If you watch the news regularly, you often hear about companies merging--often after one of the companies has been bought for a very hefty sum.
But what goes into determining the value of a company? It's not just a dull calculation of cash and physical assets, or even annual revenue. Part of a company's value comes from the strength (or weakness) of its brand.
Determining a brand's value isn't an exact science, but some firms have become leaders in the field. Two of those are the international advertising agency WPP and market research firm Kanter Milward Brown. Every year, the two publish a report entitled BrandZ Top 100 Global Brands, a list of the 100 most valuable brands on the planet.
What's interesting about the firms' 2017 report is that auto brands are nowhere to be seen in the top rungs of the rankings. Instead, tech firms dominate the upper portion of the study, with car brands coming in much, much further below--and many don't make an appearance at all.
But first, a quick overview of how WPP and KMB evaluate brands.
The process begins with the most quantifiable stuff: money. How much did each company generate in corporate earnings last year? And even more importantly: what are the company's future prospects? The firms rely on a range of earnings reports, analysts' data, and other info to assess this area.
Then comes the tricky part: assessing each company's brand. Put another way, WPP and KMB evaluate what consumers think about each brand on the list. In doing so, the firms rely on huge volumes of consumer research that's been conducted all around the world, focusing on three key areas:
1. Is the brand meaningful? Do consumers see it has having a direct effect on their daily lives? For example, Lyft might seem like a great brand to urbanites, but people who live in rural areas or in cities where the company isn't licensed to operate might not find it all that meaningful.
2. Is the brand different? If you've taken Marketing 101, you understand the importance of a positioning statement, which tells the world what a company does that no other can do. For example, there are plenty of places to find inexpensive eyeglasses, but Warby Parker differentiates itself by donating glasses to people in need. That creates brand value by setting Warby Parker apart from the competition.
3. Is the brand salient? A brand needs to stick in people's minds. It needs to be on the tip of consumers' tongues for it to be valuable. New brands often come up short on this front because they don't have the name recognition that industry stalwarts do.
Automakers tend to do well on item #3 because most have been around a while, and consumers know them by name. They may come up short, however, on item #2. For example, if a shopper is looking at two similarly equipped, similarly priced cars, it may be hard to see much difference other than price.
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Item #1 is something of a wild card. If a consumer truly values her ride because of what it enables her to do on a daily basis, then yes, that brand will be meaningful. If a consumer sees it as more of a generic hauler, the car's score may not be so high. This may explain why truck owners--who often use the vehicles for work--seem to be more brand-loyal on the whole than, say, sedan owners.