The purpose of this document is to address the questions that you are most likely to be asking in relation to the Best Global Brands survey.  It is not exhaustive but it should cover most first-level questions.  If you have questions relating to the method or on some of the specific findings, please contact one of our many brand valuation experts around the world. The people to contact are as follows:

What is Brand Value?

Brand Value is the $ value of the brand at a point in time as an asset of its owner which is assessed using techniques comparable to the valuation of physical assets.  It is the value that would appear on the balance sheet if it were appropriate/ possible to recognize it.

It is not an attempt to estimate what the brand would cost to replace, nor what the brand would be worth to someone else, nor what has been spent on the brand since it was created. 

Why is Interbrand an expert in assessing brand value?

In 1987, Interbrand pioneered the world’s first objective valuation of a portfolio of brands, developing a model with the London Business School that is still consistent with the way in which we value brands 17 years later.  Since that time all the major audit firms, stock exchanges, tax authorities (including the IRS), government anti-trust inquiries, investment banks, and leading consulting firms have accepted our method.  We have produced 3 editions of the textbook ‘Brand Valuation’ and have contributed extensively to journals worldwide as well as speaking on the subject of brand valuation at conferences and academic seminars (e.g. HBS, Columbia, NYU, LBS).  We have valued over 3,500 brands covering virtually every industrial category and in more than 40 countries around the world. 

What is the point of these valuations?

The purpose of these valuations is to remind companies that brands are genuine assets of businesses and that their importance (in terms of absolute $ value and in relation to total shareholder value) is often very significant.  That is true of the brands on this list and also true of strong national brands that are not on the list but would be close in terms of value.  The change from previous years is useful directionally although given the external nature of the data should not be overstressed.

What are the limitations of these valuations?

The limitations (compared to doing a proper formal valuation project for the brand owner) are: that they are based on public data only; that there is no input from management (in order to maintain consistency); that complex multi-national brands (such as IBM or Shell) are better valued as a series of separate pieces rather than in one lump; that certain key brands are not listed; and that only a limited amount of time can be spent on any one brand.  The main limitation is that they tell you how much the brand is worth but not what is driving brand value nor what would increase brand value going forwards.  A formal valuation would do just this.

What is the difference between the valuations presented here and those conducted formally by Interbrand?

There is no difference in terms of method.  The only difference is in the data that is used, the level of detail applied and the time spent.  Only public data was used and so the valuations are only as reliable as the data that the brand-owning companies publish about themselves (in annual reports, analysts briefings, press articles, syndicated market research, etc).  There was no access to private data or to senior management interviews as there would be in a formal valuation.  Moreover, the brands were looked at without further segmentation. For example, we tried to assess IBM as a whole whereas valuing it formally would have entailed aggregating it from a series of perhaps 30 segments separated by product type and by geography.  Finally, the team of consultants assessed the set of 100 brands (plus some that did not make the cut) over a period of 2 months.  A formal valuation would take 3 months to look at just 1 brand or 1 company. In the past, for the reasons outlined above, formal valuations have differed from league table valuations by up to 20-30%.

Is it possible to recognize Brand Value on a balance sheet?

Several accounting standards - such as International Accounting Standards (IAS) 36 and 38;  US GAAP; FASB 141; UK, FRS 10 – allow and/or require the recognition of acquired goodwill including brands  on the balance sheet. The standards clearly identify brands as intangible assets with an infinite economic life.  This means unlike other intangible assets (e.g. patents, databases) or goodwill (e.g. training, workforce) brand value does not have to be amortized through the income statement.  However, they are subject to an annual impairment test and their carrying value needs to be reduced if the value declined.  The technique is consistent with the way in which Interbrand has assessed brands for balance sheet inclusion – though of course using more extensive and proprietary data. 

What is Interbrand’s view on brands appearing on balance sheets?

It is increasingly absurd that the largely tangible assets on balance sheets reflect only 20% or 30% of the value of the business.  In the case of Coca-Cola Corporation and of Microsoft Corporation balance sheet assets account for less than 5% of the total value.  This seems to provide very little information to shareholders to help them to understand the underlying value of the business and that is why some formal statement about brand value (and the value of other intangible assets) is likely to become more and more pressing.  Whether this happens on the traditional balance sheet or whether it happens on a new ‘Statement of Intangible Value’ is unclear – but it certainly needs to happen.  (There is a precedent for this in the way in which the Cash Flow Statement was developed to complement, but not replace, the Profit & Loss Account.)

What are the key elements in the valuation approach?

