It’s the whole system that performs, not the sum of the parts

There seems to be quite an industry around “valuing” brands – which is a puzzle … 

The Coca-Cola company has a huge value, of which the soft-drinks business would be a large part. And we could certainly value that business. (See my post on valuing companies and strategies). But what is its brand worth?

What if, in a fit of madness, Coca-Cola decided to give me their brand? … not any of the facilities or people – just the brand. Now much as I may admire my own abilities,  I am pretty sure that the product’s sales and profits would collapse. So the brand’s value would collapse too. 

So is the whole idea of valuing a brand – as a distinct “thing” separate from the business that makes and sells it – a nonsense?  

F1 racing car photo

Isn’t this like trying to split out how much of a racing car’s performance comes from the engine? If the whole car can average 150 mph around the circuit, how fast would the engine go round on its own?  

Put that engine in another car and that might go at some other speed, but it’s the whole system that performs, not the bits – we don’t get 150mph by adding up 40 from the engine, 20 from the tyres, 30 from the gearbox and so on …

The only time we see an actual brand value is when one company sells a brand to another. Presumably the buyer thinks that the brand will add more value to their system than the seller thinks the brand contributes to its system. The obvious case is when a company with a limited sales force sells a brand to a company whose sales force has much greater reach.

How a consumer brand system works is  explained in our online class #7 on modeling competitionEven that model is incomplete, though, because it takes the production and distribution parts of the system as ‘given’, and assumes a product cost driven by those parts of the system.  

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