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Brand valuation white paper. The article discusses brand worth, brand equity research and how brands are accounted for on the balance sheet.Lessons learned from the consumer world can and should equally apply to B2B branding, since business-to-business brands also have qualities that carry brand value.
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A White Paper By Paul Hague Of B2B International Market Research
Brand Valuation – How Much Are Brands Worth?
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What Is A Brand?
We all understand what brands are. We buy them every day. However, what is the best definition of a brand.
It is important to say what a brand is not:
• It is not just a logo• It is not just a name• It is not just a product
When we think of a brand we have an expectation of what we will receive.
Therefore, the definition that we like is - a brand is a promise delivered.
Brand Valuation: How Much Are Brands Worth? – © B2B International Market Research
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Value Perceptions
A good brand has a value and research must try and put a figure on this. For example we can give people 100 points to spend to indicate the weight of different factors that influence their choice of products – price, reliability, product quality, service and of course brand. In business to business markets it is typical that the brand receives only 5 to 10% of the points spend. In consumer markets this figure could be 20 to 30% or even more.
When people are asked to place a monetary value on a car (the same car is used in the photographs but different badges are superimposed on the bonnet (hood) to suggest it is a different brand) the Mercedes brand is seen to be worth more than that of Ford and the Ford brand is perceived to be worth more than the Chinese brand.
Brands very much influence our price perceptions and if we can raise these perceptions at all, it is equivalent to obtaining a price increase.
Brand Valuation: How Much Are Brands Worth? – © B2B International Market Research
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Goodwill & The Value Of Brands
• Over time, companies build up goodwill which reflects the intangible value that comes from the loyalty of customers. Loyal customers who insist on doing business with a company to the exclusion of other companies are valued highly. There is therefore an important link between goodwill and brands.
• Nowadays goodwill includes any intangibles that can earn a company profits that are over and above what could be achieved from a company’s tangible assets alone. This concept of goodwill signifies that it is an asset like any other asset.
• At the time a company is sold, the real value of goodwill will be realised as it is the difference between the tangible assets and the amount that somebody is prepared to pay for the company. And before a company is sold, this asset may go unrecognized on the balance sheet.
Brand Valuation: How Much Are Brands Worth? – © B2B International Market Research
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Valuing Brands
Top 20 world brands - 2011 Over the last few years there have been many listings of the value of brands. The figure on the left shows the listing of the global Top 20 brands according to Millward Brown Optimor. This brand valuation model is similar to listings by other brand measurement companies such as Interbrand.
2011 saw big changes in the importance of brands from the developing world. China now has 12 brands in the top 100, up from 7 a year ago. And of the 11 new entrants to the top-100 list, 7 come from the so-called BRIC countries: Brazil, Russia, India, China.
The valuation of brands is contentious because it is based on subjective criteria and the brand valuations swell the values of companies’ balance sheets and their share values. However, in today’s world, brands (especially big consumer brands) have their own special status and are not necessarily treated as part of the goodwill.
Brand Valuation: How Much Are Brands Worth? – © B2B International Market Research
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Brand Vulnerability
• Brands are dependent on people’s perceptions and are vulnerable. Brands are built on spoonful's of trust that can be destroyed by one false move.
• Perrier, one of the world’s leading suppliers of bottled water, suffered an embarrassing blow to its reputation in 1990 when a North Carolina study reported benzene in their product. At first Perrier tried to wriggle out of any culpability with various explanations. They finally had to admit that it was an isolated incident of a worker having made a mistake in the filtering procedure and that the spring itself was completely unpolluted.
• In order to retrieve their brand position of purity, Perrier recalled 160 million bottles of water.
• There is no doubt that if this event had taken place at a time when the Perrier company was being sold, it would have knocked millions of dollars off the purchase price.
Brand Valuation: How Much Are Brands Worth? – © B2B International Market Research
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Brands On The Balance Sheet
• The capitalisation of a company's brand value on the balance sheet is contentious as it requires the brand to be separated out from the other intangibles and, as in the case of the Perrier problem, the brand value can melt away quickly.
• So, whether or not the value of a brand can be separately assessed realistically, remains a problem of confirming or reassessing its value each year.
• Assessing the value of assets can be difficult on other parts of the balance sheet. For example, property is a significant asset and yet its valuation can also fluctuate widely from year to year. The difference in the case of brands is the lack of an efficient market for them. The procedures and practices of valuation in this area are not yet agreed.
Brand Valuation: How Much Are Brands Worth? – © B2B International Market Research
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Industrial Brands
Rational influences on the buying decision
Emotional influences on the buying decision
Luxury goods
CarsStrategic b2b goods and services
Basic goods and services
10%
70%
Influence on the buying decision
• This presentation has argued strongly that brands have a value that can be built up over time. The value of a company’s brands can be assessed and put on the balance sheet with just as much legitimacy as any other asset.
• In the past, goodwill on the balance sheet incorporated the value of brands. Today, the intangible value of brands are just as important as a company’s physical assets. However, we have yet to see this translated into the balance sheets of business to business or industrial companies because it is assumed (wrongly) that these organisations do not have brands that significantly influence the buying decision.
Brand Valuation: How Much Are Brands Worth? – © B2B International Market Research
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Branding in B2B Markets
A 10% increase in the value of a brand is equal to a 10% price increase and we know what that does to profits!
• In business to business markets the name of a company is usually the umbrella brand under which all products are sold. Thus, the main brand of the company and its operating name are intrinsically linked.
• For many companies, B2B branding equates to having product names that they call brands but which are simply labels by which the products are ordered.
• The value of a business to business company lies in its incorporated name and this has a real value that should carry a premium.
• Industrial companies need to wise-up to the opportunity of increasing their brand values.
Brand Valuation: How Much Are Brands Worth? – © B2B International Market Research
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