There are three key elements and they are detailed below:

Financial Forecasting - We identify the $ value of revenues from products or services that carry the brand and ensure that all relevant direct and indirect costs are charged as well as a deduction for tax.  A further charge is made to reflect the opportunity cost or hidden cost of the tangible assets that are employed (the property, plant, inventory, working capital, etc).  By making a charge for these (based on the cost of capital) we strip out a base return on the tangible assets.  This is similar to identifying the earnings that a commodity business would make.  Only a return above this base return can be called value-add (hence the term EVA or Economic Value Added).  This can be regarded as the earnings due to all the intangibles in the business (of which the brand is one).  These earnings are forecast forward for a period of 5 years taking into account expected changes in market conditions, revenue growth, profitability, etc.

Role of Branding - Since the earnings from intangibles include all the intangibles used in the business, we need to allocate a part of this to the brand.  This is called the assessment of Role of Branding.  For some businesses, e.g. fragrances or packaged goods, the Role of Branding is very high – the only reason why the customer buys from one company rather than another is because of the brand.  However, in other situations although the brand may be well known and well liked, it may not be playing such a key role in driving the customer decision.  For example, people are buying from Microsoft because of the brand but mostly because the software is pre-loaded; people are buying from Shell because of the brand but mostly because the gas station is conveniently located; people are buying from IBM because of the brand but mostly because of the technology and patents; people are buying from Citibank because of the brand but mostly because they are passively tied to the bank.  We have for each of the brands (and categories) assessed the Role of Branding.  In situations (such as GE or Shell) where the brand is used across a variety of businesses, the Role of Branding figure used is an estimated average across all the branded businesses. 

The Role of Branding is a %  - thus if it is 50%, we take 50% of the intangible earnings as Brand Earnings.  If it is 10%, we take only 10% of the earnings. 

The assessment of Brand Strength is a structured way of assessing the relative risk of the brand.  We compare the brand against a notional ideal and score it against 7 factors of Brand Strength.  These are Market, Stability, Leadership, Trend, Support, Geography, and Protection.  The ideal brand is virtually ‘risk free’ and would be discounted at a rate almost as low as a Treasury bond or similar risk free investment.  The lower the Brand Strength the further it is from the risk-free investment and so the higher the discount rate. 

What was the basis of the financial assessments?

Published annual reports were used to examine the revenues, earnings and balance sheets of the brand-owning companies.  Analyst reports that were supplied to Interbrand by JP Morgan were used as the basis for identifying the specific brand revenues and earnings and for forecasting future earnings.

What was the basis for the marketing assessments?

The marketing assessment drew on Interbrand’s experts around the world who have knowledge of the brands in their different markets.  Each year through our 34 offices, Interbrand consultants are looking at many hundred of brands and markets for our clients and so we have an unrivalled view of the position of key brands.  This expertise was supplemented with press articles, analysts comment and syndicated market research.  No new primary consumer research was conducted since any one survey would have given too one-dimensional a view of the brands. 

Were the brand-owning companies asked for specific information or for comment?

No – the information used was only that which they had published in the normal course of events (annual reports, analysts briefings, press articles, syndicated market research, etc).  To avoid undue influence from the companies they were not asked for specific information, nor were they shown the valuations for comment prior to publication.  This was true even of brand-owning companies that are clients of Interbrand or of sister companies of Interbrand within Omnicom (e.g. the ad agencies BBDO and DDB). 

What is the relationship between the following terms: Brand Awareness, Brand Equity, Brand Share and Brand Value?

Brand Value is the only measure that looks at the economic benefit of the brand to its owner.  In other words, it is an end in itself.  Brand Awareness and Brand Equity are a means to an end.  Brand Awareness may prompt customers to consider buying my product; Brand Equity may give them reason to prefer my product over the alternatives offered by other brands of which I am aware; their decision to buy my product will increase my Brand Share; but I only create Brand Value if as a result of their purchase I create an on-going positive earnings stream for my business. 

For example, the Rolls Royce brand has always enjoyed very high brand awareness (people have heard of it) and very high brand equity (people like it).  However, for many years, it actually cost more to produce a Rolls Royce than people were prepared to pay to buy one.  There was therefore no translation into Brand Value for the then owner (Vickers).  Under its new owner, BMW, because of the synergies of being able to share production and distribution with a wider automotive concern, the brand is now profitable and so producing real value. It is not however large enough to be included in this league table.

Do the valuations reflect the underlying state of the economy?

Yes – in two ways. The forecasts reflect a lower level of business confidence and so in many cases lower growth rates or lower margins.  The formula for converting the Brand Strength Score into a discount rate is tied to underlying Treasury risk rates.  As the economy weakens these rise and so the range of discount rates for brands rises. 

