How important is a brand's valuation?

Consumers don’t merely buy brands, they ‘buy into brands’. A brand’s strategy must address key components of value creation such as reputation value, relationship value, experiential value and above all, symbolic or cultural value

Updated: Nov 25, 2020 08:42:48 AM UTC
Image: Shutterstock

To say that we live in a world of brands is to state the obvious. Recently, the 2020 Interbrand ‘Best Global Brands’ valuation list was announced with the 100 brands at a summative total brand value of $2 trillion. The IPO of Chinese fintech player Ant alone drew applications worth $2 trillion. These staggering figures brought brand value and its financial valuation into sharp focus.

A brand is an expression of identity. Brands serve as powerful markers to help consumers express values, display status and generate social personality. Consumers use their interaction with the brand to identify with others and gain admission to a community.

Seen from a business lens, branding is a strategic approach and not merely a select set of activities. It is key to creating and maintaining competitive advantage. A brand’s strategy must address key components of value creation such as reputation value, relationship value, experiential value and above all symbolic or cultural value.

The economic merit of a brand lies in its reputation and esteem. The sociological basis for a brand’s valuation is as a trust mechanism. In cognitive terms, a brand serves as a heuristic frame. In popular culture, a brand is a story and a symbol. They all add to a brand’s inherent value.

Brand valuations are going through the roof because it is recognised more than ever before that a brand culture acts as a framework for consumption. The mental ‘metabolic rate’ required for branded consumption has become higher than ever before. Overloaded with information, in a 24/7 world, consumers have become ‘cognitive misers’. Consumers don’t merely buy brands, they ‘buy into brands’.

Brand strength helps a business generate cash flows and sustainably grow profits over the longer term.

I believe brand custodians should obsess about creating value not valuation. Nevertheless, this list has significance. Interbrand is used as an industry-wide reference for brand valuation. The reported brand value factors in business performance, financial outcomes in terms of economic profit, role of brand in purchase decisions and loyalty criteria such as clarity, commitment, protection, responsiveness, authenticity, relevance, differentiation, consistency, presence and understanding.

2020 is a historic turning point that will create an unprecedented shift in our way of living. We must see the brand valuation list with a microscope in one eye and a telescope in the other. Lives, businesses and brands have all been impacted and the world has changed forever. Many brands have benefited from the tailwinds, whereas for others it has been a devastating catastrophe. What can the Interbrand list tell us about the present and the future?

Expectedly, ‘digital first’ brands came top of the list. The research period this year—1 July 2019 to 30 June 2020—covered the period of the pandemic-related online surge. It’s not that Covid-19 airdropped the world into the digital age. But, it accelerated to warp speed the lifestyle migration that was already happening.

Apple, Amazon, Microsoft, Google and Samsung are now the five most valuable brands in the world, in that order. The gains made by these brands dwarfs the others in the list of top 100 brands. The total value of the top 100 brands has actually gone up by 9 percent compared to last year. Leaving aside everything else in their business just the brand value is at a staggering $2 trillion.

A clutch of brands from allied industries like logistics, e-commerce, and payments have gained in value as they were positively brought to the fore due to the Covid-19 disruption.

One important trend deserves mention. It is about concentration of value. The ‘winner takes all’ phenomenon shows up. The top 10 brands account for 50 percent of the total brand value of the top 100 this year. America leads the way with 7 out of the top 10 brands. In fact, 4 of the top 5 brands are from the United States. What’s mind boggling is that the top 3 brands make up for 30 percent of the total brand value of the top 100 brands, up from 16 percent in 2010.

On the other side of this crisis, Covid-19’s most enduring legacy will not be face masks, sanitisers or social distancing, but the end of permanence as a standard. We shall now expect disruption as part of normality. Can brands give us strength and direction in a world that is truly volatile, uncertain, complex and ambiguous?

With an aggregate value exceeding $2 trillion, there can be no doubt that these power brands move the interconnected global economy. They will play a role in providing solutions to many problems faced by humanity. Brands will matter more in the future.

It pains me to see that not even one of the top 100 brands is from India. Our talent leads many of these global brands and corporations but—as Indian brands—we are just not there.

India cannot become a developed economy with underdeveloped brands. It should concern us all, and become a national mission.

The writer is Global Head, Marketing at Royal Enfield. He writes regularly on brand building, social trends, history, technology and politics. Views expressed are personal

The thoughts and opinions shared here are of the author.

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