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measuring

brand value
patrick collings
sagacite

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
in this session 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
100 Best Global Brands

Coca-Cola
2009 Rank: 1 (1 in 2008)
2009 Brand Value: $68,734m (3%)
100 Best Global Brands

IBM
2009 Rank: 2 (2 in 2008)
2009 Brand Value: $60,211m (2%)
100 Best Global Brands

Microsoft
2009 Rank: 3 (3 in 2008)
2009 Brand Value: $56,647m (-4%)
100 Best Global Brands

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%)
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
photo by Zach Rathore

better but no cigar


just yet
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 use
therein 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 Y&R Interbrand Brand Metrics

TBWA

WPP Omnicom
“When given a monetary value, a
brand increases its power as a business
driver and planning tool”

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

The brand is better than most brands


Advantage
in the category

The brand is acceptable quality and


Performance
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.
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
BrandZ 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
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

Differentiation
Differentiation

Relevance

Relevance
D>R D<R
The most healthy brands More relevance than
have greater differentiation differentiation equals potential
than relevance. “Room to commoditization. “Uniqueness
grow, brand has power to has faded, price becomes the
build relevance”. 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
can outlive both of them
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
knowledge.
Esteem + Knowledge = Brand Stature

Knowledge

Knowledge
Esteem
Esteem

E>K E<K
More esteem than
Too much knowledge can be
knowledge means “I’d like
dangerous. “I know you and
to get to know you better”.
you’re nothing special”. The
The brand is better liked
brand is better known than liked.
than known.
high

(Differentiation & Relevance)


Brand Strength

low high
Brand Stature
(Esteem & Knowledge)

BAV Power Grid


high

(Differentiation & Relevance)


Brand Strength

low high
Brand Stature
(Esteem & Knowledge)
high

06

(Differentiation & Relevance)


Brand Strength

03

00

low high
Brand Stature
(Esteem & Knowledge)

eBay
high 03 06

(Differentiation & Relevance)


Brand Strength

low high
Brand Stature
(Esteem & Knowledge)

Google
give it a try at

http://www.thebrandbubble.com/explore/
Best known of the brand valuation
methodologies. Created to find an
approach that incorporated marketing,
financial and legal aspects
Interbrand starts by assigning
sales to individual brands &
projecting five years ahead

photo by Darren Hester


Identifies earnings attributable to
intangible assets and identifies
brand’s contribution, this multiple
is known as the role of branding
index

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

long-established brands in any market would normally


stability 15% score higher, because of the depth of loyalty they
command

a market leader is more valuable: being a dominant


leadership 25% force and having strong market share matters

long-term profit trend is an important measure of


profit trend 10% brand’s ability to remain contemporary and relevant to
consumers

brands receiving consistent investment and focused


support 10% support usually much stronger, but quality of support is
important

brands that have international acceptance and appeal


geographic spread 25% are inherently stronger than regional or national brands

securing full protection for the brand under international


protection 5% 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 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
starts by calculating

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
to 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
the scores are summed to produce
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


then
brandmetrics takes a long view
using category expected analysis and
brand knowledge structure
category expected life analysis
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
40

Expected life for


dominant brand

Expected life
in years

Expected life for


marginal brand

0
brand knowledge structure analysis
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
Positioning of competing brands along this line

40

Expected life for


dominant brand

Expected life
in years

Expected life for


marginal brand

0
100

Brand knowledge structure in percentage


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

Brands are less trusted than ever: trustworthy


If brand value is increasing so should brand trust
ratings dropped almost 50% over the last 9 years

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

If brand value is increasing, brands should be Brands are less salient than ever. Awareness of
better known brands fell by 20% in 13 years.

Consumers feel brands are less quality. Brand


If brand value is increasing, quality perceptions of
quality perceptions fell by 24% over the past 13
brands should be increasing as well
years

Brand differentiation declined in 40 of 46


If brand value is increasing, more brands should
categories and only 7% of prime time commercials
be clearly differentiated
had a differentiating message
patrick collings
sagacite

e: patrick@sagacite.co.za
m: +27 (0)83 616 0967
w: www.sagacite.co.za
b: www.collings.co.za
t: pjcollings (follow me on twitter)