Skip to content

Marketing Thought

Clarifying management/marketing theory

Menu
  • Neil Bendle
  • Popular Marketing Metrics: How Not To Mess Them Up
  • Marketing Metrics 4th Edition Book
  • Marketing PhD Applications
  • Advice For The Marketing Academic Job Market
  • Marketing Strategy
  • Public Policy, Behavioral Economics and Marketing
Menu

Hovis And The Valuation of Brands

Posted on December 9, 2016December 11, 2021 by neilbendle

Today we turn to a history lesson on brand valuation. The story is of Hovis and the valuation of brands.

Hovis And The Valuation of Brands

Rank Hovis McDougall, a big U.K. food manufacturer in the 1980s decided to record the value of its brands on its balance sheet. This included its internally generated brands. (These are brands whose value is as a result of the firm’s actions, e.g., advertising, rather than being purchased through an acquisition etc…)

This decision “… created a storm of controversy” (Murphy et al., 1989, page 9). (This eventually led to accounting rules designed to prevent similar actions from occurring.)

Interbrand Responded

Faced with this controversy Interbrand — led by John Murphy — responded. A short article in the British Food Journal neatly lays out the problem with not capitalizing spending on brand assets. Many of these comments remain relevant today. For example, that recording assets on the balance sheet reduces the need for Goodwill upon acquisitions. (Goodwill is the portion of the purchase price of a company that is largely inexplicable). Furthermore, Murphy makes a point that is hard to argue with. (At least if you think a firm’s balance sheet should be informative about the firm’s assets.

Trending
Don’t Use One Industry To Create Examples For CLV (Customer Lifetime Value)

We see no reason why acquired brands should be treated differently from “home grown” brands, since both can be equally valuable assets of the company.

Murphy et al., 1989, page 10

No Solution Found

Unfortunately, the solution is a little harder to arrive at. Murphy outlines problems in a number of alternative brand valuation methodologies. For example, spending on brand building can be a weak proxy for brand value and reward frivolous spending. Increased margins may not capture all the value from a brand. Brands are not traded (causing problems finding market value). Some survey methodologies (e.g., measuring awareness) can’t easily be translated into dollar values. While predicting future cash flows and growth is fraught with difficulty. All these problems seem largely fair points.

The solution proposed is interesting. It has helped create a massive business for Interbrand and other consultants. The problem is that it also seems a little arbitrary. Brand strength helps determine the multiple of profits assigned to brand value using an S curve methodology. Sadly, the seven aspects of brand strength while all likely important seem not fully justified or even fully explained. These are stated to be: Leadership, Stability, Market, Internationality, Trend, Support, and Protection.

Murphy's Seven Aspects Of Brand Strength
Murphy’s Seven Aspects Of Brand Strength

Like many papers, Murphy’s is better at outlining problems than solutions. Still, it is very useful in helping us better understand the history of brand valuation.

For more on brand valuation see here, here, and here.

Read: J. Murphy et al. (Interbrand Ltd., Windsor) (1989) The Valuation of Brands, British Food Journal, 91, 2, pages 9-11

Share on Social Media
twitter facebook linkedin reddit

  • Internal Measurement Of Brand Value
  • Regulation And Business Responsibility
  • Leadership, Power, And Morality
  • Gaining And Using Power

MASB’s Common Language Dictionary

Need a marketing definition? Use MASB’s Common Language Marketing Dictionary. Click for the MASB Common Language Marketing Dictionary

Pages in Marketing Thought

  • A Plea About Language Used In Marketing
  • Advice For The Marketing Academic Job Market
  • Behavioral Econ For Kids: The Cartoon Book
  • Data Visualization Advice
  • Machine Learning (ML) And Marketing: What Should You Know?
  • Marketing In The Movies
  • Marketing Metrics 4th Edition Book
    • Chapter of Marketing Metrics 4th Edition, Free Sample
  • Marketing PhD Applications
  • Marketing Strategy
    • Measuring Culture Is A Challenge, But Don’t Be Silly
    • Rationality And Marketing Strategy
    • Segmentation, Targeting and Positioning
    • Strategy And Evolutionary Thinking
  • Neil Bendle
  • Popular Marketing Metrics: How Not To Mess Them Up
    • Brand Valuation: Progress But Lots More Needed
    • Customer Equity: Nice Idea, Bit Of A Mess In Execution
    • How To Use, And Misuse, Customer Lifetime Value (CLV)
    • Is ROI The Most Abused Term In Marketing?
    • Market Share: Always An Indicator Never A Target
    • Marketing Accounts: A Better Way To Measure Marketing Performance
    • Measuring Competition With The Bendle Panda Index
    • Net Promoter Score: Sadly Not As Magical As Supporters Suggest
    • Profit Measurement: Choose Your Own Level Is Problematic
    • Tobin’s Q: Why Academics Should Listen To Managers
    • Total Q, A New Improved Tobin’s Q? Not By Much
    • Value Of A Like: Do Not Use For Budgeting
  • Public Policy, Behavioral Economics and Marketing
  • Recommended Books
©2022 Marketing Thought | Built using WordPress and Responsive Blogily theme by Superb
Go to mobile version