Part III: Measuring and Valuing Reputations: Quantifying Brand Values
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Volume 1 Numbers 1 and 2
Part III: Measuring and Valuing Reputations In this session, articles were presented which shifted the focus of attention away from the antecedents of corporate reputations towards their consequences. More speci®cally, three eminent exponents of reputation practice highlighted the impact of corporate reputation on ®nancial valuation, both at brand level and at corporate level. The presentations of the following panelists have been summarized for publication as abstracts. Quantifying Brand Values Kurt Badenhausen, Analyst, Financial World Leveraging Corporate Equity Leslie Gaines-Ross, Director of Research, Burson-Marsteller ROI: Calculating Advertising's Impact on Stock Price James R. Gregory, President, Corporate Branding Partnership
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Measuring and valuing reputations
Quantifying Brand Values Kurt Badenhausen, Financial World
INTRODUCTION Most of what we do at Financial World is very investor oriented, and for a few months each year I work on valuing the world's most valuable brands. Valuing brands is often not thought of as important to investors. I hear constantly from brand managers that they have problems conveying to their CEOs and upper management the importance of supporting a brand. Although most CEOs talk about how important a brand name is to the company, the talk often goes unsupported in dollar terms because supporting a brand does not have immediate impact. It is forward thinking, and many CEOs are looking at the bottom line on a year-to-year or even quarterly basis. Yet ultimately, CEOs of public companies have to satisfy shareholders. They need to consider the facts, and look at Coke, Gillette, McDonald's and Kodak, for example, and ask why all of these companies trade at a price/earnings multiple that are at a premium to their competitors. The answer is valuable brand names. The idea that Coke, which is in a mature business like beverages, could trade at a Price to Earnings ratio in the 35 to 40 range is incredible. Coke would have the public believe that drinking one of their sodas is some sort of religious experience. But there is a story told by Coke's CEO Roberto Goizueta about what would happen if tomorrow we woke up and every single asset that Coke has was wiped out. He said that he could walk into any bank and borrow the money to restart operations, just based on the strength of the Coke brand name Ð and I am sure he is right.
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Investment guru Warren Buett has always preached the importance of brand names. His investments have followed this strategy, and things have worked out well for Mr Buett. MEASURING BRANDS A lot of talk about branding is very fuzzy with words like reputation and identity being thrown around. But at Financial World we like to make things a little more concrete, and that entails putting a dollar value on brand names. The methodology that we use is a version of the formula used by Interbrand, the world's foremost experts on brand valuation. A signi®cant part of the formula relies on the earnings of the brand. After all, com
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