In late 1990s, for unknown reasons, the word `brand’ suddenly became a verb. Headlines such as A Brand New World, Brands Bite Back, Branding God, and Branding Tall were attracting marketers.
However, branding as a phenomenon started way back in the 18th century, when the English artisan Josiah Wedgwood [1730-95] built the first modern business brand1. Wedgwood was able to stimulate demand for his more profitable tablewares and command premium price over comparable tableware and other products. Post-industrialization corporate world felt the need of branding. Companies across industries were trying out the best possible ways to brand their products.
Irrespective of the theories of the origin of branding and its evolution, academicians and marketers unanimously agree that in the beginning the market was commodity driven. Everything offered in the market was the base commodity - rice, lentil, sugar, coffee, tea, steel, plastic and a host of other basic items - that served our daily life purpose. But the customers were not happy with the base commodities and they wanted something else with which they could associate as the best product available in the market. It is natural tendency for the people to desire for newer products and also seek the best. This latent desire of possessing the best in the world could be seen as the driving force behind branding. Procter & Gamble [P&G] is one of the first companies to identify the latent desire of customers and address it.
In 1931, Neil McElroy, P&G’s marketing manager, devised specialized marketing strategies for each brand. In May 1931, Neil presented a three-page internal memo and argued that P&G should shift to brand-based management. This is how P&G’s brand management system was born. He rose to head P&G in 1948, and his memo became the guiding rule for companies, including P&G, to manage brands. The case “P&G’s Brand Management System” discusses P&G’s brand management system, its evolution and growth.
Seven decades since Neil presented his famous memo, the corporate world still abides by it. With increasing competition, the importance of branding has increased over the years and companies across industries globally are consistently looking for innovative ways to brand their products and services.
Importance of branding in the last two decades has increased in the light of realization that brand drives nearly two-thirds of customer purchases and impacts nearly every functional area of the business.2 Branding has gained prominence in market with the evolution of increasingly complex new business models, challenging organizations to revisit the brand-customer relationship.
Basics of Branding
Branding, for years, played an important role in establishing the product’s [in few cases even firm's] reputation in the marketplace, among customers, retailers and other market players. Today, it has become extremely important for management to attract attention of supply chain partners, media, the stock market, venture capitalist, and other investors.
Though the dimensions of branding and strategy of developing a successful brand have changed in recent years, the basics of brand remain unchanged. A brand needs well-defined brand architecture. It defines and structures the relationship among brands, the corporate entities, and families of products and services. The key drivers that affect brand architecture are - the pace of technological change, the ever-increasing channels of communication, and the growing sophistication in the way companies view brand equity and manage their brand development.
The brand architecture of an organization at any given point is based on a legacy of past management decisions and the competitive realities it faces in the marketplace. Brand architecture is the way in which companies organize, manage and market their brands. It is often seen as the external face of business strategy and must align with, and support, business goals and objectives. The success of brand architecture is also based on well-established brand position, brand image, brand personality, brand loyalty, brand strategy, brand activation and brand valuation.
Brand Positioning
The basic approach of positioning is not to create something new and different, but to manipulate what’s already there in the mind of customers and to strengthen the connections that already exist. Positioning is an act of seeking, placing and optimizing something in relation to the competition in surrounding environment. For example, Volvo is synonymous with safety and Ivory Soap with purity.
The leader owns the high ground - the No.1 position in the prospective customer’s mind, the top rung of the product ladder. To move up the ladder, management must follow the rules of positioning. Basic qualities of brand positioning include: relevance, clarity, distinctiveness, coherence, commitment, patience, and courage3.
Relevance: Positioning of brand must focus on benefits that are important to people or reflect the character of the product.
Clarity: Brand should be positioned in such a way that it is easy to communicate and quick to comprehend.
Distinctiveness: In current market situation there are reasonably good number of players vying for a share in the market, forcing them to compete on the basis of price or promotion. To overcome such a situation, company needs to offer distinctiveness in its products or services.
Coherence: A brand should speak with one voice through all the elements of the marketing mix.
Commitment: Management should be committed to the position it has adopted. Once a position is adopted, it takes commitment to see it through.
Patience: Patience plays an important role in the success of brand as branding is not a one-day wonder - it takes years to position a brand in consumers’ mind.
Courage: Adopting a strong brand position requires courage as it is much easier to defend an appeal rather than generate sales pitch.
To achieve the benefits of brand positioning, it is necessary to identify the market position of the brand. Management must understand that not all brands, present in the market, are competitors. A consumer may be presented with a dozen brands and he may consider only three out of them as a purchasing choice.
