By  on December 10, 2008

At what price creativity?

As John Gerzema, chief insights officer at Young & Rubicam, sees it, the rise of the information-based economy has put a premium on the value of ideas. In the case of brands, the value of these entities has rocketed. According to Gerzema’s calculations, they’ve advanced 80 percent in the last 30 years and now account for one-third of an average company’s market capitalization, or $4 trillion of the $12 trillion in value in the S&P 500, in the first quarter of 2008.

Discovering that an intangible like a brand was overvalued came partly through assessing the worth of assets such as intellectual copyrights, trademarks and proprietary competitive advantages.

The rapidly rising “market value of creativity,” forms the framework for a new book the Y&R executive has coauthored with Ed Lebar, “Brand Bubble: The Looming Crisis in Brand Value and How to Avoid It” (Jossey-Bass: $27.95).

A dangerous brand bubble is building, Gerzema said in an interview. Before the stock market collapse this fall, a brand’s potential was bringing higher market valuations to many companies, even as consumers were growing less satisfied with about three quarters of the brands, he said. In the worst case, a company once more dependent on assets such as cash, inventory and real estate could see the financing rug pulled out from under it if fickle customers start walking away.

Gerzema said fashion and luxury are high-risk sectors in the bubble-sphere because of the big role creative imagery plays. “It’s a bigger challenge for a fashion incumbent to maintain a position than for an insurgent to come in and challenge,” he said. “There is an ability to build a strong image quickly, through new media.”

Prada and Nike are among the established names in the style arena that have been able to elevate company valuations based on those and other factors.

“Consumers are acting more like investors,” Gerzema noted. “If they feel a brand will be worth more down the road, they’ll be willing to pay more for it today. You have Richard Branson talking about going into space with Virgin Galactic. It feels like there are more exciting things coming” from Virgin.

“As we rebuild market value, is the C-suite going to be focused on the value of their brands?” Gerzema said. “It’s a problem for business, if they don’t” because creative ideas drive the economy. “Some of the best-managed brands have ceo’s that think and act like cmo’s: Howard Schultz [Starbucks], Richard Branson [Virgin], Steve Jobs [Apple].”

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