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 dollar value of a brand calculated as net present value (NPD) or today's value of the earnings the brand is expected to generate in the future. Like any other financial value brand value is at a point in time based on the assumptions and information available at that point in time. Brand value is calculated according to the most widely accepted and used valuation principles. Brand value is therefore comparable to business and all NPV based asset valuations.

The valuations in BGB are calculated in their current use to their current owner. They therefore do not necessarily represent the potential purchase, extension or licensing value of the brands.

Why is Interbrand an expert in assessing brand value?

In 1987, Interbrand developed and introduced the first valuation of a portfolio of brands, that used a brand specific valuation approach. Since then we have continuously updated and improved our valuation approach to make it the global industry standard of brand valuation. The Interbrand brand valuation methodology is the widest endorsed and used valuation approach around the world. Interbrand alone has valued more that 3,800 brands in all industries worldwide. Our valuations have been endorsed by leading academics including Harvard, Thunderbird, Columbia, Emory and St. Gallen to name a few. Our valuation approach has the highest depth of applications including strategic brand management, marketing budget allocation, marketing ROI, portfolio management, brand extensions, M&A, balance sheet recognition, licensing, transfer pricing and investor relations. Our valuations have been audited for inclusion on the balance sheet by all leading accounting firms. Also many tax authorities and law courts around the world have accepted our valuation approach.

What is the point of these valuations?

The purpose of these valuations is to demonstrate to the business community that brands are very important business assets and in many cases the single most valuable company asset. We also aim to make branding and marketing a key business issues that have direct shareholder value impact. Through 7 years of publishing BGB we have created the world's most significant and influential brand and marketing survey. Two years ago Burston Marsteller, one of the world's leading PR agencies, prepared a ranking of the rankings. Questioning the top 500 CEOs and CFOs in the US their survey concluded the our Best Global Brands study was regarded by senior management as the 3rd most influential ranking after Fortune 500 Companies and Fortune Most Admired Employers.

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 in BGB and consulting valuations for clients?

The valuation method is the same however the level of detail and the data input differ significantly. The BGB valuations are based on publicly available marketing and financial data. Also, the BGB valuations are mostly consolidated top line assessment although we recognize segment differences for diversified brands by product or service but not geography or any other classification (e.g. fin services or technology). 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).

Consulting valuations are based on detailed customer segmentations as well as in-depth marketing and financial analyses. They have a much higher level of accuracy and granularity. The purpose of consulting valuation goes well beyond assessing financial numbers to identifying and quantifying value drivers and to manage brands for increasing the shareholder value of the underlying businesses. However, if clients undertake consulting valuations we are in a much better position to identify publicly available data that are likely to align the BGB valuation with the consulting valuation. In cases where companies make our consulting valuations publicly available for example through a note in the balance sheet these values will also be published as BGB value. In the case of Gucci we have restated the value for '05 to the balance sheet value of the Gucci brand as published in the annual report of PPR (Pinault Printemps Redoute, the French holding company).

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?

We support notion of the different accounting standards to recognize the value of brands on the balance sheet. Interbrand has been leading the debate on this issue for many years. However, current accounting standards allow only for the recognition of acquired brands not internally developed ones. Also, the impairment test for brands on the balance sheet allows only for a potential value reduction but not increase. This means that the Gucci brand is recognized on the balance sheet of PPR as intangible asset. The Louis Vuitton brand on the other hand does not show up on the balance sheet of HMLV although it accounts for about 44% of the group's market capitalization.

We therefore conclude that the recognition of acquired brands on the balance sheet is a step in the right direction for providing shareholders with better information about the assets they have invested in. However, it is still insufficient as the value of internally generated brands cannot be disclosed although they make up the vast majority of the most valuable brands around the world.

As the need for some formal statement about brand value (and the value of other intangible assets) is becoming increasingly important we would advocate some type of statement in the annual report on the intangible business assets including brands. Whether this happens on the traditional balance sheet or whether it happens on a new 'Statement of Intangible Value' would be secondary (nb: 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.)

How do we derive the value of the brands?

Brand value is the Net Present Value or today's value of the earnings the brand is expected to generate in the future. This valuation approach is a derivative of the way businesses and financial assets are valued. It fits with current corporate finance theory and practice.