Brand Identity
The journey of Malboro’s cowboy, the most valuable brand identity ever created, started years back with a name, logo and slogan, and developed trust and long-term brand equity. Brand identity is a unique set of associations that the brand strategist aspires to create or maintain. These associations represent what the brand should stand for and imply a potential promise to customers. It is marketers’ perspective of how to project brand publicly. Brand identity offers a point of differentiation. It is an attempt to make brand unique so that people readily identify what the brand stands for and what they are purchasing.
Brand Loyalty
Brand loyalty is a crucial goal and is a result of successful marketing programs, sales initiatives and product development efforts. Moreover, brand loyalty is the consumer’s conscious or unconscious decision, expressed through intention or behavior to repurchase a brand continually. It occurs because the consumer perceives that the brand offers the right product features, image, or level of quality at the right price. It is a strongly motivated and long standing decision to purchase a particular product or service.
Brand Extension
Brand extension is not a new phenomenon. It gained importance in the 1980s when more than half of the brands marketed were extensions of existing products that marketed under existing product names. The phenomenon of brand extension gained momentum with success of extensions like Diet Coke, Dove Haircare, Caterpillar Clothing & Footwear, Gillette Deodorant, and Mars Ice Cream. The 1990s were the heydays for brand extension. Eighty-one percent of new products [launched in market] were extensions.4 Brand extension is a strategy of using a successful brand name to launch a new or modified product in a new category.
Brand extension makes great sense to customers and companies. Firms use it as a tool to develop a positive association, and save promotional cost, while customers see it as delivery of the same emotional benefits in another category. For example, the famous soap brand, Dove, extended its presence to hair care. Lever Faberge launched a hair care variant of Dove in January 2002, supported by £ 35million campaign. At the end of three months period, it gained 10.3% share of shampoo market. The success of the Dove shampoo could be attributed to the fact that it piggybacked on the established brand Dove soap. By piggybacking on the Dove, Dove shampoo moved beyond the realm of functional product to the realm of values. Virgin started its journey as a music record shop and today it is a multi-product brand.
Brand Valuation
Nestlé took over Rowntree Macintosh by paying three times its market value. The purchase price was twenty-six times the earnings generated by Rowntree Macintosh. The reason behind such a deal was high brand valuation.
Brand value is closely associated with brand strength that is derived from brand identity, brand personality and brand image. Ford, for instance, paid Euro 6.2 billion for the Jaguar brand. The high brand value established by IBM, Nike, and GM can only be enjoyed by a company that enjoys brand identity and motivates consumers to accept a higher price, remain loyal to the brand, and recommend it to others. The case “Building Brand Equity in Wine Industry” discusses brand equity methods - dollarmetric approach, conjoint analysis and multiple regressions. It also explains entire process of branding in wine industry.
Total Brand Management
Brand in the new millennium is viewed as an asset, some of the Indian and global companies that take brand as an asset, viz., Kodak, BMW, Coca-Cola, and ICICI. Branding strategy in the new market structure has changed. Today, brand strategies may focus on three key dimensions: developing superior product through continuous innovation; creating, building, maintaining and delivering consumer values that cannot be matched by others; and emphasizing on strong positioning.
Branding in recent years has emerged as central to a company’s overall business strategy. It has taken the form of business systems and is no more proprietary to marketing managers. It has implications across functions and business processes and is central to a company’s overall business strategy. For companies to survive in the changed business scenario, total brand management is a must.
Total Brand Management can assume a variety of forms - brand extension beyond the actual product, well-crafted umbrella brand, and entire retail system as a brand. They also recommend that companies for success of total brand management must concentrate on three key activities:
Maximizing synergies across a coherent brand portfolio
Strengthening brand portfolio through innovation
Securing brand through close relationships with customers and trade.
Total brand management is a way to leverage success, expand marketshare, and drive down competition. Indeed, companies with established brands often penetrate markets or defend core markets.
Saturday, September 6, 2008
Business Finance-Oriented Brand Valuation Models
There are many finance-oriented-brand valuation approaches such as capital market oriented valuation approach, market-oriented valuation cost-oriented valuation, brand valuation based on the concept of enterprise value, earning capacity-oriented brand valuation, license-based brand valuation and customer-oriented brand valuation to name a few.
“The market value-oriented brand valuation” approach is the method in which, the value of a brand is established by referring to the fair market prices of comparable brands. The other approach “capital market-oriented brand valuation model” was pioneered by Simon and Sullivan. They defined brand equity as the present value of all future earnings attributable solely to branding. Thus, from a financial markets perspective, brand value can be calculated from a company’s stock market capitalization or market value. But, this valuation method can be useful only for stock exchange-listed companies as the model is based on the idea that the stock price of a company will perform to reflect the future potential, its brands provide.
