Lacking a set standard, the finance function tends to avoid assigning value to its brands, and companies tend to focus instead on qualitative assessments, such as brand awareness, customer engagement and perception of quality. While these metrics can inform growth expectations, they do not assess the true value that the company might have created by growing its brands. This article, sponsored by Oracle, explores the brand valuation conundrum.

1. © The Economist Intelligence Unit Limited 2015
Sponsored by
A valued asset: Bringing brand metrics
into the bottom line
An asset, ill-defined
In October 2015 Anheuser-Busch InBev, the multinational brewing and beverage company,
agreed to buy its rival, SABMiller, for US$104bn. If the deal is approved, it will make AB InBev
the biggest beer company in the world. Roger Sinclair, a fellow of the Marketing Accountability
Standards Board (MASB), estimates that the value of SABMiller’s brands could be assessed as
high as US$30bn. That dollar value will end up on AB InBev’s balance sheet as a permanent asset.
However, owing to a glaring gap in global accounting standards, AB InBev’s own home-grown
portfolio brands—which include Budweiser, speculated to be worth US$22.3bn on its own—
cannot be included on the balance sheet.
International Financial Reporting Standards (IFRS) and the US Financial Accounting Standards
Board (FASB) both require companies going through mergers or acquisitions to assign a financial
value to brands being acquired based on what the buyer is willing to pay, yet these same
accounting boards insist that if an intangible asset is home-grown, it cannot be considered as
a financial asset. Moreover, brands that are acquired can never increase in value, because no
standard exists to assess their growth. Mr Sinclair refers to this as the “moribund effect”. As he
explains: “Any gain that the acquiring company achieves through good marketing will be hidden
due to the current requirements of the accounting standards—and value ignored is value lost.”
So Coca-Cola—the world’s most recognised soft drink—is worth nothing to the company’s balance
sheet because it is a “heritage brand”, yet Vitaminwater, the mid-market line of “enhanced
waters”, is worth US$4.1bn, because that’s what Coke paid for it in 2007. “It’s absurd,” says
Kevin Lane Keller, professor of marketing at the Tuck School of Business, Dartmouth College, and
author of Strategic Brand Management, a widely referenced text on brand management. “For many
companies, their most valuable asset is their brand, but there are no agreed upon methods to
measure it.” This lack of standards leads most CFOs to shy away from measuring the value of their
brands—even off the record.
The valuation conundrum
AXA, the French multinational insurance company, relies on the annual Best Global Brands
report published by Interbrand, a brand consultancy, to track the financial value of its brand,

2. 2 © The Economist Intelligence Unit Limited 2015
A valued asset
Bringing brand metrics into the bottom line
says Frédéric Tardy, chief marketing and distribution officer. AXA closely watches the Interbrand
ranking, which evaluates the influence and strength of a brand based on company financial
performance, brand influence on purchase decision, its weight on its market and an estimate of
its future earnings, and announces the ranking to the press and investors every year. In 2015 AXA
was ranked 48th (out of 100), with a brand value of over US$9bn, a 14% increase on 2014. “Having
a strong and influential brand is key for us as it…gives visibility in a more competitive and rapidly
evolving world,” Mr Tardy says. However, despite the emphasis AXA places on its brand ranking
and the value that ranking brings to the business, its own executives do not assess their brand’s
value and have no plans to do so, he adds.
Other leading global brands understand the immense value this brings to their businesses, and
they love to talk about the importance of brand awareness or engagement, but that’s where
measurement ends for most of them, says Rita Clifton, chairman of the branding firm BrandCap
and former CEO of Interbrand. “They know it is important, but they will not tie a hard economic
number to it because classic accounting is not designed to measure the value of intangible
assets.” Ms Clifton notes that brand valuation methodologies vary and that they all produce
different results. “Demonstrating the value of the brand as an asset can be important, even if few
CFOs are able to put them on the balance sheet. What’s critically important is understanding and
demonstrating how a brand generates value across all the activities of a business.”
A breath of change?
While external financial reporting need not limit the internal metrics used to plan business
activities, in practice this tends to happen. Lacking a set standard, the finance function tends
to avoid assigning value to its brands, at least publicly, and companies tend to focus instead on
qualitative assessments, such as brand awareness, customer engagement and perception
of quality.
While these metrics can inform growth expectations, they do not assess the true value that the
company might have created by growing its brands. But things are changing, according to Mr
Sinclair, who has spent years fighting for a formal measure to account for financial reporting
for brand value. In 2014 the International Accounting Standards Board (IASB), which is the
standard-setting body of IFRS, completed a review of feedback from investors and regulators on
a potential process to conduct fair-value measurements of intangible assets, including customer
relationships and brand names.
“Most users said the proposed measure was useful, but that it was complicated and expensive,”
Mr Sinclair says. This suggests that it is a tool they would like to have if it could be integrated more
easily into their accounting practices. The IASB has made establishing a standard to account for
brand value a medium priority for its research agenda over the next three years.
Yahoo’s CFO Ken Goldman may take great pride in the fact that the search engine and news
source has global recognition, but he has no plans to site this on a balance sheet. However, if

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A valued asset:
Bringing brand metrics into the bottom line
accounting standards boards were to implement a standard for assessing brand value, it would be
binding, which means organisations such as Yahoo would have to comply, and that’s fine with Mr
Goldman—assuming it was objective, quantifiable and comparable across industries. “If there was
a hard-numbers approach to measuring brand value, I would pursue it,” he says. “If I could show
an increased asset base, and therefore an increased equity base, that would add real economic
value for the company.”
“Without general practice to follow, the idea of tying value to the brand stymies most accounting
groups,” he says. When companies try to assign value to concepts such as brand and customer
engagement, it tends to be siloed in the marketing department. Mr Goldman works closely with
his marketing team and will assess the return on investment from advertising and sponsorship
projects, but does not tie this back to the company’s net worth.
Aligning functions
Tracking brand metrics can help both finance and marketing to stay abreast of market values and
thus more accurately predict their future revenue and profit. But even here qualitative measures
predominate, says Jack Hollis, Group VP of marketing for Toyota Motor Sales in the US. Mr Hollis meets
monthly with CFO Tracey Doi to review his marketing budgets and determine how investments are
enhancing the Toyota brand. Mr Hollis’s group defines return on investment (ROI) in terms of seven
key metrics, including brand awareness, intention to purchase and perception of safety and quality, all
of which he tracks using data from dealer reports, customer surveys, manufacturers and third-party
industry guides. “They are all guest-centric metrics that we can tie into brand value,” he says.
Such brand value metrics give Mr Hollis and Ms Doi valuable insight into consumer purchasing
decisions and how to make the most of brand investments, Mr Hollis explains. For example, three years
ago brand metrics showed a diminished response to the company’s tagline “Moving Forward”. So they
recrafted the branding strategy with a new “Let’s Go Places” campaign, and since then the metrics
show that Toyota has returned to first place in several metrics, including sales to key demographic
groups. “By tracking those metrics we were able to focus our spending on building brand health,”
he says.
Purchasing intentions and the willingness to pay a premium, while probabilistic, offer insights that can
be used to improve forecasts of business revenue and profit. A closer collaboration between marketing
and finance will be necessary to deliver real returns. Mr Hollis asserts: “Having a strong relationship
with finance allows us to take more risks, and to allocate money to support the brand where we see the
greatest opportunity for ROI.”