Apple (US$87 billion) pips Samsung (US$58 billion) as the world’s most valuable brand but Ferrari is the world’s most powerful brand, according to leading brand valuation and marketing experts Brand Finance.
The BrandFinance® Global 500 analyses the performance of leading brands across all major business-to-consumer (B2C) and business-to-business (B2B) sectors, to produce a list of the world’s top 500 most valuable brands, making it the most extensive brand valuation study of its kind in the world.
Electronics giant Apple had a roller coaster year in 2012 – its enterprise value rocketed from US$350 billion to US$600 billion only to dip to US$400 billion in the space of 12 months. Despite a raft of new product launches such as the new iPhone and iPad the company continued to lose ground to Samsung and it was only its sheer size that helped Apple maintain its lead position over its smaller but more nimble South Korean rival.
The net result for Apple’s brand value was a rise from $70 billion to $87 billion but a slight weakening of its brand rating from AAA+ to AAA.
The mighty Apple brand is supporting the company as it arguably loses its competitive edge to Samsung in the wake of the launch of Galaxy S3, the most pre-ordered smart phone of all time. Samsung’s brand value leaped by a staggering 54 per cent (US$20.6 billion) and more new digital consumer products are expected to be launched during 2013.
Commenting on the findings, Brand Finance CEO David Haigh said: “Brand is one of many intangible assets which drive profitable growth. Technology, contractual, human capital and customer intangibles as well as general goodwill all drive overall corporate value. With revenues in the tens of billions, Apple and Samsung are slugging it out for global brand supremacy and are vying with each other to create strong ‘customer love’ for their brands. However, there are other brands in the Global 500 that though they may never challenge the brand value giants, are nonetheless extremely powerful and well-loved.”
A case in point is Ferrari, owned by Italian car giant Fiat, that achieved the highest brand rating in the Global 500 despite being a niche sports car manufacturer with a much smaller enterprise value than many of the other global brands in the Top 500.
“I often think that the Italian genius for car design is based in the language of craft,” comments world renowned design critic Stephen Bayley. “Theirs is a workshop vocabulary with words for a car’s features and contours many of which simply don’t exist in English. If you have a word for it you can draw it. That word is beauty,” he says.
A key driver of brand value is revenue. Clearly Ferrari cannot compete in terms of the size of the multi-national brands. However its brand rating takes into account other financial metrics such as net margins, average revenue per customer, marketing and advertising spend as well as qualitative measures such as brand affection and loyalty.
Taken together, Ferrari outperforms not only rival auto manufacturers BMW, VW, Mercedes Benz, Lexus and Audi but all brands worldwide.
Ferrari today announced record results for the first nine months of 2012, recording an increase in net profits by 7.6 per cent to €244m on a turnover of €2.43 billion.
"It is always a pleasure to top any list and still more so when the competition includes some of the world's most famous companies. This achievement proves that even in very tough economic times, Italy can still offer the world businesses of excellence," commented Ferrari Chairman Luca di Montezemolo. "Behind this acknowledgement are exceptional products made by equally exceptional men and women. They made it possible and for that I thank them."
David Haigh concludes: “As the Global 500 powerfully demonstrates, customer expectations of brands are much higher than ever as trust becomes a critical business issue in a time of increased economic uncertainty. To fulfil such expectations, brand owners must continue to innovate whilst at the same time deliver quality with value, choice with social responsibility and sustainability with growth.”
The full results of the BrandFinance® Global 500 are now available.
The methodology used in compiling the Global 500 uses a discounted cash flow (DCF) technique to discount estimated future royalties at an appropriate discount rate and to arrive at a new present value (NPV) of the trademark and associated intellectual property rights in order to compute brand value.
Royalty Relief Approach
The royalty relief methodology determines the value of the brand in relation to the royalty rate that would be payable for its use if it were owned by a third party. The royalty rate is applied to future revenue to determine an earnings stream that is attributable to the brand. The brand earnings stream is then discounted back to a net present value.
There is a six-step process involved in making the brand value calculations:
Obtain specific financial and revenue data.
Model the market to identify market demand and the position of individual brands in the context of all other market competitors. There are three forecast periods used:
Calculate the royalty rate for each brand by:
Calculate the future post-tax royalty income stream.
