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Economic Downturn Wipes $67 billion off top Global Brands’ Valuation

17 September 2009
This article is more than 11 years old.

London and New York – Today, Brand Finance plc, the worlds leading independent brand valuation consultancy, reveals the impact of recession on the 100 leading Global and US brands.

In March 2008 Brand Finance released the 2008 version of its report on the 500 most valuable Global Brands (See Report). The effective valuation date was 31st December 2007, using financial forecasts for 2008 and beyond.

Since January the economy has been hit by commodity prices rises, the credit crunch, rising unemployment and tumbling share prices. As a result of this Global economic crisis, Brand Finance has revisited its findings and has updated the values of the top 100 Global and top 100 US brands.

The study is calculated by Brand Finance based on the widely used and technically superior “Royalty from Relief” methodology, which assumes that a company does not own its brand name, and then calculates how much it would have to pay to license it from a third party.

The update reveals that:

Global trends:

  • Between January and September the enterprise value of the 100 most valuable Global branded businesses has decreased by 13.3 percent, a drop of US$1.6 trillion.
  • Between January and September the brand value of the 100 most valuable Global brands has decreased by 4.2 percent, a drop of US$67 billion.

Sector trends:

  • As the price of oil continues to rise so does the value of the leading petrochemical brands. Four of the top five brands that record an increased in brand value belong to leading brands in the oil and gas sector. These include; ExxonMobil (19.4percent), BP (18.3percent), Chevron (17.9percent) and Shell (12.8percent).
  • The only other sector to record a significant increase in overall brand value is healthcare, suggesting that despite a decrease in spending, consumers are prioritizing health and well-being. Johnson & Johnson does especially well and outperforms its competitors by jumping an impressive 16 places to 84 in the table, illustrating the trend across the sector.
  • The retail sector‟s total enterprise value has risen by 9.1percent. During the current recession low-priced retailers are leveraging their position by providing customer with value for money goods.
  • Everyday consumer brands have benefitted as consumers trade-down and rediscover good value products. McDonald‟s is an example of a brand that has benefitted from successful re-positioning as a healthier, value for money option. Trading on its heritage and consumer brand equity, McDonald‟s brand value increases by 9 percent to US$23,968m. On the other hand, brands such as Starbucks struggle to gain share of (shrinking) wallet as consumers cut unnecessary spending habits and turn to more essential goods.
  • With the current economic conditions, it is not surprising that the financial services sector has decreased in brand value across the board. Financial service institutions need to refocus attention on the key value drivers of their brands and develop longer term strategies.

Brand Rankings:

  • Wal-Mart has overtaken Coca-Cola, to become the most valuable global brand in the BrandFinance500. The value of the brand has increased 9percent since December, to US$42,567m driving a 23.5 percent increase in Wal-Mart‟s enterprise value over same period. Wal-Mart has turned the recession to its advantage by leveraging its reputation for low prices.
  • CITI tumbled out of the top ten to fifteenth place with a brand value of US$24,058m (a 14 percent decrease) reflecting its poor performance in the current sub-prime crisis. This allows Vodafone to enter the top ten in ninth place as the leading telecommunications brand (with a brand value of US$26,688m) closely followed by Nokia (with a brand value of US$26,564m)

“In the current climate, it is essential to understand the absolute value of brands and what drives their value,” said David Haigh, CEO of Brand Finance plc. “The BRANDFINANCE™Global 500 report provides an insight into the effect of recession on leading brands.”

“There is clear evidence that basic, value for money brands like WalMart, AT&T, Exxon and McDonalds are performing very strongly, particularly when they invest consistently in advertising and marketing. By contrast unnecessary or discretionary brands like Starbucks, Nike, Coca Cola and L‟Oreal are declining in value as consumers watch their finances more carefully.”

“There is also evidence at the global level that developing world brands are growing rapidly. Samsung, Tata, Bank of China and Lukoil are all good examples of this phenomenon.”