In the case of a single-brand company, brand value will therefore consist the company’s capitalized or realized market value. Brand value of a company can be calculated by using simple formula:
Brand Value = (stock price x number of shares) – (tangible assets + all remaining intangible assets)
If a company has more than one brand, the calculation is done pro rata for each brand’s share of total revenues or profits.
Brand valuation can also be based on the idea of the net asset value approach that is frequently drawn upon in the field of corporate valuation, which is called “cost-oriented brand valuation”. In net asset value approach, depending on the time perspective chosen, the assets may be valued either at their historic cost or at replacement cost. Brand valuation with the replacement cost method is done on the principle—what it would cost today to build up an equivalent brand from scratch. Whereas historic cost assumes that brand is an asset-based on resources that have been invested in it. Not only net asset value but enterprise value is also seen as a base to value brand equity. It also involves the aggregation of marketing and R&D expenditure relating to a brand. This method is used by Cadbury Schweppers for brand valuation. Historic Cost method, involves the aggregation of marketing and R&D expenditure relating to a brand. The problem is the isolation of costs specific to the brand alone, which may require the capitalization of costs incurred decades ago. Sander, Crimmins and Herp have proposed models based on price premium. In price premium-oriented approaches, the brand is seen as generating an additional benefit for the customer, for which they are willing to pay a little more. Sander proposed “Hedonic brand valuation method”, which is based on hedonic price theory. It explains product prices in terms of various product characteristics, or rather the extent to which they are present. On the other hand, Crimmins points out three dimensions of brand value: Actual amount, band breadth, and content of brand value. Herp builds upon the brand valuation model on conjoint measurement. In this model, brand value is defined as the sum of all incremental revenues earned as a result of branding a company.
It is seen that advertising support varies hugely from industry to industry. BBDO’s brand valuation model also considers the advertising in brand valuation, which most of the other models do not considers and present a distorted picture. The Brand Equity Evaluation System is a multi-phase factor model of brand valuation, which takes into account the differences between industries and solves the basic problem of the advertising support. This model also takes forward-looking variables to establish brand’s development potential. The model identifies eight determinants of brand equity.
The constituents of brand environment—sales performance, net operating margin and development prospects are aggregated into a joint factor of brand quality. The new brand quality factor is channeled together with the remaining four weighting factors (international orientation, advertising support, brand’s strength within its industry, image) to form an overall factor value. It is subsequently used as a multiplier of earnings before taxes. The monetary value of brand equity is the product of the average pre-tax earnings in the last three years and this combined the weighting factor. The detailed processes involved in implementing the BEES model are summarized in Figure.
There are few other methods to calculate brand value like “customer-oriented brand valuation model”, which is based on customer contribution margins. “Kern’s x-times-model” which is based on earning capacity, establishes the monetary value of a brand by capitalizing the value of potential earnings. License-based brand valuation proposed by Consor is yet another model which values a brand on the basis of the license rates typical of the industry and earned by comparable brands. It focuses on brand licensing, and the value calculated is the sum of money, another company would be willing to pay either to purchase the brand outright or to obtain a license for it.
“The market value-oriented brand valuation” approach is the method in which, the value of a brand is established by referring to the fair market prices of comparable brands. The other approach “capital market-oriented brand valuation model” was pioneered by Simon and Sullivan. They defined brand equity as the present value of all future earnings attributable solely to branding. Thus, from a financial markets perspective, brand value can be calculated from a company’s stock market capitalization or market value. But, this valuation method can be useful only for stock exchange-listed companies as the model is based on the idea that the stock price of a company will perform to reflect the future potential, its brands provide.
In the case of a single-brand company, brand value will therefore consist the company’s capitalized or realized market value. Brand value of a company can be calculated by using simple formula:
Brand Value = (stock price x number of shares) – (tangible assets + all remaining intangible assets)
If a company has more than one brand, the calculation is done pro rata for each brand’s share of total revenues or profits.
Brand valuation can also be based on the idea of the net asset value approach that is frequently drawn upon in the field of corporate valuation, which is called “cost-oriented brand valuation”. In net asset value approach, depending on the time perspective chosen, the assets may be valued either at their historic cost or at replacement cost. Brand valuation with the replacement cost method is done on the principle—what it would cost today to build up an equivalent brand from scratch. Whereas historic cost assumes that brand is an asset-based on resources that have been invested in it. Not only net asset value but enterprise value is also seen as a base to value brand equity. It also involves the aggregation of marketing and R&D expenditure relating to a brand. This method is used by Cadbury Schweppers for brand valuation. Historic Cost method, involves the aggregation of marketing and R&D expenditure relating to a brand. The problem is the isolation of costs specific to the brand alone, which may require the capitalization of costs incurred decades ago. Sander, Crimmins and Herp have proposed models based on price premium. In price premium-oriented approaches, the brand is seen as generating an additional benefit for the customer, for which they are willing to pay a little more. Sander proposed “Hedonic brand valuation method”, which is based on hedonic price theory. It explains product prices in terms of various product characteristics, or rather the extent to which they are present. On the other hand, Crimmins points out three dimensions of brand value: Actual amount, band breadth, and content of brand value. Herp builds upon the brand valuation model on conjoint measurement. In this model, brand value is defined as the sum of all incremental revenues earned as a result of branding a company.
