Downturn wipes out $67 billion value of global brands: Report

The global economic downturn has cleaned out $ 67 billion off the value of the top 100 global brands, according to a report by Brand Finance Plc, a company that specialises in brand valuation and intangible asset valuation, tracking, measuring, economics, and strategy.

The report says that though value for money (VFM) brands continues to do well, luxury brands such as Nike have suffered.

The report says that since January, the world economy has witnessed commodity price increases, credit crunch, rising unemployment and declining share prices. It says that between then and now, the brand value of the 100 global brands has dropped 4.2 per cent, wiping out $67 billion in the process.

It also says that between January and September 2008, the enterprise value of the 100 most valuable global branded businesses has decreased by 13.3 per cent, a drop of $1.6 trillion.

The study is calculated by Brand Finance based on the widely used and technically superior ''Royalty from Relief'' methodology, which assumes that a company does not own its brand name, and then calculates how much it would have to pay to license it from a third party.

In March 2008 Brand Finance had released the 2008 version of its report on the 500 most valuable Global Brands. It has now come out with an update that reveals the impact of the economic downturn on the top 100 brands.

Sector trends

The report says that as the price of oil continues to rise, so does the value of the leading petrochemical brands.

Four of the top five brands that record an increased in brand value belong to leading brands in the oil and gas sector. These include:

• ExxonMobil 19.4 per cent
• BP 18.3 per cent
• Chevron 17.9 per cent and
• Shell 12.8 per cent

The only other sector to record a significant increase in overall brand value is healthcare, suggesting that despite a decrease in spending, consumers are prioritizing health and well-being. Johnson & Johnson does especially well and outperforms its competitors by jumping an impressive 16 places to 84 in the table, illustrating the trend across the sector.

The retail sector's total enterprise value has risen by 9.1 per cent. During the current recession low-priced retailers are leveraging their position by providing customer with value for money goods. Everyday consumer brands have benefited as consumers trade-down and rediscover good value products. McDonald's is an example of a brand that has benefited from successful re-positioning as a healthier, value for money option. Trading on its heritage and consumer brand equity, McDonald's brand value increases by nine per cent to $23,968 million.

On the other hand, brands such as Starbucks struggle to gain share of (shrinking) wallet as consumers cut unnecessary spending habits and turn to more essential goods. With the current economic conditions, it is not surprising that the financial services sector has decreased in brand value across the board. Financial service institutions need to refocus attention on the key value drivers of their brands and develop longer term strategies.

Brand Rankings:
Wal-Mart has overtaken Coca-Cola, to become the most valuable global brand in the BrandFinance500. The value of the brand has increased nine per cent since December 2007, to $42,567 million driving a 23.5 per cent increase in Wal-Mart's enterprise value over same period. Wal-Mart has turned the recession to its advantage by leveraging its reputation for low prices.

Financial services giant Citi tumbled out of the top ten to fifteenth place with a brand value of $24,058 million, a 14 per cent decrease. reflecting poor performance in the current sub-prime crisis. This allows Vodafone to enter the top ten ranking in the ninth slot, as the leading telecommunications brand with a brand value of $26,688 million, closely followed by Nokia, with a brand value of $26,564 million.

David Haigh, CEO of Brand Finance plc said, ''In the current climate, it is essential to understand the absolute value of brands and what drives their value. The Brand Finance Global 500 report provides an insight into the effect of recession on leading brands.''

''There is clear evidence that basic, value for money brands like WalMart, AT&T, Exxon and McDonalds are performing very strongly, particularly when they invest consistently in advertising and marketing. By contrast unnecessary or discretionary brands like Starbucks, Nike, Coca Cola and L'Oreal are declining in value as consumers watch their finances more carefully.''

''There is also evidence at the global level that developing world brands are growing rapidly. Samsung, Tata, Bank of China and Lukoil are all good examples of this phenomenon.''