For a more detailed analysis of the BRANDFINANCE™ Global 500 report, please visit www.brandfinance.com

Media Contacts

Konrad Jagodzinski
Communications Director
Brand Finance
Florina Cormack-Loyd
Associate Communications Director
Brand Finance

About Brand Finance

Brand Finance is the world’s leading brand valuation consultancy. Bridging the gap between marketing and finance, Brand Finance evaluates the strength of brands and quantifies their financial value to help organisations of all kinds make strategic decisions.

Headquartered in London, Brand Finance has offices in over 20 countries, offering services on all continents. Every year, Brand Finance conducts more than 5,000 brand valuations, supported by original market research, and publishes nearly 100 reports which rank brands across all sectors and countries.

Brand Finance is a regulated accountancy firm, leading the standardisation of the brand valuation industry. Brand Finance was the first to be certified by independent auditors as compliant with both ISO 10668 and ISO 20671, and has received the official endorsement of the Marketing Accountability Standards Board (MASB) in the United States.

Methodology

Definition of Brand

Brand is defined as a marketing-related intangible asset including, but not limited to, names, terms, signs, symbols, logos, and designs, intended to identify goods, services, or entities, creating distinctive images and associations in the minds of stakeholders, thereby generating economic benefits.

Brand Strength

Brand strength is the efficacy of a brand’s performance on intangible measures relative to its competitors. Brand Finance evaluates brand strength in a process compliant with ISO 20671, looking at Marketing Investment, Stakeholder Equity, and the impact of those on Business Performance. The data used is derived from Brand Finance’s proprietary market research programme and from publicly available sources.

Each brand is assigned a Brand Strength Index (BSI) score out of 100, which feeds into the brand value calculation. Based on the score, each brand is assigned a corresponding Brand Rating up to AAA+ in a format similar to a credit rating.

Brand Valuation Approach

Brand Finance calculates the values of brands in its rankings using the Royalty Relief approach – a brand valuation method compliant with the industry standards set in ISO 10668. It involves estimating the likely future revenues that are attributable to a brand by calculating a royalty rate that would be charged for its use, to arrive at a ‘brand value’ understood as a net economic benefit that a brand owner would achieve by licensing the brand in the open market.

The steps in this process are as follows:

1 Calculate brand strength using a balanced scorecard of metrics assessing Marketing Investment, Stakeholder Equity, and Business Performance. Brand strength is expressed as a Brand Strength Index (BSI) score on a scale of 0 to 100.

2 Determine royalty range for each industry, reflecting the importance of brand to purchasing decisions. In luxury, the maximum percentage is high, while in extractive industry, where goods are often commoditised, it is lower. This is done by reviewing comparable licensing agreements sourced from Brand Finance’s extensive database.

3 Calculate royalty rate. The BSI score is applied to the royalty range to arrive at a royalty rate. For example, if the royalty range in a sector is 0-5% and a brand has a BSI score of 80 out of 100, then an appropriate royalty rate for the use of this brand in the given sector will be 4%.

4 Determine brand-specific revenues by estimating a proportion of parent company revenues attributable to a brand.

5 Determine forecast revenues using a function of historic revenues, equity analyst forecasts, and economic growth rates.

6 Apply the royalty rate to the forecast revenues to derive brand revenues.

7 Discount post-tax brand revenues to a net present value which equals the brand value.

Disclaimer

Brand Finance has produced this study with an independent and unbiased analysis. The values derived and opinions presented in this study are based on publicly available information and certain assumptions that Brand Finance used where such data was deficient or unclear. Brand Finance accepts no responsibility and will not be liable in the event that the publicly available information relied upon is subsequently found to be inaccurate. The opinions and financial analysis expressed in the study are not to be construed as providing investment or business advice. Brand Finance does not intend the study to be relied upon for any reason and excludes all liability to any body, government, or organisation.

The data presented in this study form part of Brand Finance's proprietary database, are provided for the benefit of the media, and are not to be used in part or in full for any commercial or technical purpose without written permission from Brand Finance.

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