Brand Valuation (1)

8/3/2019 Brand Valuation (1)

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Brand Evaluation

Brand Management


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Areas To Be Covered:

How to examine the issue of evaluating the healthof brands

Dynamics and concept of brand equity and brandvaluation

Methods used in evaluating the brand

Challenges involved in the evaluation of the brands

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Intangible Assets

Intangible assets like goodwill, trademarks, patents,management expertise, formulas, copyrights, brandsand so on, have no physical substance, nevertheless,they are perceived as crucial in creating value

Increasingly the majority of business value is derivedfrom intangibles, and brands are one of the mostimportant of them because of their far-reachingeconomic impact

Brands have a powerful influence on customers,employees, and investors, and in a world of abundantchoice, such influence is crucial and strategic forcommercial success and creation for shareholder value

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Brand Equity

The concept of Brand is usually associated to BrandEquity (Rust et al. 2004)

Brand Equity is the sum of a brands distinguishingqualities and is sometimes referred to the intangiblevalue that accrues to a company as a result of itssuccessful efforts to establish a strong brand

From a marketing point of view, brand equity is themeasure of customer loyalty to a brand (BrandLoyalty), (Aaker 1992, 1996)

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Brand Equity

Financially, brand equity is the value of a brand as a

financial asset in balance sheet, proprietary brandassets (e.g. patents, trademarks, copyrights, channelrelationships) (Brand Value) (Verbeeten et al 2006)

From the production point of view, brand equity isthe description of the product image that customers(real and prospect) hold (Brand Image) (Aaker1992, 1996)

Brand Equity = Brand Value + Brand Loyalty + Brand Image

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Brand Value

Value has different interpretations

From a marketing or consumer perspective it isthe promise and delivery of an experience

From a business perspective it is the security of

future earnings

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Brand Equity Growth

Increase in Brand Awareness through differentpromotional techniques

Consumers perception of its values based on Functional and Psychological benefits Unique or distinguishable feature of the product Price differences or the balance between the price and

the risk taken to switch from one brand to another(Toyota and iphone)

Brand Loyalty

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Brand Awareness Elements

Brand Recognition Consumers ability to recall previous exposure or

experience with the brand. For e.g. Have you seen this

brand before?

Brand Recall Consumers ability to retrieve the brand from memory

when given the product category as a clue or a hint. Fore.g. What brands of personal computers are you awareof ?

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Brand Awareness Elements

Brand Dominance This identifies the brand in a specific product category.

For e.g. Which brand of tea do you drink most often ?

Brand Knowledge This evaluates the consumers interpretations of the

values linked to a brand. For example To what extent

do you agree or disagree that the following cars havehigh accelerations?

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Young & Rubicams Brand Equity

Growth Model

Focus on four key elements:

1. Differentiation: Unique attribute

2. Relevance: Brand should serve the individual needs

3. Esteem: The Customer should respect the brand

4. Familiarity: The Brand should be a part of customersdaily life

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Growth Model .

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Unrealized Potential

B

Leadership

C

NEW

A

Eroding Potential

D

Brand

Vitality

Brand Stature


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Growth Model .

Brand vitality (Differentiation + Relevance)provides the potential for brand equity growth

Brand Stature (Self Esteem + Familiarity)measure the brands current strength

When the Brand owners can either maintain thebrands as niche brands or invest to build brandsesteem to move into quadrant C.

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Young & Rubicams Brand equity

growth model...

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Growth Model

Helps managers to understand the concept ofbrand equity and highlights the areas that needattention over short and long run

Comparison between the company and its

competitors suggests appropriate strategiesnecessary to increase the brands equity andprotection against competitors

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Methods of Measuring the Financial

value of a Brand

Historic Costs

Premium Price

Market Value

Consumer related factors

Future earnings discounted to present day values

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Historic Costs

Costs such as marketing, R&D, and advertisingexpenditure are considered from the initial stage

Problem related to this model is the value of 100-year old brand will be more than 20-year old brand,so it should be adjusted for inflation

also fails to account for qualitative factors likemanagements expertise, quality of theadvertisement and managements culture

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Premium Price

The Price difference between the branded and theunbranded product multiplied by the volume ofsale of the branded product represents the brandsvalue

It is sometimes harder for companies to find thevalue of the generic product. This Method alsoassumes that all brands use a price-premium

strategy

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Consumer related factors

Financial value of the brand is also based onrecognition, esteem, and awareness

It is very hard to quantify the information about

these aspects

For example, GUCCI or Armani are high status

and valuable brands, but what brand valueshould be input in the financial statements ofthe company

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Discounted Future Cash Flows or

Inter-brand method

A Brand owner computes the current and thefuture cash inflows to be generated by the brand

The future cash flows are discounted or brought toits present level by using a rate of interest ordiscount rate to adjust for risk and inflation

It is assumed that the discount rate is given by theBrand Multiple

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Discounted Future cash flows or

Inter-Brand method:

Brand Multiple = Brand Equity / BrandProfit

Brand Equity or Value

Brand Value = Brand Profit x Brand Multiple

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Top ten most valuable brand. Rank

them according to your preference

Google

Microsoft

Coca-Cola

IBM McDonald's

Apple

China Mobile General Electric

Vodafone

Marlboro 21Brand Management


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Top ten most valuable brand

(in billions)

1. Google - $100.02. Microsoft - $76.33. Coca-Cola - $67.64. IBM - $66.6

5. McDonald's - $66.56. Apple - $63.17. China Mobile - $61.38. General Electric - $59.8

9. Vodafone - $53.710. Marlboro - $49.5

22Source: www.indusrtyweek.com


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Bipolar Views on Brand Evaluation

Conservative approachsays if the brand value isincluded in the financial statement of the company,it will violate the consistency and the reliability ofaccounting principles and procedures

Pragmatic or Practical approachsays if the brand valueis not included, the stakeholders will not get thecorrect idea about the financial capability of the

company. If a valuable asset is capable ofgenerating wealth for the company, it should beincluded in the balance sheet

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PRESENTED BY:

ADITI TYAGIPGDM (FT)

SECTION: A & CROLL NO. : FC10121


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Documents

Brand Valuation (1)