Calculate the discount rate specific to each brand, taking account of its size, geographical presence, reputation, gearing and brand rating.
Discount future royalty stream (explicit forecast and perpetuity periods) to a net present value – ie. the brand value
These are calculated using Brand Strength analysis, which benchmarks the strength, risk and future potential of a brand relative to its competitors on a scale ranging from AAA to D. It is conceptually similar to a credit rating. The data used to calculate the ratings is taken from a variety of sources including Bloomberg, annual reports and proprietary research by Brand Finance.
Note: The AAA to A ratings can be altered by including a plus (+) or minus (-) sign to show their more detailed positioning.
All brand values in the Global 500 are for the end of the year, 31 December 2012.
Brand Finance is the world’s leading brand valuation consultancy. Bridging the gap between marketing and finance, Brand Finance evaluates the strength of brands and quantifies their financial value to help organisations of all kinds make strategic decisions.
Headquartered in London, Brand Finance has offices in over 20 countries, offering services on all continents. Every year, Brand Finance conducts more than 5,000 brand valuations, supported by original market research, and publishes over 100 reports which rank brands across all sectors and countries.
Brand Finance is a regulated accountancy firm, leading the standardisation of the brand valuation industry. Brand Finance was the first to be certified by independent auditors as compliant with both ISO 10668 and ISO 20671, and has received the official endorsement of the Marketing Accountability Standards Board (MASB) in the United States.
Brand is defined as a marketing-related intangible asset including, but not limited to, names, terms, signs, symbols, logos, and designs, intended to identify goods, services, or entities, creating distinctive images and associations in the minds of stakeholders, thereby generating economic benefits.
Brand strength is the efficacy of a brand’s performance on intangible measures relative to its competitors. Brand Finance evaluates brand strength in a process compliant with ISO 20671, looking at Marketing Investment, Stakeholder Equity, and the impact of those on Business Performance. The data used is derived from Brand Finance’s proprietary market research programme and from publicly available sources.
Each brand is assigned a Brand Strength Index (BSI) score out of 100, which feeds into the brand value calculation. Based on the score, each brand is assigned a corresponding Brand Rating up to AAA+ in a format similar to a credit rating.
Brand Finance calculates the values of brands in its rankings using the Royalty Relief approach – a brand valuation method compliant with the industry standards set in ISO 10668. It involves estimating the likely future revenues that are attributable to a brand by calculating a royalty rate that would be charged for its use, to arrive at a ‘brand value’ understood as a net economic benefit that a brand owner would achieve by licensing the brand in the open market.
The steps in this process are as follows:
1 Calculate brand strength using a balanced scorecard of metrics assessing Marketing Investment, Stakeholder Equity, and Business Performance. Brand strength is expressed as a Brand Strength Index (BSI) score on a scale of 0 to 100.
2 Determine royalty range for each industry, reflecting the importance of brand to purchasing decisions. In luxury, the maximum percentage is high, while in extractive industry, where goods are often commoditised, it is lower. This is done by reviewing comparable licensing agreements sourced from Brand Finance’s extensive database.
3 Calculate royalty rate. The BSI score is applied to the royalty range to arrive at a royalty rate. For example, if the royalty range in a sector is 0-5% and a brand has a BSI score of 80 out of 100, then an appropriate royalty rate for the use of this brand in the given sector will be 4%.
4 Determine brand-specific revenues by estimating a proportion of parent company revenues attributable to a brand.
5 Determine forecast revenues using a function of historic revenues, equity analyst forecasts, and economic growth rates.
6 Apply the royalty rate to the forecast revenues to derive brand revenues.
7 Discount post-tax brand revenues to a net present value which equals the brand value.
Brand Finance has produced this study with an independent and unbiased analysis. The values derived and opinions presented in this study are based on publicly available information and certain assumptions that Brand Finance used where such data was deficient or unclear. Brand Finance accepts no responsibility and will not be liable in the event that the publicly available information relied upon is subsequently found to be inaccurate. The opinions and financial analysis expressed in the study are not to be construed as providing investment or business advice. Brand Finance does not intend the study to be relied upon for any reason and excludes all liability to any body, government, or organisation.
The data presented in this study form part of Brand Finance's proprietary database, are provided for the benefit of the media, and are not to be used in part or in full for any commercial or technical purpose without written permission from Brand Finance.