There are three key elements and they are detailed below:

Financial Forecasting
We identify the revenues from products or services that are generated with the brand. From these Branded Revenues we deduct operating costs, applicable taxes and a charge for the capital employed to derive Intangible Earnings. Intangible Earnings are the earnings that are generated by all of the business' intangibles including brands, patents, R&D, management expertise, etc. This is a prudent and conservative approach as it only rewards the intangible assets after the tangible assets have received their required return. The concept of Intangible Earnings is therefore similar to value based management concepts such as economic profit or EVA (Economic Value Added is Stern Stuart's branded concept). Based on reports from financial analysts we prepare a forecast of Intangible Earnings for 6 years.

Role of Branding
Since Intangible Earnings include the returns for all intangibles employed in the business, we need to identify the earnings that are specifically attributable to the brand. Through our proprietary analytical framework called Role of Branding we can calculate the percentage of Intangible Earnings that are entirely generated by the brand. In some businesses, e.g. fragrances or packaged goods, the Role of Branding is very high, as the brand is the predominant driver of the customer purchase decision. However, in other businesses (in particular b2b) the brand is only one purchase driver amongst many and the Role of Branding is therefore lower. For example, people are buying Microsoft not only because of the brand but mostly because the company has an installed base of 80% of the market and it would be for most users extremely difficult to switch their existing files to a new software platform. In the case of Shell people buy not only because of the brand but because of the location of the petrol stations. We have for each of the brands (and categories) assessed the Role of Branding. In situations (such as GE or Samsung) where the brand is used across a variety of businesses, the Role of Branding figure was assessed for each core business segment.

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.

Brand Strength
For deriving the net present value of the forecast Brand Earnings we need a discount rate that represents the risk profile of these earnings. There are two factors at play: Firstly, the time value of money (e.g. $100 today is more valuable than $100 in 5 years as I can earn interest on the money in the meantime), secondly the risk of that the forecast earnings actually materializing. The discount rate represents these factors as it provides an asset specific risk rate. The higher the risk of the future earnings stream the higher will be the discount rate. To derive today's value of a future expected earnings stream it needs to be 'discounted' by a rate that reflects the risk of the earnings actually materializing and the time for which it is expected. For example $100 from the Coca-Cola brand in 5 years require a lower discount rate than $100 from the Fanta brand in 5 years as the Coca-Cola brand is stronger and therefore more likely to deliver the expected earnings.

The assessment of Brand Strength is a structured way of assessing the specific 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 government bonds 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 (and therefore the lower the net present value).

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 from JP Morgan Chase, Citigroup and Morgan Stanley and 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.

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, this level of awareness and liking is not sufficient to generate an economic earnings stream from the Rolls Royce brand.

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 the underlying government bond yield.

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

The Market Capitalization represents at a point in time investors' assessment of the net present value of all future financial benefits the company is expected to generate. This includes the value of the employed brand assets. However, since very few companies state the separate value of their brand assets 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).

The comparison of brand value to market capitalization is mainly useful for mono branded businesses as the market capitalization relates to all company assets. For companies that own many businesses that operate under different brands such as Nestlé, J&J or VW this comparison is less meaningful.

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:

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 and initiatives over a long period of time. Advertising is one element in wide spectrum of communications companies use. Other communications include sponsorships, the internet, point of sale, customer service, etc. In some cases brands are built with very little or no advertising as in the case of Starbuck where retail space and employees are the key communications channels.

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 (53 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:

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 (brand value below $2.4 billion)
• The business is driven by a number of intangible factors and it is difficult to separate the brand from the rest

Why have certain brand values been restated?

The valuations are based on publicly available data. If new data come into the public domain that had significant impact on the value of the brand then we utilized these data to restate the value. For example in the case of Philips we found new information that certain loss making operations had ceased using the Philips brand. As these operations were no longer Philips branded we excluded them from the valuations which changed the value of the remaining Philips branded earning streams.

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. 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 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. 

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, e.g. Wal-Mart or Verizon.

Are there any brands that have a value of $2.4 billion but did not make the list?

There are certainly strong national brands that have a value of over $2.4 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 $2.4 billion but which do not have a global presence would include: Wal-Mart, Sears, Verizon, etc.

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 (Novartis and Pfizer) account for respectively only 6% and 5% of the market cap of these businesses (compared to, say, 71% for McDonalds). 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).