FINANCE
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PHIL YOUNG
Brand equity is an imprecise moniker for a valuable thing
A brand by any other name Phil Young PhD is an MBA professor and corporate education consultant and instructor
I was partly amused. But I was mostly McDonald’s? They are Interbrand’s 2018’s confused. The first time I heard the term ten most valuable brands, listed in order ‘brand equity,’ my immediate reaction from the top. was one familiar to finance guys: “There go Interbrand’s method of calculating a those marketing people again – throwing brand’s value is proprietary and results in around highfalutin buzz words with no oddly precise numbers. For example, the precise nor agreed-upon definition.” value of Apple’s brand in 2018 was given as Yet a company’s brand does indeed $214.48 billion. make a difference to its financial success. But Interbrand does not say if this And if one were to view a brand’s value is the same as, or related to, Apple’s importance in financial terms, one can see equity. The book value of Apple’s equity that it creates product loyalty (recurring in 2018 was $107 billion. Currently, the revenue) and enables premium pricing market value of its equity (its market (higher profit margins). capitalization) is about $935 billion. But why use the term ‘equity’? I did a quick Alphabet search of the In finance and term ‘brand equity’. accounting, we talk Note how my use about stockholders’ or of Google’s parent If Investopedia can shareholders’ equity, company’s name accept the marketing was not nearly as which is the value of profession’s more liberal the stakes held by a meaningful. company’s owners. Investopedia, definition of equity, then So, if a brand has a trusted source of even we finance guys can value for a company, financial information, learn to wear it would it not be more defines brand equity as: accurate to call it an “A value premium that a asset? In fact, that’s company generates from exactly what happens when one company a product with a recognizable name when buys another. compared to a generic equivalent. After the purchase, valuation experts “Companies can create brand equity for go to work to put a price tag on the value their products by making them memorable, of the brand of the acquired company. To easily recognizable, and superior in quality use recent headline news, I’m sure that and reliability.” these experts will soon be working on It’s true this definition fails to pertain putting a brand value on IBM’s $34 billion directly to the financial definition of purchase of Red Hat. And whatever that equity. But if Investopedia can accept and value is, it will go down on IBM’s books as use the marketing profession’s more liberal an intangible asset. definition of equity, then even we finance Some years ago, a company called guys can learn to wear it. Interbrand devised a method of estimating The traditional rivalry between the value of a company’s brand and marketing and finance means the latter published a list – Best Global Brands. group will continue to mock the former’s Without even peeking at the league table, lexicon. But behind the imprecise language I’m sure you could come up with some of hides precisely the sort of asset finance those in the top ten. people want in the companies they Did you think of Apple, Google, manage. Amazon, Microsoft, Coca-Cola, Samsung, However you term it, brand equity is Toyota, Mercedes-Benz, Facebook, and big business. Q4 2019 Dialogue