Over on Mashable.com there is an article concerning the value of a brand name that's got me thinking. The article is concerning a presentation given by Aswath Damodaran, a professor of finance at NYU's Stern School of Business, at the L2 Innovation Forum. In this presentation he asserts that the only real value of a brand is the ability to charge more for something that is essentially the same as its competition. In fact, he argues that if you cannot charge more than your competition for your product, you don't have a brand. To a degree, this is correct...but it's also not quite.

In his presentation he compares the following brands:

1. Apple vs. Dell
2. Acura vs. Ferrari
3. Rolex vs. Fake Rolex
4. Bayer Asprin vs. CVS Asprin
5. Coke vs. RC Cola

He spends the most time with Coke vs. RC Cola. He does a little math that demonstrates that, for all intents and purposes, Coca Cola and Cott (the company that makes RC Cola) are the same, yet Coke's margins, growth rate, and return on capital are three times higher. It's interesting arithmetic, to be sure, and a real cogent argument for the value of brands.

My issue with the presentation come down to the consistencies between his comparisons. In short, I don't think they're fair or accurate.

Apple vs. Dell

First, these are both brand names. Dell is a trusted name in some circles, and they manage to sell a lot of computers. This is where I find fault in his argument that without being able to charge more, you don't have a brand. The name Dell does bring, to some, a shortened purchasing decision making process. It's unfortunate that the PC market in general has engaged in a race-to-the-bottom process that has eroded the value of their own product, but that doesn't mean that Dell's brand isn't valuable. Dell still manages to charge a premium (albeit slight) over emerging PC brands.

It's also unfair to compare Apple to Dell because they don't really sell the same thing. If you could buy Mac OS on a Dell, you'd have a fair comparison, but for this to be completely valid, you have to compare Windows machines. A more suitable comparison might have been Dell vs. Sony if you're interested in the home-use market, or Dell vs. Lenovo if you want to talk business. 

Acura vs. Ferrari

Again, both brand names. In his slideshow Mr. Damodaran compares an Acura NSX to a Ferrari which I cannot identify, because I'm not a Ferrari aficionado. This one is actually a pretty good comparison, and high end cars are probably a better example than PCs. The only real advantage that the Ferrari has over the Acura is its storied history, scarcity, and a fraction of a second around a track.

Rolex vs. Fake Rolex

This one is interesting because you're comparing the brand not just to its imitator, but its counterfeiter. This really complicates things:

1. It actually has the word Rolex on the watch face, and therefore carries some of the value of the original brand. Some of the value of premium goods comes the desire to demonstrate affluence after all, so one could argue that the only value of this watch is the word Rolex on it.
2. It is almost certainly of dubious quality.
3. The example given states its price at $125. So, if we assume that the watch itself is unremarkable, that leaves us with a maximum pricing premium of $115. (I'm allowing $10 for a cheap analog watch here. They're not free.)

A more straightforward comparison would be the Rolex to a similarly high-quality timepiece of a less well-known brand. Again, I am not an aficionado of timepieces. I don't wear a watch.

Bayer Asprin vs. CVS Asprin

This is actually the most fair comparison. There's no measurable difference between the products. The active ingredients, and their amounts, are identical. Yet, for some reason, Bayer can charge 450% more for theirs. This is also, however, a little bit misleading. Bayer spends lots and lots of money on advertising, and CVS doesn't advertise its asprin at all. This is a fine example of how Mr. Damodaran's assertion is short-sighted. Price, and ability to charge a premium, is not the end of the picture.

Coke vs. RC Cola

Coke is, of course, the king of Colas. So much so that other premium brands have been chasing them for decades. So much so that when asked who Coke's main competition was, former marketing director Sergio Zyman didn't respond "Pepsi," but instead, "A cold glass of water."

What's interesting about this example is that it doesn't seem to represent reality to me at all. In his slide Mr. Damodaran writes that a 6-Pack of Coke costs $4, compared to a generic cola's $2. Twice the price. Easy comparison...but not true. Coke is ALWAYS on sale at my grocery store, with a 12 pack going for $3.25 pretty regularly ($0.27/can), where the smaller brands almost never go on sale, and the normal price is $3.99 for 6-Pack ($0.67/can).