It is seen that advertising support varies hugely from industry to industry. BBDO’s brand valuation model also considers the advertising in brand valuation, which most of the other models do not considers and present a distorted picture. The Brand Equity Evaluation System is a multi-phase factor model of brand valuation, which takes into account the differences between industries and solves the basic problem of the advertising support. This model also takes forward-looking variables to establish brand’s development potential. The model identifies eight determinants of brand equity.
The constituents of brand environment—sales performance, net operating margin and development prospects are aggregated into a joint factor of brand quality. The new brand quality factor is channeled together with the remaining four weighting factors (international orientation, advertising support, brand’s strength within its industry, image) to form an overall factor value. It is subsequently used as a multiplier of earnings before taxes. The monetary value of brand equity is the product of the average pre-tax earnings in the last three years and this combined the weighting factor. The detailed processes involved in implementing the BEES model are summarized in Figure.
There are few other methods to calculate brand value like “customer-oriented brand valuation model”, which is based on customer contribution margins. “Kern’s x-times-model” which is based on earning capacity, establishes the monetary value of a brand by capitalizing the value of potential earnings. License-based brand valuation proposed by Consor is yet another model which values a brand on the basis of the license rates typical of the industry and earned by comparable brands. It focuses on brand licensing, and the value calculated is the sum of money, another company would be willing to pay either to purchase the brand outright or to obtain a license for it.
Behaviorally-Oriented Brand Valuation Models
Some 10 years ago, among both marketing practitioners and theoreticians, criticism grew louder that financial models were failing to do complete justice to the essential qualities of strong brands, since they concentrated on quantities such as stock market capitalization, earning-capacity value, license revenues, acquisition costs, price premiums or the customer contribution margin, when brand is not the only calculation of value in quantitative terms. Aaker defines brand equity as a set of assets and liabilities linked to a brand, its name and symbol that add to or subtract from the value provided by a product or service to a firm and/or to that firm customers. Aaker identifies five determinants of brand equity: Brand loyalty, brand awareness, perceived quality, brand associations and other brand assets. It is seen not only as determinants but also as outcomes of brand equity. These parameters, with help of few other important factors, give a new concept of incorporating brand strength as a demand-oriented component. They endeavor to explain what goes on in customers’ hearts and minds and what determines the value of brands from their point of view. Almost on the same lines, Keller defines brand value as the differential effect of brand knowledge on consumer response to the marketing of the brand. That is, customer-based brand equity involves consumers’ response to an element of the marketing mix for the brand in comparison with their reactions to the same marketing mix element attributed to a fictitiously named or unnamed version of the product or service.
Calculation of brand value based on Price Premium method, compares the revenues of an unbranded competing product with the brand. Revenues of an unbranded competing product are deducted from the revenues of a comparable branded product to establish the excess or premium revenue of the brand. This excess or premium gives the value of brand. BPL, Nike, United Color of Benaton, Lotto and Bata, for example, are able to command a higher price even when the product is outsourced. The suppliers to these companies cannot charge the same price if they sell their products directly to the consumers.
Based on the principle that consumer commitment is at the foundation of brand equity and loyalty, the Chicago research firm Market Facts has developed a “Conversion Model”. This model is designed to measure the psychological commitment between brand and consumer. The model segments users of a brand into four groups: Entrenched, Average, Shallow, and Convertible. This model also predicts brand’s future fortunes. Walker and Chip in their paper ‘how strong is your brand’ discusses example, “in measuring the carbonated soft-drink category in the summer of 1991, Market Facts detected weaknesses in consumer commitment to Coke and Diet Coke. At the same time, growth potential was found for several non-cola soft dinks. By the first quarter of 1992, Seven-Up’s shipment volume climbed 8%, and other brands showed directional strengths and weaknesses as predicted.”
Prominent among ‘Behaviorally-oriented’ brand valuation model is, the Young & Rubicam model which is based on the principles of behavioral science. The Young & Rubicam brand model, Brand Asset Valuator (BAV) can be used as a diagnostic tool. The BAV model is the result of a large-scale study Y&R conducted in 1993-94, encompassing 30,000 consumers and 6,000 brands in 19 countries. It is an attempt to value brand by breaking consumer connection into its two parts—brand stature and brand strength, the marketer can assess the health of the brand. Brand strength is a measure of brand distinctiveness that measures how distinctive the brand is in the marketplace and brand relevance measures whether a brand has personal relevance for the respondent. Brand stature, on the other hand, is a combination of brand esteem, which measures whether the brand is held in high regard and considered the best in its class and knowledge is a measure of brand understanding, which measures as to what a brand stands for.
