For the half-year to 30 June 2014, the IPKat's regular team is supplemented by contributions from guest bloggers Alberto Bellan, Darren Meale and Nadia Zegze.

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Friday, 16 December 2011

Brand Ratings--Here We Go Again


Hobby horse -- "A topic that one frequently brings up or dwells on; a fixation" (thefreedictionary.com). Most of us have one or more hobby horses, both in our personal and professional lives. When it comes to trade marks, there is no doubt what is leading hobby horse for this Kat. Hands down, it is the purported ranking of brands, either internationally, regionally or nationally.

Usually in Q3 or Q4 each year, brand rankings begin to appear in the business press. We are told that brands such as Coca-Cola, Google and Amazon are more valuable than RC Cola, Yahoo! and RIM. While this should be obvious to anyone, we are assured that these rankings are actually the result of a sophisticated array of metrics that yields the ultimate results. Presumably, the brand managers for the winners are appropriately compensated, while the brand laggards are challenged to shape up or ship out. Or, as the announcer used to say, such rankings put "the thrill of [branding] victory and the agony of [branding] defeat" into sharp relief.

The latest brand ranking to attract my bemusement appeared in connection with a paid advertisement relating to Taiwanese brands associated with a site called brandingtaiwan.org, which appeared in the 24 October issue of Bloomberg Business Week. Don't get me wrong--I don't have anything against Tawainese brands. The list could have purported to rank brands for any other country. Whatever the specific object of the brand rankings, my feeling remains the same--"What is the ultimate value of the list"?

First the facts, as they appear in the advertisement. Twenty brands are listed, ranging from the most "valuable", being "htc" at no. 1, to KGI, at no. 20. In betweeen are companies such as Acer (no. 2), Asus (no. 3), D-Link (no. 13) and CyberLink (no. 15). Not content with a mere serial list from 1-20, the rankings also purport to give a dollar value to the rank of each of the brands. Thus, "htc" is valued at $3,605,000,000, Acer is valued at $1,940,000,000, Asuz at $1,637,000,000, D-Link at $201,000,000 and CyberLink at $140,000,000. KGI brings up the rear at $99,000,000.

How did the purveyors of the rankings come up with this list? The advertisement tells us as follows:

"Interbrand, the world's top brand consultancy,worked closely with BOFT ["Bureau of Foreign Trade"] and TAITRA [not further identified in the advertisement, but after an independent internet search, the "Taiwan External Trade Development Council"]. Each brand is measured for inclusion on the list based on:

1. Projected percentage it will contribute to its company's revenue between now and 2016.
2. How it influences point-of-purchase demand.
3. It strengths in terms of risk vs. earnings forecast". 
Maybe the foregoing makes it clear to some of you how the rankings and the brand valuation were carried out. For this Kat, however, this explanation manages more to obfuscate than to clarify. At the very least, these purported metrics remain a puzzle, for at least the following reasons:

1. Exactly what was the nature of the cooperation between Interbrand and BOFT and TAITRA, with the emphasis on trade figures on the companies? Presumably some or even most of the companies are publicly traded. If so, there must certainly be various types of public information that are equally germane for the ranking process.

2. What happens if a company focuses almost on the local market? In such a case, trade and export data would seem much less relevant in any event. Who helped Interbrand in such circumstances? Or is there a bias in favour of companies with a more international reach?

3. It strains this Kat's credulity that meaningful projections about business activity can be projected to the year 2016. Compare this clairvoyance with the challenges of Euroland policy makers to make a credible projection about the state of the Euro experiment for even a month or so.

4. Even more acutely, I seem to remember that AIG was ranked high on the listing for 2008 at the same time that it went on to public life support. This was not a matter of years, but merely weeks or days. Or maybe "Black Swan" events are not included in the analysis of the value of Taiwanese brands?

5. Does a brand need to be measurable in the context of "point-of-purchase? How many of you out there have "purchased" services from Goldman Sachs? Would anyone seriously challenge, nevertheless, than Goldman Sachs is a most valuable brand?

6. I simply don't know what is meant by "its strengths in terms of risk vs. earnings forcast."

7. More generally, I find the notion of a rank order of alleged brand value based on gross amount to be of little use. Larger companies almost invariably mean larger gross valuations, even if the relative contribution of the brand to the overall value of the company is relatively modest.

8. Of more interest is the relative contribution, whereby certain brands have an oversized contribution to their companies. Perhaps Interbrand also calculated such relative figures for the various brands, but they were not included in the advertisement. If so, that is a pity; if not, it is even more of a pity.

When all is said and done, all this Kat can do is murmer once again--"I don't get it" If there are readers out there who can come to the defence of brand ratings--the floor is yours.
 More on "black swans" here and here.

1 comment:

TD said...

Brilliant Post Neil, precisely hits the nail on the head. It all sounds like the figures have either been cooked, or omissions purposely made. Pathetic/ misleading, at the least, Slothful/misinformed @ the worst.Or any combination of these.

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