Tuesday, April 22, 2008

Vital Signs: Brand Value - Top 100 Most Powerful Brands (2008)

Does being innovative result in "brand value" and therefore shareholder value? There's new data to suggest that the correlation exists.

Millward Brown Optimor has released its third annual Brandz Top 100 Most Powerful Brands Ranking

The Top 10 List (in contrast to BusinessWeek's 2008 ranking of World's Most Innovative) is as follows:
  1. Google (No.2)
  2. GE (No.4)
  3. Microsoft (No. 5)
  4. Coca-Cola
  5. China Mobile
  6. IBM (No.12)
  7. Apple (No.1)
  8. McDonald's (No.30)
  9. Nokia (No.10)
  10. Marlboro
Of note is that Coca-Cola and China Mobile did not make the Most Innovative ranking but they're in the top 5 global brand value ranking. In the case of stalwart Coca-Cola, the surveys seem to indicate that the brand is strong but the company is not an innovator. It would appear , however, that with the newcomer China Mobile, brand value does not necessarily rely on being innovative (it didn't make BusinessWeek's regional list) when you can tap into the world's largest growth potential!

As a contrast to BCG's approach to surveying executives for the World's Most Innovative and looking at historic shareholder value growth, Millward Brown Optimor quantifies and projects expectations of brand value using quantitative measures and consumer surveys:

"The data for BrandZ is collected by interviewing consumers about brands from categories in which they shop on a regular basis. Respondents evaluate those brands competitively: they are asked to think about all the brands that they know within a category. The interviews deliver valuable insights because respondents who know a category are better suited to tell us what brand attributes matter to them most. These attributes are key measures of brand strength. BrandZ has interviewed over 1 million consumers who cumulatively compare 50,000 brands."

"Brand value is the financial value of a brand defined as the sum of all earnings that a brand is expected to generate. For the purpose of the BrandZ Ranking, Millward Brown Optimor values brands in three steps. First, we establish a company’s intangible earnings and allocate them to individual brands and countries of operation, based on publicly available financial data from Bloomberg, Datamonitor (www.datamonitor.com) and our own research. Secondly, we determine the portion of intangible earnings attributable to brand alone, as opposed to other factors such as price. This metric, known as Brand Contribution, reflects the share of earnings from a product or service’s most loyal consumers or users. For this second step, we use research-based loyalty data from the BrandZ database. Finally, we project the brand value forward based on market valuations, the brand’s risk profile, and its growth potential."

Finally, the 2008 BrandZ press release provides the following takeaways:
  1. Established vs Emerging Asia. Chinese brands continue to get stronger.
  2. BRIC's (Brazil, Russia, India, China) continue to help drive international growth.
  3. The Technology sector boom. Technology led this year's brand value growth of $187.5bn. This is more than half of the Top 100’s total increase.
The net of this new data and methodology (see details in 2008 Report) is a calculation is that has 3 key factors:

Brand Value = Intangible Earnings x Brand Contribution x Brand Multiple

With globalization and the rapid growth of China, it will be fascinating to see how these rankings evolve over time! Comparing the two reports mentioned in this post, there does appear to be a significant connection between innovation and brand value. In future posts I intend to dissect the equation, further unpacking how the BrandZ report makes key assumptions in predicting the future. Let's not forget, however, Michael Raynor's recent strategic research and bestseller, The Strategy Paradox, that concluded you can't predict the future!