Walker and Chip in their paper “How strong is your brand” discusses brands in the study with high familiarity include Coca-Cola, Jell-O, McDonald’s and Kellogg’s. Brands with high esteem include Rubbermaid, Philadelphia Cream Cheese, Reynolds Wrap, and Band-Aid.
BV = f {[Brand strength (differentiation, relevance)] and [brand stature (esteem, knowledge)]}
McKinsey defines the three Ps of the brand and gives a function “Quantitative brand strength elements = f (the 3 Ps of a brand)”, when three Ps stand for performance, personality, and presence. McKinsey’s method for determining brand value operates on the assumption that brand strength is definitively quantifiable. However, the system does not determine aggregate brand value, but rather
quantifies as target values for individual benefit components of brands from a brand management perspective and can be viewed as a model based on behavioral science only in terms of the drivers of the three Ps of the brand.
Other consumer-focused models essentially value brands along similar lines with varying degrees of sophistication. Some of the measures used are: Price premium, customer preference, replacement cost of brand, and the price premium that the name supports. The Icon Research and Consulting Brand Trek approach is yet another model for determining brand value based purely on the tenets of behavioral science.
Calculation of brand value based on Price Premium method, compares the revenues of an unbranded competing product with the brand. Revenues of an unbranded competing product are deducted from the revenues of a comparable branded product to establish the excess or premium revenue of the brand. This excess or premium gives the value of brand. BPL, Nike, United Color of Benaton, Lotto and Bata, for example, are able to command a higher price even when the product is outsourced. The suppliers to these companies cannot charge the same price if they sell their products directly to the consumers.
Based on the principle that consumer commitment is at the foundation of brand equity and loyalty, the Chicago research firm Market Facts has developed a “Conversion Model”. This model is designed to measure the psychological commitment between brand and consumer. The model segments users of a brand into four groups: Entrenched, Average, Shallow, and Convertible. This model also predicts brand’s future fortunes. Walker and Chip in their paper ‘how strong is your brand’ discusses example, “in measuring the carbonated soft-drink category in the summer of 1991, Market Facts detected weaknesses in consumer commitment to Coke and Diet Coke. At the same time, growth potential was found for several non-cola soft dinks. By the first quarter of 1992, Seven-Up’s shipment volume climbed 8%, and other brands showed directional strengths and weaknesses as predicted.”
Prominent among ‘Behaviorally-oriented’ brand valuation model is, the Young & Rubicam model which is based on the principles of behavioral science. The Young & Rubicam brand model, Brand Asset Valuator (BAV) can be used as a diagnostic tool. The BAV model is the result of a large-scale study Y&R conducted in 1993-94, encompassing 30,000 consumers and 6,000 brands in 19 countries. It is an attempt to value brand by breaking consumer connection into its two parts—brand stature and brand strength, the marketer can assess the health of the brand. Brand strength is a measure of brand distinctiveness that measures how distinctive the brand is in the marketplace and brand relevance measures whether a brand has personal relevance for the respondent. Brand stature, on the other hand, is a combination of brand esteem, which measures whether the brand is held in high regard and considered the best in its class and knowledge is a measure of brand understanding, which measures as to what a brand stands for.
Walker and Chip in their paper “How strong is your brand” discusses brands in the study with high familiarity include Coca-Cola, Jell-O, McDonald’s and Kellogg’s. Brands with high esteem include Rubbermaid, Philadelphia Cream Cheese, Reynolds Wrap, and Band-Aid.
BV = f {[Brand strength (differentiation, relevance)] and [brand stature (esteem, knowledge)]}
McKinsey defines the three Ps of the brand and gives a function “Quantitative brand strength elements = f (the 3 Ps of a brand)”, when three Ps stand for performance, personality, and presence. McKinsey’s method for determining brand value operates on the assumption that brand strength is definitively quantifiable. However, the system does not determine aggregate brand value, but rather
quantifies as target values for individual benefit components of brands from a brand management perspective and can be viewed as a model based on behavioral science only in terms of the drivers of the three Ps of the brand.
Other consumer-focused models essentially value brands along similar lines with varying degrees of sophistication. Some of the measures used are: Price premium, customer preference, replacement cost of brand, and the price premium that the name supports. The Icon Research and Consulting Brand Trek approach is yet another model for determining brand value based purely on the tenets of behavioral science.
