Measuring Brand Value | Patrick Collings

measuring

brand value

patrick collings sagacite

as the contribution of brands has

become appreciated so has the need to value them

“...customer equity is the preamble of financial equity. Brands have financial value because they have created assets

in the minds and hearts of customers.”

“...customer equity is the preamble of financial equity. Brands have financial

value because they have created assets

in the minds and hearts of customers.”

the value contribution of the brand

brief history of brand valuation

types of valuation models

review of four valuation models

the looming brand bubble

brand valuation is one type of measure, and a relatively new one

has risen in prominence as the brand’s

contribution to the market capitalization of an organization is appreciated

80% of Google’s $125 billion market capitalization is attributed to its brand

Coca-Cola

2009 Rank: 1 (1 in 2008)

2009 Brand Value: $68,734m (3%)

IBM

2009 Rank: 2 (2 in 2008)

2009 Brand Value: $60,211m (2%)

Microsoft

2009 Rank: 3 (3 in 2008)

2009 Brand Value: $56,647m (-4%)

GE

2009 Rank: 4 (4 in 2008)

2009 Brand Value: $47,777m (-10%) 100 Best Global Brands

Nokia

2009 Rank: 5 (5 in 2009)

2009 Brand Value: $34,864m (-3%)

15%

the valuation of brands

started to emerge in the

1980s

Former UK-based Grand Metropolitan was the forefront of placing the value of

British firms used brand valuations primarily to boost their balance sheets

in 1988, UK food conglomerate RHM relied heavily on its brands to defend itself against a hostile takeover

treatment of acquired

goodwill changes

the big difference is that brands are no longer amortized over their useful life

they can now claim indefinite life and their value assessed annually

better but no cigar just yet

in mergers and acquisitions by more accurately assessing the value of the

decisions on business investments and performance by making brand asset comparable to other company assets

decisions on brand investments within a brand portfolio, market segmentation

decisions on the cost of licensing the brand to subsidiaries or third parties

raising of funds by allowing brands to be used as collateral

but which brand valuation to use

2008 Brand $m Brand $m

1 Coca-Cola 66 667 Google 86 057

2 IBM 59 031 GE 71 379

3 Microsoft 59 007 Microsoft 70 887

4 GE 53 086 Coca-Cola 58 208

in South Africa, Interbrand valued Vodacom’s brand at R6,5 billion and Brandmetrics valued the brand at R21

Cost approach - amount of money required to reproduce the brand

Market approach - also known as the comparable approach to similar

Income approach - argues that the value of the brand is the discounted

cash flow from future earnings attributable to the brand

Millward Brown

WPP

Y&R

Omnicom

TBWA

“When given a monetary value, a

brand increases its power as a business driver and planning tool”

Joanna Seddon

Data for the evaluation is first drawn from the researched opinion of thousands of brands in

17 categories by knowledgeable consumers and B2B customers across 31 countries

Bonding The brand’s advantages are unique: “it’s my brand”

Advantage The brand is better than most brands in the category

Performance The brand is acceptable quality and does what it is supposed to

Relevance The brand meets their needs Presence They are aware of the brand No Presence Have not heard of the brand

Data for the evaluation is also is sourced from Bloomberg, analyst reports,

Datamonitor industry reports, and

corporate earnings branded earnings branded intangible earnings branded earnings

branded intangible earnings X brand contribution

Portion of intangible earnings attributable to the brand, this percentage originates from the consumer and B2B customer research

“The Brand Contribution is rooted in real-life

customer perceptions and behavior, not spurious ‘expert opinion’: in some categories, brand is

important — luxury, cars, or beer, for instance. In categories like motor fuel, on the other hand,

price and location play a very strong role. Furthermore, as markets develop, consumer priorities and the role of brand may change.”

Millward Brown

branded intangible earnings X brand contribution

X brand multiple

Growth potential of the branded earnings is taken into account. The multiple, that ranges between one and ten, is derived from financial projections,

BrandAsset Valuator (BAV) is Young &

Rubicam's comprehensive global database of consumer perceptions of brands:

350,000 consumers,19,500 brands, 44 countries, 173 studies since 1993

The BAV research is based on four key pillars: differentiation, relevance,

Differentiation

Measures the strength of the brand’s meaning and distinctiveness.

Successful brands are strongly

differentiated. The more differentiated, the more likely it will be used and less likely it is to be substituted.

Relevance

If a brand is not relevant, or personally appropriate to consumers, it will not

attract or retain them. Relevance powers penetration.

Relevance + Differentiation = Brand Strength Dif fer entiation Relevance D>R

The most healthy brands have greater differentiation

than relevance. “Room to grow, brand has power to

build relevance”. Dif fer entiation Relevance D<R

More relevance than

differentiation equals potential commoditization. “Uniqueness

has faded, price becomes the dominant reason to buy”.

Esteem

Esteem reflects popularity and quality. Esteem relates to how well a brand

fulfills its implied or stated consumer promise. It requires differentiation and relevance to have preceded it, but it

Knowledge

Knowledge captures intimacy and

understanding, it is the end result of all the marketing and communications

efforts and experiences consumers have had with a brand. Consumers understand and remember those brands that demonstrate high

Esteem + Knowledge = Brand Stature

Esteem Knowledge

E>K

More esteem than

knowledge means “I’d like to get to know you better”.

The brand is better liked than known.

Esteem _Knowledge

E<K

Too much knowledge can be dangerous. “I know you and

you’re nothing special”. The brand is better known than liked.

