Brand Valuation

Brand Valuation

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  Learning Objectives Understand The concept of Brands Why and when brands need to be valued. Different methods that may be used to assess the value of particular brands.. Chapter Eleven Brand Evaluation 1
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  Structure 11.1 Introduction. 11.2 Brand 11.3 Valuation of a Brand 10.3 Summary Chapter Eleven Brand Evaluation 2
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  11.1 Introduction Brandis a name, a term, a sign, a symbol, a design or a combination of any or all of them that marketers use to convey the identity of its goods / services to customers and differentiate its own products / services from those marketed by others. Organizations spend large amounts of money , efforts and time to build a brand. Once established, they receive returns from the brand on a long term basis. Chapter Eleven Brand Evaluation 3
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  11.2 Brand Brands convey: 1. Attributes / special features / distinguishing elements e.g. Raymond’s suiting are stylish. 2. Benefits – the attributes should transform to benefits e.g. style, fashion and modernity may transform to “emotional benefits”, just as high quality will transform to “functional benefits” 3. Values – most brands associate some values e.g. Raymond’s the “complete man” has the value proposition viz. long lasting. 4. Culture – Raymond’s again projects a culture of family bonding. Raymond’s man cares for family. Chapter Eleven Brand Evaluation 4
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  11.2 Brand Brand imageis a schematic memory of a brand – it contains the target market’s interpretation of the product’s attributes, benefits, usage situations, users , as well as, the manufacturer’s / marketer’s characteristics. e.g. HP is a reliable printer. Chapter Eleven Brand Evaluation 5
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  11.2 Brand Brand Equity: a set of assets associated with a brand which adds to the value provided by the products / services to its customers – it is in effect the aggregate of the potential customers’ beliefs that it will deliver on its promise.. The assets can be – brand awareness brand loyalty perceived quality of the brand and brand association. Besides the above , intellectual property viz. patents can also be an asset. Brand Managers create and enhance the assets to build brand equity. Chapter Eleven Brand Evaluation 6
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  11.2 Brand Brand awareness: in essence it is the registration of the brand’s presence in the mind of the consumers. It may range from mere recognition – to recall – to top of the mind of the consumers. Brand loyalty : while loyalty is an outcome of good quality , we can better define it in terms of customer’s behaviour and attitudes. A customer who has found a satisfactory brand will resist the promotional activities of the rival brands. Brand association : consumers associate a brand with certain tangible and intangible attributes., the endorser’s standing or visual symbol. Perceived quality of the Brand : is based on the judgements of quality and is not necessarily same as actual quality. It has more to do with customer’s feelings and beliefs. Chapter Eleven Brand Evaluation 7
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  11.3 Valuation ofa Brand What are the uses for brand valuation.? What are the methods that may be used to value a brand? The concept of brand valuation emerged in late 1970’s when conglomerates were looking at low profile but sound, business houses for acquisition. At the time of negotiation the balance sheet of such target companies needed to be spruced up by the intangible but yet very much real worth of the brands marketed by these businesses. Valuing brands , therefore, necessitate breaking up a company into its component brands and then valuing these brands by some applicable methods. The main argument against valuing a brand and pegging a financial figure to it is a] subjectivity and resulting arbitrariness in and b] infrequency of transactions. Chapter Eleven Brand Evaluation 8
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  11.3 Valuation ofa Brand Methods; 1. Historical Cost Method: Value the brand as the sum of all costs incurred in bringing the brand to its current state. The biggest drawback in the method is difficulty in identifying the costs involved and separating them from marketing expenditure which was responsible for brand building. It is argued that there is hardly any relationship of the costs incurred in the past to build a brand to its current value. 2. Replacement Cost Method: This approach values a brand using an estimated cost of creating a similar but new brand. Here the biggest difficulty is in estimating costs. Assumptions required for estimation are often questionable and arbitrary. Chapter Eleven Brand Evaluation 9