Composite Models of Brand Valuation
A group of brand value measurement indicators has established itself parallel to the focus on psychographics values. Consultancy firms and academicians have proposed many composite models of brand valuation. The Interbrand’s brand valuation approach, AC Nielsen’s brand balance sheet and brand performancer, Gfk brand power model, Semion brand value approach and Sattler brand value approach are a few of the famous composite brand valuation models.
Interbrand consulting firm’s brand value system considers an earnings-based approach. The Interbrand model seeks to estimate the risk and inflation-adjusted benefits—the current and future earnings or cash flows—flowing from brand ownership. Under this model, the value of a brand is a function of two factors: its earnings and its strength. While the brand’s earnings are a measure of potential profitability, the brand’s strength is the measure of its reliability of its future earnings. The greater the brand’s strength, greater is the reliability of its future earnings and lesser is the risk. Since it is difficult to attribute all the earnings to the brand per se, adjustments need to be made to the earnings estimates.
In this model first of all the unbranded profit i.e., earning that would have accrued on a basic unbranded version of the product is eliminated and the historical profit at present day value is restated and adjusted for taxes. To calculate the actual brand earnings the profit attributable to other intangible associated with the business of the brand is deducted.
The model calculates the brand value by multiplying brand earnings with the brand earning with the brand strength multiple. This brand strength multiple is a function of multiple of factors like leadership, stability, market, internationality, trend, support and protection. These factors have been evaluated on a scale of 1 to 100 to calculate the brand multiplier. Some of the IT companies like Infosys, Rolta and Satyam are following a similar practice of valuation for their brands.
The seven determinants of the brand value are:
• Brand leadership—which stands for the ability of the brand to influence the market;
• Brand stability—the characteristic that has made the brand the inherent “fabric” of the market;
• Market—the structural attractiveness of the market, its projected growth, et al.;
• International presence of the brand—the brand’s attractiveness and appeal in a multiplicity of markets with a view to distinguish between regional, national and international brands;
• Brand trend—the brand’s ability to remain contemporary and relevant to the consumers;
• Marketing support—the quantity and quality of the investments made to support the brand and
• Legal protection enjoyed by the brand are the protection received from the legal system, patents, trademarks, etc.
Based on these parameters, Interbrand consulting determines the value of brand. Interbrand has given weighting to all these seven parameters like brand leadership has 25% weighting, brand stability enjoys 15%, market 10%, international presence of the brand 25%, brand trend 10%, marketing support 10% and legal protection enjoyed by the brand has 5% weighting.
Measurement of the seven variables, based on a detailed audit would determine a brand’s strength. This provides the discount rate that needs to be applied to the adjusted estimates of the brand’s earnings for determining its present value.
BV = Brand profit x Brand multiplier
The Interbrand approach while being valuable, especially in an acquisition and merger context, suffers from an accounting focus. This stems from the desire to ensure that the value arrived at is auditable. Further from a marketer’s perspective, the Interbrand approach does not explicitly measure consumers’ perception of the brand, which is critical for marketing decision-making, especially on brand extension.
Schulz and Brandmeyer, of AC Nielsen have used scoring model to develop a brand valuation model called “The AC Nielsen brand balance sheet”. The brand balance sheet relies on six criteria groups containing a total of 19 individual criteria that are deemed good indicators of brand value. The fundamental idea of the brand balance sheet is to relate a correlation between complex market environments, the significance of long-term brand cultivation and successful brand management. AC Nielsen felt that the brand balance sheet is not the absolute model for brand valuation and in search of better brand valuation model, it has developed an advanced model based on Brand Performancer.
The Brand Performancer attempts to deliver an integrative consumer and company-oriented brand valuation system. It provides tailor made data to the decision-makers for any specific information needed. The modular structure makes it possible to supplement gauges of brand value with analyses for the purpose of brand steering, financial brand valuation and tracking of brand leadership. The four modules are brand steering system, brand value system, brand control system, and the central element – brand monitor.
BV = [Annual sales of respective brands x Net operating margin x Relative brand strength x Perpetual annuity NPV discount factor]
One approach, which relies strongly on behavioral and image data in addition to financial values, is ‘Semion brand value approach’. He defines four brand values – financial value of the company, which is determined by earning before taxes and earning trends, brand strength that is determined by market share, market influence, marketing activities, distribution rate degree of familiarity, identity and potential, brand protection determined by product classification, brand environment and intern protection and brand image determined by consumer association, image position on market among consumer and vis-à-vis product.
BV = financial value x [financial value factor + brand protection factor + brand strength factor + brand image factor]
The market-oriented system of brand valuation, which combines a consumer-based perspective with a company-based perspective is proposed by Bekmeier-Feuerhahn model that operates on the assumption that brand value is derived from brand strength and brand earnings, both assessed on the basis of market prices. It is a comprehensive, integrative approach to build brand valuation that takes into account the special requirements of brand appraisal and yields a tangible monetary value.
