Wally Olins - Old School Thinking about Brand Valuation?

Posted on | February 24, 2009 |

by James Gregory, CEO Corebrand

I was stunned to read Wally Olins’ recent article, denying that brand measurement and valuation isn’t an important part of brand building.

Wally Olins

I thought the days of brand value ignorance were twenty years in the past. Yet, in this article he said, “The brand valuation process ignores tempest, turbulence and volatility.” Sorry, Wally, but nothing could be further from the truth. The fact is that brands are contributors to the health and vitality of corporations, in good times and in more challenging times.

The brand, however, is not more important than the underlying financial fundamentals of any company. I’ve seen many excellent brands destroyed in the recent economic downturn, but it is important to understand that we are going through an economic crisis, not a branding crisis.

CoreBrand tracks 1,200 brands across 49 industries. We’ve been quantitatively measuring and valuing these brands since 1990. What we’ve learned is that brand value is created in two distinct ways: revenue and reputation.. The revenue side of the brand value equation is about understanding how brand building can impact revenue, which can then be measured and valued through a discounted cash flow analysis. This is the more common method of brand measures and is used by most brand valuation firms.

CoreBrand discovered a second important effect of branding which is the impact of corporate reputation on market capitalization equating to about 5-7% of the firm’s value depending on many factors like the industry and the economy. This is incremental value, over and above the revenue side of the value equation. It changes constantly like the tides of the ocean. As any good mariner knows, understanding tidal charts greatly facilitates navigation in dangerous waters.

CoreBrand’s revenue and reputation models can work together to produce hugely meaningful and valuable measures that help companies to manage their brand, or they can be ignored in favor of Wally’s method: “sticking your wet finger in the wind and shouting out a number.”

I challenge Wally Olins to meet me at a venue of his choosing, online or off, to debate this issue.