This is where I really start to see holes in this method for valuing brands. Coke is almost certainly a larger and more valuable brand, and business, than the boutique soda companies whose sodas sell for 250% the cost of a can of Coke. Does that mean that my favorite boutique cola, for which I am willing to pay a significant premium, is a more valuable brand?

The Market Beyond Retail

The real value of a brand is, of course, far more complicated, because companies don't just compete on store shelves. Mr. Damodaran makes a leap, when discussing the value of Coke and RC Cola from sales and revenues and margin to market value, which are, unfortunately, unrelated things. In a rational world, sure, the market value of a company's stock would be based on reality (assets, earnings, margins, etc...), but we know that's not often the case. The thing is, the value of a company lives in the minds of the people who are buying and selling its shares. To be succinct, it's the flip side of branding coin.

I would go so far as you say that if you are a publicly traded company, and your stock is worth more than the the sum of your company's parts, then you have a brand. Unfortunately for those of use who are trying to figure this stuff out, no company has just one set of customers, markets, or audience. Brands are complicated because of that, and that's why branding remains one of the most misunderstood areas of marketing.

The Conclusions

For all the flaws in his method, Mr. Damodaran did come to some very good conclusions. For those of us who spend a great deal of time thinking about and working with brands, these are nothing new, but for what it's worth, he's right. His conclusions are:

1. Brand is the Most Sustainable Competitive Advantage
2. Luck/Serendipity are Just as Important as Advertising
3. Brand Value is an Illusion
4. Valuable Brands Can Lose Value

Brand is the Most Sustainable Competitive Advantage

Concisely, this is because you can control it, and create it out of whole cloth. Patents expire, materials can be matched, and great ideas are only unique until you show them to the world. After that, it's all brand. Brand is really the ability to manufacture preference. If you create something great, someone will inevitably try to copy it, or improve upon it, but if you've built a great brand, they can improve your formula all they want, and that preference will still exist.

Luck/Serendipity are Just as Important as Advertising

There's something to be said for being in the right place at the right time. There's also something to be said for being prepared to answer the door when opportunity knocks. Given his examples (UnderArmor, Crocs, Ugg Boots) I don't know that luck is really the word he wants here. These companies were all fortunate that they were able to capitalize on an opportunity, but I wouldn't dismiss it as luck. What's more important is to recognize that branding, that ability to manufacture preference, extends beyond advertising. Many successful companies become so without ever making a media buy.

Brand Value is an Illusion

This is kind of using a word to define itself, but it's funny because it's often missed. Your brand lives in the mind of your customer. It isn't a thing so much as a notion. As Mr. Damodaran says in his presentation, if your customers develop collective amnesia, your brand evaporates.

Valuable Brands Can Lose Value

And they do. All the time. Do you remember the Reebok Pump? Reebok was a world-beater when they came out with the pump. For a brief shining moment we all forgot about out Air Jordans while Reebok replaced Nike as the go-to basketball shoe. But, it didn't last. Reebok didn't maintain it. The market shifted and Reebok wasn't nimble enough. Nike took back its lead.

The same is true of Converse. The All-Star was a technological marvel. But you wouldn't dare play basketball in 'Chucks' these days, unless you want to roll your ankle and end up flat footed. The interesting thing that Converse has done is redefine itself as a counter-culture brand, and by doing so, found a new market to participate in.

The lesson is that you have to maintain your brand in order to retain value. You have to keep it top of mind for your customers by marketing, innovating, and maintaining the qualities that made that brand great in the first place. You also can't dilute it with sub-quality offerings, or by making it too easy or cheap to get.

The Take-Away

Brands, although imaginary, have very real value. What's more, they're easy and cheap to build when compared to other methods of building value, and they pay back tremendous returns. If you take them seriously, nurture them, and guard their value, they provide a very real competitive advantage.