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  11.3 Valuation ofa Brand Methods; 3. Market Value Method: Is based on what people are willing to pay for the brand, if it was put up for sale. Brands [like flats or cars ] are not often put up for sale and buyers for brand also are not easy to come by. After market value is available for few brands it is not possible to interpolate the values to remaining brands. 4. Premium Price Method: This method tries to value a brand in terms of the price premium that the brand may command over unbranded or generic equivalent. A price premium is used to calculate brand value by going through four steps. Chapter Eleven Brand Evaluation 10
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  11.3 Valuation ofa Brand Methods; 4. Premium Price Method: contd A price premium is used to 1] calculate additional profits earned by the brand over, may be five years. 2] less additional production or marketing costs, 3] arrive at net present value using appropriate interest and / or inflation rate 4] arrive at a value of the brand based on the profit stream over five years. The major difficulty is faced in finding equivalent unbranded or generic product. Another drawback of the method is, it assumes that brand value is reflected in price premium alone. But in reality it has direct reflection on sales volume and market share also Chapter Eleven Brand Evaluation 11
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  11.3 Valuation ofa Brand Methods; 5 Royalty Relief Method: Here brand value is determined at net present value of the royalty payments that the company would have to pay to license the brand, if it did not own the brand. Thus the value of the brand equals license fees or royalties company is relieved from paying due to its ownership of the brand. The method faces the problem in determining the royalty amount. Royalties 1] can be on a simple % or a tiered % basis, 2] payment frequency varies, 3] base can be inventory price, vendor price or item price, and 4] have a certain contract period. Chapter Eleven Brand Evaluation 12
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  11.3 Valuation ofa Brand Methods; 6. Young and Rubican Brand Asset Valuator Model: This model evaluates a brand on consumer perceptions on two dimensions brand’s strengths brand’s stature. ‘Brand Strength’ is a combination of differentiation [ distinctiveness of brand in the market] and relevance [ its appropriateness or meaningfulness to the customer]. ‘Brand Stature’ is a combination of esteem [ the quality perception i.e. popularity and regard for the brand in the minds of the consumers] and knowledge [ understanding by the consumer of what the brand stands for]. Chapter Eleven Brand Evaluation 13
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  11.3 Valuation ofa Brand Brand Asset Valuator Model Perceived Personal distinctiveness appropriateness of the brand of the brand (differentiation) (relevance) ‘Brand Asset Valuator [BAV] approach Regard for the Understanding of the brand (esteem) offering (knowledge) Chapter Eleven Brand Evaluation 14
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  11.3 Valuation ofa Brand Methods; 7 Economic Use Method: This method attempts to calculate the value of the brand to its owners in terms of the net present value of the profit streams attributable to the brand. It starts with an analysis of the profitability of the brand to the business Interbrand Group PLC value a brand against two factors 1. Earnings – that reflect the profit potential of a brand and 2. Strengths – that reflect the potential future earnings. Chapter Eleven Brand Evaluation 15
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  11.3 Valuation ofa Brand Methods; 7 Economic Use Method: A brand’s strength is a composite value constituted by measuring leadership, stability, attractiveness of market, appeal of the brand across markets in different areas, brand’s trend , supports it has in the market and available legal protection. One approach – called Earning Multiple method – is to base on the past few years profits and the other – called Future Earning Method – projects profits a few years into the future. The method calls adjustments for inflation, taxation and assigns weights for earnings close to the year of valuation. Chapter Eleven Brand Evaluation 16
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  11.4 Summary Brand isa name , a term, a sign , a symbol, a design or a combination of any or all of them that marketers use to convey the identity of its goods / services to customers and differentiate its own products / services from those marketed by others. Several methods have been used from time to time to evaluate brands . 1. Historical cost method. 2. Replacement cost methods. 3. “Market Value” method. 4. “Premium Price” method. 5. Royalty relief method. 6. Young and Rubicon brand asset valuator model 7. Economic use method. Chapter Eleven Brand Evaluation 17
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  Well students withthis we have completed the eleventh session on Brand Evaluation And with it our sessions on the subject of Marketing Finance. Good Luck! Chapter Eleven Brand Evaluation 18
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