Ignore commercial brand equity measures at your peril

Few would argue the importance of brand yet quantitative, standardised ways to measure it are as elusive as the concept itself. We find out why this brand measurement bridge must be overcome

Brand equity, that intangible value brands possess, is becoming increasingly vital not just for marketers but for CFOs and CEOs who are looking to leverage it for investment and stock market value.

And yet while few would argue the importance of brand equity, quantitative, standardised ways to measure it are as elusive as the concept itself. This leads to different and erratic methods of measurement which cannot be benchmarked across industries or peers.

According to co-founder of Brandometry, Susan Avarde, the necessity to quantitatively measure this concept is becoming increasingly vital. Corporations who don’t place a dollar value on their brand equity face a growing risk of underperforming financially, as intangible assets are critically important when seeking to evaluate a given company's market value - a value estimated to be as high as 84 per cent.

Brandometry describes brand as much more than a logo, product, IP or trademark. It's instead the totality of what a given company represents in the marketplace, including its reputation, associations and public perceptions.

Strong brands that instil trust can not only charge a premium for their products, they  also offer stable investment opportunities, and can ride out crises more effectively, Avarde said. It also means they have a higher value – a value currently not necessarily reflected on the balance sheet.

What's also clear to Avarde is the lack of a standardised metrics for brand equity is not just up to marketing to solve. CEOs, CMOs and CFOs need to get together and work out a credible way to measure what is important, and if they don’t, they risk being left behind.

“It doesn't really matter whether you're a tech company, where you have a huge amount of intangibles, or a manufacturing company, the part of your critical value that drives your overall value as a brand is intangible, Avarde explained. "In fact, it's estimated anywhere between 14 to 21 per cent of your value is brand equity. So it's a big number not to measure and if you can’t measure it, you can’t manage it.

“Although at first glance it may seem like a fuzzy, qualitative concept, brand value is not beyond measurement. By taking into account the reputational perception of brand by influential decision-makers in the business world and utilising a rigorous, consistent, rules-based approach, brand value—an increasingly important metric in the business world—can in fact be measured."

As Avarde noted, most people think a brand is what you know or what you think about a product. If you’re a mono-brand, a tremendous amount of your market capital is coming from brand, she said. So what's preventing brand from gaining such clout financially?

"I think the challenge is most CMOs don't have very robust relationships with the CFO," she continued. "What CFOs are dealing with is generally accepted accounting principles, which can’t deal with goodwill, brand equity, or any other intangible."

Yet Avarde estimated about US$57 trillion worth of value sitting off the books is floating in the economy globally today.

“That's a huge number not to be to be somewhere on the books and a lot of it is brand, not all of it, but a lot,” she said.   

Marketing-reporting disconnect

Avarde, who was head of global brand for Citi, see the problem as CMOs not yet making the case for their contribution to market capital because a lot of their outcomes are mostly measured qualitatively. Often this leaves marketing sitting in the expense bucket.

“For decades, brand has been measured qualitatively by external consultancies. Marketers can get a sense of the revenue they generate, but can’t connect the dots to share price, there’s a vacuum," she argued. "So regulatory bodies are trying to wrap their heads around what are the right kind of metrics that we should be laying in place.”

This is why Avarde is calling on CMOs to CFOs, CEOs and regulatory bodies to get together to develop a quantitative measure that is benchmarkable, measurable and that everyone agrees on. Of course that's easier said than done.

Externally, Avarde pointed out different bodies like the SEC, American National Standards Institute, and the LFC, are beginning to publish standards for internal assessment and reporting of intangibles. Yet it's the internal disconnect she sees as a huge hurdle.

“CMOs are on the forefront because they’ve been busy trying to measure this stuff for years, but the board until now hasn’t worried about it too much, beyond reputation," Avarde said. “However, in some cases in the US, the board is going to be held accountable for the reporting of intangibles for divestiture and more.  

“They haven't agreed on the methodology yet, but they’ve got to get people beginning to quantify brand equity, because the day is coming when this is going to be significantly important.

“What’s curious to me is CFOs are kind of waiting around to be told what to do, rather than getting involved, which is a mistake.

“I don't think it's going to be too long before an analyst is going to ask the CFO, you know, what's your brand worth? How are you measuring it, how do you protect it? And should I invest in it, and they are not ready to answer this. It's the real opportunity for CMOs to get ahead of that conversation."

The key is finding a standardised way of taking perceptions around brand and ranking them empirically, Avarde continued. “When you talk brands generally, you get a figure of what it is seen to be worth. Brand health, however, it doesn't give you a dollar number," she commented.

"I think what's happening is the various industries who used to dealing with sort of concrete, empirical data, they're very nervous about moving into to leveraging non-financial data, like say perpetual data. Wall Street has taken quite a long time to recognise brand is a powerful driver. 

“There’s another barrier internally, which is that to really begin to measure this you’ve got to open up your P&L. That's an internal piece I think that's also proved to be a kind of barrier.”

As CMOs increasingly carve out their place at the at the table and prove marketing is important, Avarde saw standardised metrics on brand equity as the final piece of the puzzle. She urged CMOs to start having conversations across their businesses and start thinking about the date that matters.

Brandometry itself uses a metric called brand power, which takes into account data generated by Tenet Partners' Core Brand Index. Avarde said technology could well fill the gap in this space in the future.

“Artificial intelligence, machine learning and these types of technologies will be able to assess customer data and come up with very interesting and powerful insights and empirical points of reference in the future so brands can be valued, we're just not there yet," she concluded. “That will be quicker than trying to get various internal departments to begin to share data. But it needs to happen. Once Wall Street starts looking at it, as well as other forces, we'll see greater action and leadership in this.” 

Follow CMO on Twitter: @CMOAustralia, take part in the CMO conversation on LinkedIn: CMO ANZ, follow our regular updates via CMO Australia's Linkedin company page, or join us on Facebook: https://www.facebook.com/CMOAustralia. 

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