Canadian Marketing Blog

An open question on brand asset values

What happens to brand value when the stock exchange crashes? If we accept that a the value of the brand is reflected in the price of the stock, then is the value of the brand depreciated proportionately with the value of the shares, or is the value of the brand a constant that would, effectively, moderate the depreciation in the price of the stock?

This is a conversation worth having. As a prompt (or by way of instilling a bit of reality) the following is a list of some brands that came to mind,

To make the discussion more interesting I have included some stocks showing the change in stock price between April 2 and September 30. (I chose the stocks arbitrarily and chose the April 2 date for the initial valuation arbitrarily as well).

I look forward with interest to hearing a wide variety of theories about the relationship between brand strength and stock price.

Excellent question Laurence

The debate centers on value.
Who creates it, what’s it worth.
I think the answer lies in separating value from price.

The inherent value (utility) of the world hasn't changed for 99.9% of things around us. To your chart - is Sears really 25% less valuable - did 25% of their merchandise or stores disappear? Has their unit profit margin contracted by 25%? Like weighted corks on water, most things that are bought for consumption will have retained their relative value positions even while absolute price levels gyrate.

I have stated elsewhere (see: Is it time we fired our shareholders) that consumers and the consumer market place are where the foundational value of the enterprise is determined. Success here will take care of everything else. The secondary gyrations of ‘shareholder value’ as score-carded by the stock market typically have limited proportional bearing. The market’s (speculative) willingness to buy at higher or lower stock price multiples is not directly correlated to the (sustainable) profit velocity of the brand.

And so to the extent that stock market prices expand/contract our ability to do the things we need to build the value of brand assets, the current meltdown should have limited ramifications. Alas without stewardship we will see the devastation in the financial market spill over into the ‘real world’ as we undergo cost cutting to protect shareholder value.

But the real danger in what we face today is that consumer's have racked up record levels of debt and will not be able to buy our way back to normalcy.

Global corporations are now as big as countries. The employment impact on the “ecosystem” through their supply chain is enormous; hence their actions can be self fulfilling

On a marketing basis, we need corporate stewardship from those that seek to earn the right of having an authentic “share of life” relationship with their partners. Please note the distinction of partners – not consumers, share of life - not quarterly share. Partners want to know that their economic value is being used for the good of the community with the same focus as meeting the quarterly profit obligations. Partners work together for the long-term, partners focus on value not price. Partners understand they need each other.

IMO

Great question.

If you look at some of the best performing companies on any stock index, these days they tend to be rooted in the defense industry or focus on monopoly distribution of goods and services, such as Cargill or Archer-Daniels Midland. Note: this is a guess. I didn't look up hard numbers to back this up.

Also, some of the most 'valuable' companies on the planet are not even publicly listed. Mountain Equipment Co-op. Soon BCE will be taken private. The UN, the Heart and Stroke Foundation, World Wildlife Foundation and other organizations aren't publicly listed, but we all place a premium on their value to society.

What do we do about those?

Is it time for us to look to another model for 'valuing' our organizations / institutions / companies rather than turn to the stock pages?

Cheers,
Bill.

Brand valuation and share values are both directly linked to earnings, so in a down market both are going to deteriorate in lockstep.

While the traditional idea is that strong brands deliver higher margins and customer loyalty, unfortunately brand (which is an abstraction/sublimination of the product or company) and brand valuation technique do not give us very good visibility or insight into what are the real sources of sustainable, stable future earnings.

In Social Capital Value Add, I pointed out a different approach. Social Capital Value Add is all about accessing the risks to future earnings that are attributable to a product or companies position in the real world as documented by artifacts (social media) on the web (i.e. increasingly the dominant source of perception).

SCVA seeks to identify the results that people (employees, customers, investors, etc) will deliver to a corporation. Not the results that soapy power or sugar water will deliver to a corporation.

Check it out at www.socialcapitalvalueadd.com