are some methods that are great starting points and have enough adoption to be contenders.  Simply put, everyone knows that brand equity is a huge part of the value of many of the most successful companies.  We have to find a way to quantify it and communicate that in financial statements.  It cannot just be ignored.