measuring brand value
patrick collingssagacite
image by david mcchesney
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.”
Jean-Noël Kapferer
“...customer equity is the preamble of financial equity. Brands have financial
value because they have created assets in the minds and hearts of customers.”
Jean-Noël Kapferer
the value contribution of the brand
brief history of brand valuation
types of valuation models
review of four valuation models
the looming brand bubblein th
is s
essi
on
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-Cola2009 Rank: 1 (1 in 2008)2009 Brand Value: $68,734m (3%)
100 Best Global Brands
IBM2009 Rank: 2 (2 in 2008)2009 Brand Value: $60,211m (2%)
100 Best Global Brands
Microsoft2009 Rank: 3 (3 in 2008)2009 Brand Value: $56,647m (-4%)
100 Best Global Brands
GE2009 Rank: 4 (4 in 2008)2009 Brand Value: $47,777m (-10%)
100 Best Global Brands
Nokia2009 Rank: 5 (5 in 2009)2009 Brand Value: $34,864m (-3%)
100 Best Global Brands
33%average contribution to value of a company
15%average contribution to value of a company
in an emerging market
the rise of brand valuation
the valuation of brands started to emerge in the
1980s
photo by Youssef Abdelaal
Former UK-based Grand Metropolitan was the forefront of placing the value of
brands on a balance sheet
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 cigarjust yet
photo by Zach Rathore
brand valuation useful for
in mergers and acquisitions by more accurately assessing the value of the
various parties
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
or distribution channel
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 usetherein lies the problem
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
5 Nokia 35 942 China Mobile 57 225
in South Africa, Interbrand valued Vodacom’s brand at R6,5 billion and
Brandmetrics valued the brand at R21 billion.
the answer lies in very different approaches
valuation approaches
market research | financial analysis
market research financial analysis
financial segments into three
Cost approach - amount of money required to reproduce the brand
Market approach - also known as the comparable approach to similar
brand transactions
Income approach - argues that the value of the brand is the discounted
cash flow from future earnings attributable to the brand
four valuation models
Millward Brown
WPP
Y&R
Omnicom
TBWA
Interbrand Brand Metrics
“When given a monetary value, abrand increases its power as a business
driver and planning tool”
Joanna SeddonCEO Millward Brown Optimor
Collecting the data
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
BondingThe brand’s advantages are unique:
“it’s my brand”
AdvantageThe brand is better than most brands
in the category
PerformanceThe 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
company filings with regulatory bodies.
corporateearnings
brandedearnings
brandedintangibleearnings
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 BrownBrandZ 2009 report
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, market valuation and Voltage
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,
esteem and knowledge
DifferentiationMeasures 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.
RelevanceIf a brand is not relevant, or personally appropriate to consumers, it will not attract or retain them. Relevance powers penetration.
Relevance + Differentiation = Brand StrengthD
iffer
entia
tion
Rel
evan
ce
D>RThe most healthy brands
have greater differentiation than relevance. “Room to grow, brand has power to
build relevance”.D
iffer
entia
tion
Rel
evan
ce
D<RMore relevance than
differentiation equals potential commoditization. “Uniqueness has faded, price becomes the
dominant reason to buy”.
EsteemEsteem 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 can outlive both of them
KnowledgeKnowledge 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 knowledge.
Esteem + Knowledge = Brand StatureE
stee
m
Kno
wle
dge
E>KMore esteem than
knowledge means “I’d like to get to know you better”.
The brand is better liked than known.
Est
eem
Kno
wle
dge
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)
Bra
nd S
tren
gth
(Diff
eren
tiatio
n &
Rel
evan
ce)
low high
high
BAV Power Grid
Brand Stature(Esteem & Knowledge)
Bra
nd S
tren
gth
(Diff
eren
tiatio
n &
Rel
evan
ce)
low high
high
Brand Stature(Esteem & Knowledge)
Bra
nd S
tren
gth
(Diff
eren
tiatio
n &
Rel
evan
ce)
low high
high
eBay
00
03
06
Brand Stature(Esteem & Knowledge)
Bra
nd S
tren
gth
(Diff
eren
tiatio
n &
Rel
evan
ce)
low high
high
0603
http://www.thebrandbubble.com/explore/
give it a try at
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 &projecting five years ahead
intangiblesintangibles
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.”
BusinessWeek
Developed by south african academics, adopted by TBWA’s Disruption consultancy,
now with Prophet
featured inkevin 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 profitstarts by calculating
(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 techniqueto calculate economic profit owing to brand
called the resource recognition procedure
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
9 pricing 18 leadership
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
brand
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 profitthe scores are summed to produce
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
brandmetrics takes a long viewthen
using category expected analysis andbrand 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
c a t e g o r y e x p e c t e d l i f e a n a l y s i s
Expected lifein years
40
0
Expected life fordominant brand
Expected life formarginal 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
brand knowledge structure analysis
Expected lifein years
40
0
Expected life fordominant brand
Expected life formarginal brand
Brand knowledge structure in percentage
100
Positioning of competing brands along this line
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
photo by Andrew Magill
“The valuation of brands is still a relatively new concept... brand valuation is without
question partly art and partly science”Interbrand
“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”
Kevin Lane Keller
“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”
Michael Perry, chairman of Unilever
and that’s not the end of it
the premise is that there is a $4 trillion dollar bubble hiding in the economy
that is twice the size of the sub prime mortgage market
Businesses, and the financial markets, think that brands are worth more than the
consumers who buy them
and what the valuation models suggest is that brand valuation is increasing
Perception Reality
If brand value is increasing so should brand trustBrands 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 collingssagacite
e: [email protected]: +27 (0)83 616 0967w: www.sagacite.co.zab: www.collings.co.zat: pjcollings (follow me on twitter)