Ruth Mortimer, editor, Marketing Week
Sum total of your reputation
Putting a value on brand is a difficult task, but there are various ways and means
Law firms are already brands. Clifford Chance is as much of a brand as Coca-Cola because it is able to leverage its reputation and history of work to charge higher fees than its more anonymous rivals. So it makes sense to put a value on that brand. It is hard to imagine any business that would not choose to own a convincing financial argument that sets out the value of its reputation.
Although organisations tend to agree that the equity of brands needs to appear on corporate balance sheets, the way this is calculated is often contentious.
A number of strategies are used to calculate brand values. Most of the organisations offering brand valuation - from Millward Brown BrandZ to Brand Finance - have proprietary techniques to calculate equity. This means it is hard to find an unchanging list of brand values globally - there is no agreed universal system of valuation.
While many companies have been working together to try to create a global consensus when it comes to measuring equity - an effort that resulted in the creation of the ISO 10668 standard for brand valuation in 2010 - this remains a complex and subjective area.
Most of the major valuation firms use variations on a certain set of techniques. One broad approach, sometimes known as the ’firm level’ approach, is to subtract tangible assets or measureable intangibles from the market capitalisation of a firm. The resulting residual worth is the brand equity.
There is also the ’royalty relief’ method, which uses forecast revenue streams and works out the implicit royalties an organisation is relieved from paying because it owns the brand.
The ’product level’ approach, meanwhile, measures how a product performs compared with its nearest supermarket own-brand (or unlabelled) equivalent. The difference in price can be attributed to the brand value.
There is also a ’consumer level’ approach, that aims to value a brand based on consumers’ intentions to buy and their affinity for it.
Over the past decade new ways of valuing brands have crept in. Some organisations now take into account the ’net promoter score’ (NPS), which measures how likely customers are to recommend a product, service or brand. The NPS has become a common metric mentioned during M&A activity.
In the legal world, the brands of some firms could be based on the firm’s reputation, the prowess of the current partners or even the value of the previous year’s business.
With so many variables, brand valuation should be seen as a blunt instrument, but sometimes having that weapon to hand is better than having none at all.
Readers' comments (5)
Anonymous | 12-Mar-2012 10:56 am
An intriguing article.
Many law firms have awful reputations within the legal profession but are still able to attract regular work from clients (who often don't realise they could get much better value elsewhere).
I've often wondered whether these firms believe their brand is valuable or if they appreciate that their name (which is a different concept) is what keeps the clients coming back.
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Ruth Mortimer | 12-Mar-2012 4:27 pm
Hi Anonymous,
I would suggest that the law firms that have awful reputations among the legal profession do not appreciate the value of their brand.
Ultimately, your brand is made up of the sum total of everything you do, say or even what other people think about you. So everything's ok while your customers still have loyalty to your firm and find your work acceptable but at some point in future, that bad reputation will come back to bite.
A name can keep you at the top for a certain amount of time, but if you aren't working on improving your reputation everywhere, at some point, the worlds will collide and that bad reputation will reach your customers.
The brand name is only worth what people think of the entire organisation behind it.
To me, a law firm that manages its brand well will be aware of this. And once you are committing employees' time and salary to creating and maintaining a brand reputation, it should have financial value to you. That certainly makes sense to me.
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Anonymous | 20-Mar-2012 12:58 pm
I think this is just semantics. Why not just look at net cash reserves. Apple has US$98B in cash reserves. That more than all the companies in the Fortune 500 list except the top 55 companies.
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Solicitor Selling Survey | 20-Mar-2012 1:02 pm
It might be worth distinguishing between the audiences when talking about brands. Most larger law firms deal directly with businesses rather than consumers and are likely to have more frequent contact.
It will be very interesting to see in coming years what happens with 'brands' like High Street Lawyer and Quality Solicitors. Certainly consumer awareness will rise. How would consumers then rate those brands against other brands in particular in professional services.
It is worth being clear: brand is not about the logo and the visual elements of a law firm's identity. In my work I often come across this misperception. I would explicitly state here that how a firm answers the phone, who they sponsor, the things they say at conferences, etc all impact on their brand.
And finally we should distinguish between how the readers of this article - principally legal professionals - perceive legal brands compared to other legal brands. Legal brands should be compared to non-legal brands and may well perform totally differently on that basis.
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Kevin Wheeler, Wheeler Associates | 20-Mar-2012 1:59 pm
It seems entirely sensible to me that a debate around the value of law firm brands should be happening now with the LSA having created the opportunity for external capital to be invested in law firms. Those investing will want to have some basis for ‘pricing’ their investment.
As with consumer brands, where the value of the brand recognises that the business has value beyond the ‘physical’ assets necessary to produce the product, so law firm brands will have a value beyond the physical assets of the firm, namely the number of lawyers, office infrastructure, IT, etc. The value of a law firm’s brand will be closely linked to its reputation, the quality of its client base, the nature of its work and the quality/reputation of its lawyers undertaking this work.
At this point, it is important to avoid confusing name awareness with brand. Just because a firm is large and well known, doesn’t necessarily mean that it has a strong brand. It is also important to compare like with like. I would argue that the strongest legal brand in the UK corporate market is Slaughter and May. Comparing its brand strength with, say, DLA Piper which operates a completely different business model servicing very different client needs is very dangerous. Clients of these two firms often want very different things: while a Slaughter’s client may be dismissive of DLA Piper’s offering, the reverse will also often be true.
Having agreed that brand valuation for law firms might be a useful thing, before we all get vexed about the way we are going to calculate this, most law firms that I come across need to do a lot more thinking about what sort of a ‘brand’ they want their firm to be and how they will build this. There is much more on my website on this topic (http://wheelerassociates.co.uk/wheeler_marketing_model/building_the_brand), but fundamentally firms need to think about three things: their positioning in the market; the behaviours they want from their lawyers and staff; and, finally, their image.
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