Over time, should Brand Value be increasing or is it enough for it to be stable?

Brand Value is a form of economic value.  It should therefore increase as the economy increases (like rental incomes or property values).  If a brand is simply holding value that means that it is losing value in real terms since it is not keeping pace with underlying economic growth. 

How should we understand the Brand Value as a % of Market Capitalization?

The Market Capitalization is the investors’ net view of the value of the whole of a business taking into account all the tangible and intangible assets and the ability of the company to use those assets to generate earnings in the future.  Included within this implicitly is a valuation of the brand.  But because few companies separate out the value of the brand we do not know how much of the value of the business is supported by the value of the brand.

It can be read in a number of ways:

• If BV % of Market Cap is low, it suggests that the business is driven by other kinds of assets (tangible and intangible) and that the brand is relatively unimportant. It could also mean that the business is failing to leverage the brand as much as it should be and that investors should be concerned about that.
• If BV % of Market Cap is high, it suggests that the business is driven by the brand and that investors should take care of how the brand is being managed since this will have a very direct effect on shareholder value. It could also mean that the business is under-valued by the market and that they are failing to reflect the true value of all the assets of the business of which the brand is one (but only one).

Our use of this statistic also takes into account situations where the brand being valued is the only (or at least) the most important brand in the business.  For example, there is a huge difference between this statistic for Coke and Pepsi. That is because apart from the minor brands such as Fanta and Fruitopia most of what Coca-Cola Corporation does is branded Coke.  In contrast, Pepsi is only one of the brands of PepsiCo Inc – their remaining market value including brands such as Gatorade, Tropicana, Lays, Doritos, etc.

How does brand value rank against ad spending?

It is not really appropriate to try to correlate these two.  Brand Value is a measure of the output from a series of brand investments over a long period of time.  Ad spending is looking at only one input and in a short period of time.  Reasons why the two would not correlate include:

• The brand is built through other means of communication (e.g. Samsung in sponsorship rather than just advertising)
• The brand spends a small amount on advertising but uses it very effectively (e.g. Starbucks)
• The brand is built through means other than communication (e.g. Apple through product design)
• The brand is built through word of mouth (e.g. Harley Davidson)
• The brand was built through advertising years ago more than through advertising today (e.g. Marlboro)

What is the connection between this survey and the surveys that appeared in ‘Financial World’ in the early 1990s?

The surveys that appeared in Financial World purported to use a simplified version of the Interbrand model but were not valuations conducted by Interbrand and we take no responsibility for them.  We know that some of them were highly inaccurate and so we would not recommend any form of comparison between the valuations shown here (and the 1999 - 2004 valuations) and those earlier valuations. 

Does Interbrand conduct other brand surveys?

We have established national brand value league tables in France, Spain, Australia, Singapore, Taiwan, Mexico and Brazil. These follow an identical valuation process but only look at locally owned brands.

A US specific survey would be redundant due to the great overlap with the global table (57 out of 100).

What were JP Morgan, Citigroup and Morgan Stanley’s roles?

JP Morgan, Citigroup and Morgan Stanley were the primary sources of analyst reports used in identifying the revenues, earnings and balance sheets of the companies and forecasting future earnings.  They did not influence the marketing assessments nor did they have any influence over their own inclusion in the list. 

What was BusinessWeek’s role in the survey?

BusinessWeek did not influence the selection of brands or the determination of any of the values.  Their role was to publish the survey and to tie the reported performance of Brand Value to some of the wider issues affecting these brands.  They also provided the specific one-line comments that appear in the table.  Interbrand is not responsible for these and they do not necessarily represent our views. 

Why are certain brands not on the list?

This is a frequent question especially from companies who would expect their brands to be on the list.  The 4 most likely reasons are as follows:

• The brand is not sufficiently global
• The company does not produce public data that enables us to identify the branded business (the company has multiple brands or has unbranded production)
• The brand is not big enough (worldwide sales are less than $1 billion)
• The business is driven by a number of intangible factors and it is difficult to separate the brand from the rest

What % of the branded business needs to be outside the home country to be considered global?

In most cases one-third.  If the home country of the brand is small (e.g. the Netherlands) we required a higher percentage.  In cases where overseas sales are through licensees (and so the brand owner records the license income not the total revenue) we based our assessment on what the total revenue would have been.  (This would be the case for Budweiser). 

For US brands the overseas sales ratio can be smaller due to the size of the US market, which is nearly as big as all of Europe. Applying the one-third overseas sales requirement would penalize US brands for being successful in their domestic market.

