on "Viewing Brands as Assets"
by Sarah Banick
time for brands to be recognized as the assets, and in today's
era of accounting reform, marketers have never had a better chance
to increase their status in the boardroom.
need to make a financially literate argument that their initiatives
improve the value of the brand, says Roger Sinclair, Ph.D,
a leading expert on brand valuation and brand equity practice
Sinclair is a visiting professor at the University
of the Witwatersrand, South Africa's leading research institute,
after a long career as both an academic and an advertising man.
Through his own methodology, BrandMetrics,
he has been involved in the valuation of more than 300 brands.
He recently spoke at a ZIBSForum hosted by the Zyman Institute
of Brand Science at Emory University.
have long remained reactive to more influential financial executives.
All managers make the argument that their function improves the
value of corporate property; but Sinclair believes that marketers
too often expect executives to understand their position. Instead,
marketers should promote their abilities in terms financial executives
of the largest hurdles marketers face is language, says Sinclair.
"We are the guardians of an asset. What we do with marketing
is to defend an asset. And the language of assets is the language
latest accounting standards bring brand equity closer to the balance
sheet. In July of 2001 the United
States' Financial Accounting Standards Board issued FAS 141
which, among other things, specified that companies must recognize
the component costs of acquired goodwill when a merger takes place.
must value intangible assets and account for them in the books
as part of what you paid for that company," says Sinclair.
"It's a massive move." Shortly thereafter rest of the world, led
by the IASB (International Accounting
Standards Board), followed suit.
not just the accountants. Analysts, as well, are emphasizing the
brand value. "We say that marketing creates the income and everything
else is the cost. The income comes from customers, and why do
you have customers? Because of brand equity," says Sinclair.
corporate governance recognizes the need for brand valuation.
Both Sarbanes-Oxley and its British equivalent, Operating & Financial
Review, now require companies to report non-financial indicators
in the narrative part of the annual report.
many companies today, the brand represents shareholder value,"
says Sinclair. Especially in the U.S., a "litigious society,"
trademarks are protected as carefully as invested income.
Sinclair believes the common metrics the financial community uses
to evaluate brands as assets won't do. These include such approaches
as historic cost, replacement cost, and income capitalization.
Among intangible valuers, Relief from Royalty is the most popular,
although Sinclair insists, "Relief from Royalty is highly suspect,"
due to the subjective nature of its assumptions.
his doctoral thesis, Sinclair developed BrandMetrics. "The basic
principles are that brands are long lived assets" they tend to
appreciate in value over time, instead of depreciating like most
other assets except for land. "They contribute to economic profit,"
he says. BrandMetrics uses customer based brand equity as the
driver of value growth, and mediates brand profitability by categories
and the economic environment.
part of their model,
Sinclair and his colleagues isolate the brand portion of economic
value. This is done by identifying an exhaustive list of possible
resources, reducing these to core drivers of economic profit ,
and evaluating the interplay of brand equity with those resources.
In more than 300 cases, the leading drivers of economic profit
remain remarkably consistent, including supply chain management,
brand name, control of costs, consistent production, brand loyalty,
margin management, human resources, customer relations, and pricing.
resulting portion of economic profit attributable to the brand's
equity remains stable across industries, with more stable businesses
such as energy companies at the low end (45 to 50 percent), and
highly branded media titles at the high end (80-90 percent).
BrandMetrics provides marketers with a very real number to take
to the board room: a brand value. The system also can be tweaked
to project a brand value into the future; thereby helping marketers
determine where and when to expand their efforts; similar to how
financial investments control the value of an asset.
brand is a resource acquired by an enterprise which generates
future economic benefits." says Sinclair. "It's an asset in
the same way that a building is an asset or a machine is an asset."
even has an answer for those who still refuse to accept his reasoning:
"Have you heard of a company called Arthur Anderson?"