Kolumner

What is the worth of a brand?

One would not expect rankings of world’s most valuable brands to interest but a specialised audience, but in Finland they get past the general media’s gatekeepers for one reason: Nokia. Every Finn used to take a lot of pride in seeing Nokia to feature prominently in the rankings. Today reporters browse through the rankings for another reason, trying to figure out just how much the value of its brand has dwindled. The cause for the interest notwithstanding the question remains: how should one weigh up these rankings? Can they be deemed reliable?

Financial values of brands are assessed by three big international consultancies, Brand Finance, Interbrand and Millward Brown. Each of them publishes annually a ranking of world’s best or (what seems to amount to the same thing) most valuable brands. All three apply their own methodologies (each presumably with features superior to those of the other two) so there is no reason to expect the rankings to be identical. Nevertheless, if the value of a brand can be pinned down with considerable accuracy, as the consultancies imply, one should be able to observe a fairly strong correlation between the rankings. Even if the assessed values of brands would differ to an extent, one would expect the brands to appear roughly in the same order in each of the rankings. Is that the case?

On the surface it appears not to be. Even a quick glance reveals some inconsistencies. McDonalds is ranked fourth by Millward Brown but occupies only 25th place in the Brand Finance 2013 ranking. Visa, which is ranked ninth by Millward Brown, does not make the top 100 in the Brand Finance ranking. And these are by no means the only disagreements.

Observed inconsistencies notwithstanding, a quick glance is not a sufficient base for a qualified assessment. So let us try and apply some elementary statistics to the problem.

Brand Finance and Millward Brown have already published their 2013 rankings, but that of Interbrand is due only later this year. Rankings for 2012 are available from all three, which should be fine for present purposes. If the consultancies apply consistent methodologies from year to year, the result of a statistical analysis should not differ materially depending on the year.

One problem is that the three consultancies don’t appear to rank exactly the same population. While Brand Finance publishes a ranking of 500 brands, Interbrand and Millward Brown are content with 100. Almost all brands ranked by Millward Brown can be found higher or lower on the Brand Finance list, but only 45 brands are common to all three. There might be more matches for Interbrand-ranked brands on Brand Finance list, but they would not be included in the Millward Brown ranking, so there is no sense in looking. It would not add to comparable information.

Since Brand Finance ranks five times as many brands as Interbrand and Millward Brown, a statistical analysis cannot be based on original rankings. One cannot know, what a certain brand’s ordinal number would have been in the Interbrand and Millward Brown rankings, should they have ranked all the brands included in the Brand Finance exercise. By assigning an ordinal number from 1 to 45 to each of the brands according to their original ranking on the respective list, one can create a subset, which allows of an analysis to confirm the consistency of the rankings or to reveal the possible lack of it.

Calculating Kendall’s rank correlation for all three possible pairs of rankings confirms that the rankings are not entirely unrelated. Correlation between Brand Finance and Interbrand is 0.49, that between Brand Finance and Millward Brown 0.24 and that between Interbrand and Millward Brown 0.35. All three coefficients are statistically significant (at the 0.05 level).

However, remembering that identical rankings would yield a correlation of one, the link between rankings seems to be fairly weak. Moreover, it appears mainly to be due to first seven brands (according to the Interbrand and Millward Brown lists), in the rankings of which there is little disagreement between the three consultancies. Dropping the first seven brands and re-calculating Kendall’s rank correlation yields quite different results. Correlation between Brand Finance and Interbrand drops to 0.32, that between Brand Finance and Millward Brown to -0.03 and that between Interbrand and Millward Brown to 0.11. Only the first coefficient is statistically significant, so it seems that for the most part there is little in common to the consultancies’ rankings of the other 38 brands.

So what are the conclusions? Apparently the first seven brands, Apple, IBM, Google, McDonald’s, Microsoft, Coca-Cola and GE, were the most valuable brands in the world in 2012, since the consultancies agree 95 per cent that they belong to the top seven. As regards the exact value of the brands, there is more room for variation. The financial value of the Apple brand, for instance, was estimated at USD 70.6 billion by Brand Finance, at USD 76.6 billion by Interbrand, and at USD 183.0 billion by Millward Brown. As for the rest of the set, their ranking may be almost anything between 8 and 45, depending on which consultancy one trusts the most. One of them might be right, of course. The question is: which one?

All three consultancies make a lot of real money advising their corporate customers. The fact that customers are willing to pay presumably hefty fees for the consultancies’ services adds validity to their assessments. However, next time I happen to come across a sum that a company is supposed to have lost from the value of its brand, I will take a grain of salt with the information. Assessment of the value of a brand does not seem to be a simple and straightforward thing. In 2012 Nokia brand did not make the top 100 in the Brand Finance and Millward Brown rankings anymore, but Interbrand still ranked it as 19th among the best global brands. How Interbrand will rank Nokia brand this year remains to be seen. Causes for curiosity are not running out.