I recently read an article that reported on South Africa’s most valued brands for 2016. The country’s top-10 brands were MTN, Vodacom, Sasol, Standard Bank, Woolworths, FNB, Absa, Nedbank, Investec and Mediclinic; with Multichoice bubbling under at number 11.
For me what was missing in this article was the so what. So what if MTN is the most valued brand in South Africa and Africa? Does it mean that it requires a lot of cash to acquire this asset based on the equity that it has built over the years trading within the African market? Does a higher brand value mean that the firm has better access to capital and this capital is being offered to them at a more affordable rate than brands that are valued lower than it?
Does a higher brand value mean that your firm is in good financial health and will continue to deliver a good return for its stakeholders? Does it also imply that a higher brand value means that you’ll be able to attract the best talent who will contribute to further appreciation of the brand going forward?
Like me, a key starting point will be to find out whether brand valuation is understood outside of each firm’s marketing department. From a business perspective, brand should be thought of as an asset that can be leveraged to contribute to top- and bottom-line growth, cost reduction and organizational alignment. Based on this, custodians of the brand shouldn’t reside within the marketing department but should be scattered across the entire organisation.
By doing this, each function and division should think of how their day-to-day activities can be made more effective and efficient through the use of brand. These ambassadors can develop proxies that they can use to bring in a bit of tangibility when it comes to the benefits of using brand. The use of proxies to evaluate the value of brand would therefore provide some insight on how brand is benefitting the organisation, converting these insights into dollars and cents from a savings, top- and bottom-line contribution standpoint.
So from the point above, the problem with valuing brand is that it is an intangible asset. Measuring anything intangible comes with the setback of subjective measurement. From my reading, there are many ways to value a brand and the differing methodologies also produce differing results. The differing results often result in heated debates on whose methodology provides the better measurement and also what proxies can be used as further reference to determine whether the better approach was on the money. But the unanswered question of the so what still remains.
As an example, MTN’s brand was valued at R37 billion in 2016, down from R54 billion in 2015. This signifies a drop in value of R17 billion within the space of a year. As a stakeholder, does this mean that I should start looking for employment elsewhere? Reducing my shareholding to invest in other assets? Re-negotiating interest rates for money lent to the bank based on the company being at a higher risk based on the loss in brand value? Does it also mean that the company neglected the nurture of the brand during the operating year, with all of the brand related activities taking away instead of adding to the existing equity?
Going forward, I’d suggest that a more robust valuation of brands should be conducted which makes the intangible more tangible. I may not be in the know but we need a methodology that strongly links the intangible to the tangible, resulting in the valuation being more usable from an investment and operational standpoint.
A more rigorous approach to valuing brands could result in tools such as ROBI (return-on-brand-investment) also being further developed, allowing companies to accurately predict potential gains and losses they could gain based on proactive spend on brand and external effect on the brand. At the end of the day the so what of a valuation should empower a firm to know what to do based on the valuation, that is, the then what.
An example of an answered so what is our brand is so valuable that we should consider expanding into other regional markets. Our brand is so well valued that we can borrow money at a favourable interest rate, enabling us to invest on debt instead of equity and pay back what we owe in the shortest possible time without any impact on our bottom-line. A better valued brand also means that we can outcompete our competition both locally and externally, including us trying our luck in geographically distant markets. Or at least that is what I think a brand valuation should inform.
By James Maposa, Director Consultant
Intergroup Brand Science (formerly Interbrand Africa)