Brand Bubble: the paradox

Posted by on Dec 17, 2008 in Uncategorized | 2 Comments

Soap-bubble
John Gerzema's new book has many things to be said for it (not least the opening up of Y&R's fabled BAV survey which provides the evidential backbone for the book) but for me the most important thing is the idea which gives the book it's title:

Customer surveys show that the number of high-performance
value-creating brands is diminishing across the board. Yet at the same
time, businesses and financial markets keep raising brand valuations.
The result? A brand bubble that could erase large portions of
intangible value in your company and send another shockwave through the
global economy

For my money, this is so striking a finding that I'd have like to have seen more time and energy put in to understanding this. Is the shrinking of the set of brands which generate high balue bourne out by other data sources? Do for example the guys at Interbrand agree? Does anyone in Wall Street have a point of view on this? what are the real implications for "other brand" companies (beyond being interesting)?
What's the real opportunity cost of rectifying it?

I'd also like to know what really is the cause of this phenomenon: is it the over-professionalisation of marketing with all its benchmarking, best practice and going-through-the-motions-mediocrity? Or, is it perhaps a survey effect (we all know research co-operation has slipped in recent years)?

I think it's really important to get to the bottom of this, even without thinking about the valuation trend (thought that, too, could do with some unpacking) because without knowing what the real causes are, we're going to struggle to correct things.

That said, even if the valuation thing wasn't true, there's probably still enough here to really spur brands into action: what if you discover that you're on the outside of the "brand" base? What are the practical and financial implications for brand owners?

Few of us would disagree with the general sentiments on offer here (being interesting, energetic etc) and it's a pleasure to read a marketing book based on sound data plots but for me the really interesting stuff are the big questions we might have to get our heads around if John and his co-author are right. Questions such as maybe the brand idea isn't such a panacea after all – for companies and their marketers? Or, that maybe the brand (and what we do to  build it) aren't the key drivers of the valuation but rather, other valuations? What should we do instead?

Do go have a read, though. Nice work.

2 Comments

  1. Tom Asacker
    December 17, 2008

    I just watch an interview with John on Bloomberg:

    Listen to how the correspondent refers to “branding” as “image control.” Goes to show what the mainstream believes.
    Beyond the perception issue, I simply could not wrap my head around what Gerzema was trying to get at. We all know that consumers have become much smarter and are replacing high priced, mass media created “brands” with lower priced alternatives, e.g. private label brands, brands from low-cost producers, etc.
    This consumer knowledge, along with the introduction of many higher quality marketplace offerings, reduces the projected profits of those “image-driven” brands and thus their brand value, over time.
    Add to this the recent slow down in demand for goods and services, and you get the current shockwave, which has caused huge reductions in market capitalizations (Trillions of dollars of value).
    The fact that some jokers continue to overvalue intangible brand value – which is nothing more than a projection of future profitability based on the capabilities, assets, goodwill, and demand for the brand – shouldn’t mean a thing. For hasn’t the bubble already burst, or am I missing something?
    Is Gerzema predicting another stock market crash, and if so, on what does he base his prediction? What haven’t the analysts taken into consideration when projecting future demand and discounted profitability?

  2. John
    December 18, 2008

    Brand valuations should never have gone on the balance sheet in the first place. As you know, I think that’s where the whole notion of branding as a verb originated and it’s not been a happy saga.
    But, to answer Tom, I assume what he’s getting at is once you write down the intangible asset value to its correct level, the balance sheet of the companies in question will look much weaker and thus be ripe for takeover/break-up. It won’t need another crash, just some standard banking financial engineering.