Billabong cuts its brand value to a big fat zero
Dramatic news that Aussie surfer brand, Billabong, has been through such troubled times that it has slashed its brand value to zero.
Graham Hales: chief executive officer, Interband London
Much of this may be explained by accounting practices, but can its brand actually be worth nothing and secondly, what does this indicate about the way the business is being managed?
Well, first off, if the brand is worth nothing, please can I have it? It’s a provocative question that of course indicates that the brand does have some value.
Interbrand’s brand valuation process is based on a five-year financial forecast, plus perpetuity. So if the business is planning to make a profit in the future, the brand must have a positive value.
How much it is worth brings the forecast together with the role the brand plays in driving demand (Role of Brand) and how strong the brand is against its competitive set (Brand Strength). This creates a discount factor attached to valuation, and all leads neatly on to the second question of what the zero valuation shows us of Billabong’s approach to brand management.
Billabong maybe in a precarious situation, but we can all see that brand is important to the business as it makes its tentative steps towards recovery. In the apparel market, the role of brand can be around 45% and arguably in the surf-wear market the role of brand can be even higher.
Let’s face it, the proportion of active surfers adopting brands like Billabong is pretty low, but ironically, this makes the Role of Brand even higher as "armchair" purchasers need to feel safe and secure in their brand selection.
Oakley, Quiksilver and the ‘safe’ grunge brands all know that brand is vitally important for their credibility and have built strong brands that ooze authenticity accordingly.
Brand strength is measured across ten factors; four of which are internal (how the business manages the brand) and six are external (how consumers and other important audiences relate to the brand).
They are scored relative to the competition, but importantly, they "dimensional-ise" how brand is managed and perceived by the business, so they really enable business people to grapple with serious brand management issues.
Critically, brand strength will highlight the areas of opportunity and challenge for the brand, which in its own right should indicate the direction of travel for the brand strategy. And because this direction is linked back to the brand valuation model, the business person inside the brand manager knows the strategy will be built on a process that creates value.
Perhaps if Billabong had paid more attention to its brand and all its dimensions, and understood the strategy the brand is begging for, the business wouldn’t now be in such choppy waters?
Graham Hales is chief executive officer of Interband London
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