• by James R. Gregory , December 18, 2008

From my perspective, The Brand Bubble: The Looming Crisis in Brand Value, is an extremely dangerous book. The authors, John Gerzema and Edward Lebar, have taken threads of truth and have tried to weave a dialogue about the impact of brand on stock values -- something that they clearly do not understand.

 

 

This recklessness will ultimately result in panic among those folks who control the budgets or, at the least, will give them more reasons not to give brands their proper esteem. I am perplexed as to why this book has been written by a respected advertising agency. Its endorsement by Y&R's senior management is incredible, and proves that management did not carefully read it nor understand its implications.

The motive behind this book seems to be the authors' attempt to gain credibility among CFOs and Wall Street financial analysts. Gerzema and Lebar would have been far better off just to report the dilemma of declining consumer brands and leave the wild headline-grabbing speculations of the impact of brand on market cap to the experts. Many of the people quoted are knowledgeable, but their method of using the quotes to justify their bubble discussion just does not synch.

Their basic premise of brand value is incorrect. It states, "Intangible value is estimated as the difference between 'enterprise value' and 'book value', the formula being 'debt + market capitalization - book value = intangible value'." This simplistic argument is not only flawed, but it is absolutely destructive to brand valuation.

We know from our research at CoreBrand that over 80% of stock market performance is driven by cash flow, expected cash flow, earnings growth, dividends, size of company, and underlying financial strength. The brand is a relatively small portion of total market capitalization. Brand can and does influence cash flow, but this book oversimplifies that relationship. Brand is not the major driver of stock performance. It plays a meaningful and measurable role but not the primary role that the authors imply. Keep in mind that CoreBrand has been doing research focused on the corporate brand longer than Y&R. Our focus for 18 years of has concentrated primarily on how the brand impacts, not propels, stock performance. We understand better than anyone how the brand creates value on market capitalization.

Will this book create panic among the financial community? Quite possibly. After all, the collapse of the housing industry and the banking industry was precipitated by far less threatening predictions than "the sky is falling."

Is there a basis to Gerzema's and Lebar's claims? Yes, brands have been declining. Throughout 18 years of CoreBrand's research, we've seen brands increase and decline, and they are currently in a downward cycle.

Is there a brand bubble? Not as far-reaching as the book claims. They are inferring market-wide effects from isolated cases, which is bad science. Each individual industry and business within that industry needs to be evaluated. There may be mini-bubbles such as in the dot-com era but nothing like these authors assert.