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Business Observer Friday, Aug. 29, 2014 7 years ago


What does brand value have to do with the economy? Turns out, a lot.
by: James R. Contributing Columnist

Since 1990, CoreBrand has been continuously monitoring the reputations of 1,000 companies across 50 industries. Known as the Corporate Branding Index, this study is unique in that is it the only continuous examination of how a company's brand contributes to its value. Thus the study is a fair reflection of companies' valuation and their impact on the U.S. and even the global economy.

The growth of intangible assets as a contributor to the economy is undeniable. In 1975, intangible assets — such as brands — accounted for less than 20% of the total market capitalization of most companies. Today, the contribution of intangible assets is more than 80% of that value. Yet internally grown intangible assets are not on the balance sheet. Therefore they are not properly represented or accounted for as drivers of the economy.

Recognizing this accounting shortfall, we created a model to determine brand equity and value. It does so by quantitatively determining the percentage of the company's market cap that is attributed directly to its corporate brand, which then translates into the percentage of market cap attributable to the brand into a dollar value.

The following examines the CoreBrand 500 and the CoreBrand 100 companies. These represent the biggest and best-known companies in the world. By looking at the averages consistently over time we can examine the health of the economy.

The CoreBrand 500 average range of contribution to market cap is 5-7%. Over the past decade, there has been a steady decline in the CoreBrand 500 average dropping from a high of 7.4% in 2004 down to 5.1% in 2011 and remaining stuck at that lower level. This is a fair reflection of a lethargic economy recovery. It basically indicates that the economy is not being driven by business.

The CoreBrand 100, which consists of corporations with the strongest corporate brands, fared better longer with the downward inflection point coming in 2009 and having less than a 1% negative impact on total company value. The CoreBrand 100 average stayed within the 15-17% range over the past decade. Interestingly this elite group continued to grow from 2004 to 2009, before declining. The lesson is that big brands hold their value longer and enjoy a brand premium value 8-10% above the broader CoreBrand 500.

Why did CoreBrand 500 begin to decline in 2004, while the CoreBrand 100 continued to improve until 2008? We believe it was due to the Sabanes-Oxley Act becoming the law of the land in 2002. As it was being implemented, the law was seen by the survey respondents of business leaders to be a greater burden on the mid-sized rather than the biggest companies.

It was probably not the intent of the framers of the “SOX” law to unduly punish the mid-size companies. It is interesting to observe, however, the averages between the CoreBrand 100 and the CoreBrand 500. The 2003 average percentages show the smallest gap between the Top 100 and Top 500, at 7.9%. Conversely the largest gap we've seen between the Top 100 and Top 500 is in 2008, with a gap of 10.7%. This is significant when even a single percent can represent hundreds of millions or even billions of dollars of market value.

Brand Equity DOLLAR Value
The CoreBrand 500 brand equity market value ranges from $1.5 billion to $3.1 billion over the past 12 years, with 2008 taking the biggest hit. The CoreBrand 100 also took the hardest hit in 2008, with an average loss of $3.2 billion, but these top-performing companies only took two years to recoup that loss and they have now peaked at $13.4 billion.

Why was the CoreBrand 100 able to recoup so much brand equity value since 2008 while the brand equity as a percentage of market cap remained relatively flat? Quite simply the general economy was slowly improving due to the economic stimulus package and low interest rates over that timeframe, but the corporate brand didn't play as much of a role as a value driver as it has in past economic recoveries.

Basically this means the economy is not firing on all cylinders. The recovery we are experiencing, while not entirely bad, is not entirely healthy. When we see brand equity scores improving as a fundamental value driver, you will know that the economy is more balanced and will be self-sustaining with less requirement for artificial stimulus and government mandated low interest rates.

James R. Gregory is founder and CEO of CoreBrand, a global brand strategy, communications and design firm headquartered in New York, with offices in Los Angeles and Tampa. He helps clients develop strategies to improve their corporate brands and profitability. Contact him at [email protected].

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