The Brand Bubble? Why Brands May Still Be Overvalued by Wall Street

So far, brands have not been called into question for their role in the stock market meltdown of 2008, but I suspect it won't be long. Who can look at the GM bankruptcy option and not see it, at least partly, as a failure of brand management? In my Brand Strategy MBA class last semester we discussed Al Reis' contention (GM=General Misery, Ad Age 2.2.08) that GM tried to support too many undifferentiated brands and ended up straining its resources and confusing its customers. With the recession now at full tilt, many companies are heeding the lesson and trimming underperforming brands.

Several articles in the Spring 2009 edition of the AMA's Marketing Research magazine (not yet online) provide further evidence that brand strategy is contributing to our economic woes. They link inflated stock market valuations to data on brand value and conclude that the stock market is overvaluing brands' contributions to company valuations relative to more tangible assets. Many companies have models designed to quantify the contribution of brand value to market capitalization, most notably Interbrand, Y&R, and CoreBrand. Each has consistently shown that while the relationship is generally small and varies by industry, it is nonetheless real. So real, in fact, that CoreBrand this month is launching an investment fund that based on its model, in conjunction with BelRay Investments.

In the article by John Gerzema, Chief insights officer at Y&R and author of 'The Brand Bubble: The Looming Crisis in Brand Value', there is a comprehensive look at all three brand valuation models using data in the U.S. as well as globally. Looking at all the data, he reaches the conclusion that the stock market has valued brands more highly than consumers do, leading to an acceleration of decay of brands. Here's a key passage:

"Emboldened by the tools of the new digital world, consumerism is drastically and profoundly changing, which is rapidly accelerating the decay of brnad. Fragmentation, social media and digital acceleration are causing a widespread attack on brand value. Consumers are quicker to punish uninteresting and undifferentiated brands. Today, brand equity is decaying in compressed periods of time. Brand equity is not the protective insulation it once was. After all, brand equity is only what a brand has achieved up until this point. What consumers are telling us is that past reputation seems to mean very little. Consumers are fatigued more quickly with brands that can't adapt and evolve. The clutter of the marketplace combined with the "old models" for brand management that strive to build awareness and reputation are actually backfiring in that they are slowing a brand's ability to keep pace with a consumer who is moving faster than their marketing strategies. And the emergence of a new digital consumer only amplifies the "d" problem: differentiation in a brand (or lack thereof)."

I've lived long enough in my career to know that the imminent death of brands has been forecast many times, but the concept of brand equity has proven more endurable than each subsequent challenge. There is always a place for brands since a brand is simply a contract between a company and its customers. That will never change. But I do agree with Gerzema that the pace of change among consumers may not be matched by changes in perceptions of the stock market investors. If true, that means the recovery may be longer than we thought, and that the skills involved in brand building in a digital world will be even more important.