The other well-known composite brand valuation approaches are Sattler brand value approach, Gfk brand power model and brand rating valuation model.
Interbrand consulting firm’s brand value system considers an earnings-based approach. The Interbrand model seeks to estimate the risk and inflation-adjusted benefits—the current and future earnings or cash flows—flowing from brand ownership. Under this model, the value of a brand is a function of two factors: its earnings and its strength. While the brand’s earnings are a measure of potential profitability, the brand’s strength is the measure of its reliability of its future earnings. The greater the brand’s strength, greater is the reliability of its future earnings and lesser is the risk. Since it is difficult to attribute all the earnings to the brand per se, adjustments need to be made to the earnings estimates.
In this model first of all the unbranded profit i.e., earning that would have accrued on a basic unbranded version of the product is eliminated and the historical profit at present day value is restated and adjusted for taxes. To calculate the actual brand earnings the profit attributable to other intangible associated with the business of the brand is deducted.
The model calculates the brand value by multiplying brand earnings with the brand earning with the brand strength multiple. This brand strength multiple is a function of multiple of factors like leadership, stability, market, internationality, trend, support and protection. These factors have been evaluated on a scale of 1 to 100 to calculate the brand multiplier. Some of the IT companies like Infosys, Rolta and Satyam are following a similar practice of valuation for their brands.
The seven determinants of the brand value are:
• Brand leadership—which stands for the ability of the brand to influence the market;
• Brand stability—the characteristic that has made the brand the inherent “fabric” of the market;
• Market—the structural attractiveness of the market, its projected growth, et al.;
• International presence of the brand—the brand’s attractiveness and appeal in a multiplicity of markets with a view to distinguish between regional, national and international brands;
• Brand trend—the brand’s ability to remain contemporary and relevant to the consumers;
• Marketing support—the quantity and quality of the investments made to support the brand and
• Legal protection enjoyed by the brand are the protection received from the legal system, patents, trademarks, etc.
Based on these parameters, Interbrand consulting determines the value of brand. Interbrand has given weighting to all these seven parameters like brand leadership has 25% weighting, brand stability enjoys 15%, market 10%, international presence of the brand 25%, brand trend 10%, marketing support 10% and legal protection enjoyed by the brand has 5% weighting.
Measurement of the seven variables, based on a detailed audit would determine a brand’s strength. This provides the discount rate that needs to be applied to the adjusted estimates of the brand’s earnings for determining its present value.
BV = Brand profit x Brand multiplier
The Interbrand approach while being valuable, especially in an acquisition and merger context, suffers from an accounting focus. This stems from the desire to ensure that the value arrived at is auditable. Further from a marketer’s perspective, the Interbrand approach does not explicitly measure consumers’ perception of the brand, which is critical for marketing decision-making, especially on brand extension.
Schulz and Brandmeyer, of AC Nielsen have used scoring model to develop a brand valuation model called “The AC Nielsen brand balance sheet”. The brand balance sheet relies on six criteria groups containing a total of 19 individual criteria that are deemed good indicators of brand value. The fundamental idea of the brand balance sheet is to relate a correlation between complex market environments, the significance of long-term brand cultivation and successful brand management. AC Nielsen felt that the brand balance sheet is not the absolute model for brand valuation and in search of better brand valuation model, it has developed an advanced model based on Brand Performancer.
The Brand Performancer attempts to deliver an integrative consumer and company-oriented brand valuation system. It provides tailor made data to the decision-makers for any specific information needed. The modular structure makes it possible to supplement gauges of brand value with analyses for the purpose of brand steering, financial brand valuation and tracking of brand leadership. The four modules are brand steering system, brand value system, brand control system, and the central element – brand monitor.
BV = [Annual sales of respective brands x Net operating margin x Relative brand strength x Perpetual annuity NPV discount factor]
One approach, which relies strongly on behavioral and image data in addition to financial values, is ‘Semion brand value approach’. He defines four brand values – financial value of the company, which is determined by earning before taxes and earning trends, brand strength that is determined by market share, market influence, marketing activities, distribution rate degree of familiarity, identity and potential, brand protection determined by product classification, brand environment and intern protection and brand image determined by consumer association, image position on market among consumer and vis-à-vis product.
BV = financial value x [financial value factor + brand protection factor + brand strength factor + brand image factor]
The market-oriented system of brand valuation, which combines a consumer-based perspective with a company-based perspective is proposed by Bekmeier-Feuerhahn model that operates on the assumption that brand value is derived from brand strength and brand earnings, both assessed on the basis of market prices. It is a comprehensive, integrative approach to build brand valuation that takes into account the special requirements of brand appraisal and yields a tangible monetary value.