Brand Stature

(Esteem & Knowledge)

Brand Str

ength

(Dif

fer

entiation & Relevance)

low high

high

Brand Stature

(Esteem & Knowledge)

Brand Str

ength

(Dif

fer

entiation & Relevance)

low high

Brand Stature

(Esteem & Knowledge)

Brand Str

ength

(Dif

fer

entiation & Relevance)

low high high eBay 00 03 06

Brand Stature

(Esteem & Knowledge)

Brand Str

ength

(Dif

fer

entiation & Relevance)

low high

high

Google

06 03

http://www.thebrandbubble.com/explore/

Best known of the brand valuation methodologies. Created to find an

approach that incorporated marketing, financial and legal aspects

photo by Darren Hester

Interbrand starts by assigning sales to individual brands &

intangibles

intangibles

Identifies earnings attributable to intangible assets and identifies

brand’s contribution, this multiple is known as the role of branding index

Future earnings are discounted to arrive at net present value

Discounts calculated with current

interest rates and the brand’s overall risk profile

Criteria Weighting Notes

market 10% brands in growing or established markets where consumer preferences are more enduring would score higher

stability 15% long-established brands in any market would normally score higher, because of the depth of loyalty they command

leadership 25% a market leader is more valuable: being a dominant _{force and having strong market share matters} profit trend 10% long-term profit trend is an important measure of brand’s ability to remain contemporary and relevant to

consumers

support 10% brands receiving consistent investment and focused support usually much stronger, but quality of support is important

geographic spread 25% brands that have international acceptance and appeal _{are inherently stronger than regional or national brands} protection 5% securing full protection for the brand under international _{trademark and copyright law}

“The final result values the brand as a

financial asset. BusinessWeek and Interbrand believe this figure comes closest to

representing a brand's true economic worth.”

Developed by south african academics,

adopted by TBWA’s Disruption consultancy, now with Prophet

featured in kevin lane keller’s strategic brand management

Applies an accounting definition of an asset - resources under the control of an

enterprise that will generate future

economic benefits for the enterprise - to brands

economic profit

(economic profit is the amount of after-tax profit a company earns that exceeds the cost of capital the company has used in operating the business)

uses the delphi

forecasting technique

The resource recognition procedure starts with experts representing major

functions sitting with a facilitator to identify drivers of economic profit

1 supply chain management 10 marketing support 2 brand 11 market knowledge 3 control of costs 12 market dominance 4 consistent product quality 13 sales force

5 brand loyalty 14 high barriers to entry 6 margin management 15 procurement

7 human resources 16 process knowledge 8 customer relationships 17 innovations

Through an iterative process reduce list to 5 to 8 items and weight their importance. a score of between 0 and 10 to assigned to each item to indicate the influence of the

1 supply chain management 10 marketing support

2 brand 11 market knowledge

3 control of costs 12 market dominance

4 consistent product quality 13 sales force

5 brand loyalty 14 high barriers to entry

6 margin management 15 procurement

7 human resources 16 process knowledge

8 customer relationships 17 innovations 9 pricing 18 leadership

brand premium profit

which is the portion of economic profit attributable to the brand

media titles 80 - 90 % fmcg 65 - 75% retail 63 - 67% insurance 50 - 55% b2b 45 - 60% energy 45 - 50% portion of economic profit attributable to the brand

brand

m

etrics takes a long view

using category expected analysis and brand knowledge structure

The ability of a brand to sustain economic profits is a function of its category

Category evaluated according to longevity, stability, competitive activity, vulnerability

Criteria scored and assessed to produce years out of 40 for notional dominant brand and out of 10 for marginal brand

Expected life in years

40

0

Expected life for dominant brand

Expected life for marginal brand

Market research determines awareness and associations, reduced to score out of 100

Highest scores and lowest represent notional dominant and marginal brands, mathematically transformed into years

Brand being evaluated scored in the same way to produce unique number of years for brand

Expected life in years

40

0

Expected life for dominant brand

Expected life for marginal brand

Brand knowledge structure in percentage

100

Brand premium profit projected into future and discounted back to the present

If all so logical then why

do the different

valuation models differ

so much

There are areas in the valuation

methodology that are subjective and/or assumptive

their little black boxes

“The valuation of brands is still a relatively new concept... brand valuation is without

question partly art and partly science”

“Many marketing experts, however, feel it is impossible to reduce the richness of a brand to a single, meaningful number, and that any

formula that tries to do so is an abstraction and arbitrary”

“The seemingly miraculous conjuring up of intangible asset values, as if from nowhere,

only serves to reinforce the view of the

consumer skeptics, that brands are just high prices and consumer exploitation”

the premise is that there is a $4 trillion dollar bubble hiding in the economy

Businesses, and the financial markets, think that brands are worth more than the

and what the valuation models suggest is that brand valuation is increasing

Perception Reality

If brand value is increasing so should brand trust Brands are less trusted than ever: trustworthy ratings dropped almost 50% over the last 9 years If brand value is increasing, brands should be

more liked and admired

Brands are less liked and respected. Esteem and regards for brands fell by 12% in 12 years. If brand value is increasing, brands should be

better known

Brands are less salient than ever. Awareness of brands fell by 20% in 13 years.

If brand value is increasing, quality perceptions of brands should be increasing as well

Consumers feel brands are less quality. Brand quality perceptions fell by 24% over the past 13

years If brand value is increasing, more brands should

be clearly differentiated

Brand differentiation declined in 40 of 46

categories and only 7% of prime time commercials had a differentiating message

patrick collings sagacite e: [email protected] m: +27 (0)83 616 0967 w: www.sagacite.co.za b: www.collings.co.za