Was this the only test for globality?

No – we also wanted evidence that the brand was established in a wide number of markets around the world.  At the very least it needed to have a substantial presence in at least one country in each of the following 4 regions: North America, Latin America, Europe and Asia-Pacific.  It also needed to be managed consistently as a global brand.

Certain obvious global brands are missing.  Were they considered and why were they not evaluated?

In each case there was a reason why they could not be evaluated based on purely public data.  

VISA – is clearly a brand with global reach.  However, it is not a normal corporation with a standard profit & loss account.  It is instead a membership organization that shows a surplus or a deficit.  Its shareholders are the member banks but since these banks are also its customers and its main suppliers, any assessment of surplus becomes circular.  The same is true of MasterCard.  It is possible to value these brands by modeling a traditional P&L but this cannot be done externally.  The same would be true of partnership consulting organizations such as PwC, McKinsey or Ernst & Young. 

BBC – is also a peculiar organization since it is a Government-owned corporation that is not supposed to generate a profit.  There are, however, parts of it which are commercial and which do generate profits but these are still the minority of the business. 

Red Cross – again as a not-for-profit it is not possible to value the brand based on an earnings model.  This would be true of other global not-for-profit brands such as Greenpeace, National Geographic or Unicef.  It is however possible to assess the financial value of such brands but using a different kind of model.

Mars – is privately held and highly secretive.  Other privately-held brands such as IKEA and Levi’s are included since they produce reliable public accounts. 

Airlines – There has clearly been significant investment in airline brands (and many of them are, by definition, global) but they are still operating in situations where the brand plays only a marginal role.  In most cases, the customer decides based on price, route, schedule, corporate policy or frequent flyer points.  The brand may often only have a real impact when all these other items are at parity.  We have assessed the Brand Value for airlines by using internal data to strip out the impact of these other factors.  But from purely public information this is difficult to do reliably.  The exception to this would be Virgin, which is clearly a brand driven proposition – however, as a private company it is not possible to value that brand from public information. 

CNN - AOL exists as separate business within AOL Time Warner and so can be identified.  Within the magazine business it is possible to identify the proportion that is Time by using circulation numbers.  However, it is not possible within the TV business to separate the CNN branded business from other elements such as Nickelodeon or Time Warner Cable.

Was there a limit to the number of brands included from any one industry?

No – However, one of the requirements of a leading global brand is that it is leading. The mark of leadership is not just about market share but also about acting like a leader – setting trends, quality standards, authority, etc.  Thus, there are brands that have top 3 market-share but did not make the cut and brands that are not top 3 that did.  The rules described are guidelines and ultimately each brand was assessed for inclusion on its own merits. 

Within certain industry sectors (financial services, telecommunications, beer) there are very few brands on the list. Why do we see less from these industries?

These are industries in which there are very large companies with well-known, established brands but where very few brands have achieved global status.  Thus, in financial services, each country has one or more major local brands (which might in their own right have a value in excess of $1 billion) – Barclays in the UK, ABSA in South Africa, Royal in Canada, Chase in the US, etc.  However, few have really succeeded in establishing itself across a wide global footprint.

Are there any brands that have a value of $2.1billion but did not make the list?

There are certainly strong national brands that have a value of over $2.1 billion but which did not make the list because they are not really global.  This would be true of a lot of financial services and telecomm brands but it is also surprisingly true of a lot of food, beer and retail brands.  A list of strong US brands that probably have a value in excess of $2.1 billion but which do not have a global presence would include: Miller, Sears, Cadillac, Chevrolet, Chrysler, Hersheys, Gatorade. 

How did you take account of the fact that brands like McDonald’s are run through franchisees?

This was an issue with all the food retail brands (McDonald’s, Pizza Hut, KFC and Starbucks).  We based our valuation on the earnings that the brand owner makes from the brand and an estimate of the earnings that the franchisees make from the brand (what is called a total-system view).  As in all other valuations, these earnings were then reduced to take account of a return for the use of the tangible and other intangible assets. 

Why are pharmaceutical brands included in the list?

It is clear that the main intangibles in a pharmaceutical business are the patents and technologies that they enjoy.  That is why the two brands that appear (Merck and Pfizer) account for respectively only 8% and 4% of the market cap of these businesses (compared to, say, 67% for Tiffany & Co).  However, even in this context brands do play a role.  For prescription drugs they play a B2B role for the doctors; for OTC drugs they play a role directly with consumers.  In addition Pfizer especially has a number of products (such as fertilizers) which are direct consumer sales and in which the role of the brand is quite significant).