The other well-known composite brand valuation approaches are Sattler brand value approach, Gfk brand power model and brand rating valuation model.
Impact of Technology on Branding
The business environment in recent years has gone through a sea change in its shape. One of the key factors of the unprecedented change in shape was the result of change in technology, which has also forced companies to get rid of traditional techniques of communication. The impact of the Internet on brand strategies is enormous. It has changed the boundaries of the competitive playing field and
created a land rush to establish brand through online channel. IBM, Microsoft, Coca-Cola are few of the pioneers of online branding exercise. Though new branding techniques have forced companies to get rid of traditional techniques of branding, the basics of branding remain same – winning customer mind share. Dr. Paul Temporal argues that, there is no change in the way people perceive a brand, traditional or hi-tech. People go for only those brands which they feel like accepting.
A brand in a networked economy can be defined using four inter-related elements satisfaction, collaboration, relationship and a story to suit the networked economy, which ultimately gives loyal customers to the company. Michael Moon and Doug Millison define it as ‘Fire brand’. A fire brand ignites the hearts and minds of customers through its interactions with the company and other customers. It unveils beginning-to-end strategies for strengthening company’s brand and building customer loyalty. A brand can become a firebrand when it fires community to action, and provides self-service satisfaction to vendors and other members of the community.
created a land rush to establish brand through online channel. IBM, Microsoft, Coca-Cola are few of the pioneers of online branding exercise. Though new branding techniques have forced companies to get rid of traditional techniques of branding, the basics of branding remain same – winning customer mind share. Dr. Paul Temporal argues that, there is no change in the way people perceive a brand, traditional or hi-tech. People go for only those brands which they feel like accepting.
A brand in a networked economy can be defined using four inter-related elements satisfaction, collaboration, relationship and a story to suit the networked economy, which ultimately gives loyal customers to the company. Michael Moon and Doug Millison define it as ‘Fire brand’. A fire brand ignites the hearts and minds of customers through its interactions with the company and other customers. It unveils beginning-to-end strategies for strengthening company’s brand and building customer loyalty. A brand can become a firebrand when it fires community to action, and provides self-service satisfaction to vendors and other members of the community.
Branding – A Collective Responsibility
Today, who doesn’t know of Nike and Starbucks? Sneakers were sneakers until Phil Knight came along to brand it as sports and fitness product and coffee was just a hot beverage until Starbucks created an excitement around its consumption by branding experiences. These brands stand successful even today because they consistently evoke positive feelings with each new product, services, or marketing campaign. These brands stand strong and have survived all bad and good seasons of business turmoil because they enjoy strong internal and external mix of branding.
It stands true not only for Nike and Starbucks but for any product or service offered to customers. Nike and Starbucks emerged as powerful brands because contrary to the conventional wisdom – branding stands true for external communication, its aim is to attract new customers and influence the old ones – they established their brand with the help of their employees. The old view has lost its significance in the
new market structure where companies in the midst of restructuring their business strategy need to communicate to their employees as they do with their customers.
In this new brand world, branding is not only domain of marketer but it has gone ahead to shop floor and, to the employee. In fact, brand-building exercise is the responsibility of the entire enterprise, including CEO. Most of the successful companies’ CEOs are managing branding exercise directly from most successful companies and the success stories of these companies have proved that the top boss of the companies should manage the branding exercise. Michael Dell of Dell Computer and Richard Branson of Virgin have done great job in positioning their brands globally. Richard Branson infused brand in the culture of the company and at Dell Computers brand was ingrained in the vision of company. Both these CEOs built strong relationship with the customers and employees. They have always seen brand as an important asset of company. Their initiatives helped Dell and Virgin to emerge as global companies.
It stands true not only for Nike and Starbucks but for any product or service offered to customers. Nike and Starbucks emerged as powerful brands because contrary to the conventional wisdom – branding stands true for external communication, its aim is to attract new customers and influence the old ones – they established their brand with the help of their employees. The old view has lost its significance in the
new market structure where companies in the midst of restructuring their business strategy need to communicate to their employees as they do with their customers.
In this new brand world, branding is not only domain of marketer but it has gone ahead to shop floor and, to the employee. In fact, brand-building exercise is the responsibility of the entire enterprise, including CEO. Most of the successful companies’ CEOs are managing branding exercise directly from most successful companies and the success stories of these companies have proved that the top boss of the companies should manage the branding exercise. Michael Dell of Dell Computer and Richard Branson of Virgin have done great job in positioning their brands globally. Richard Branson infused brand in the culture of the company and at Dell Computers brand was ingrained in the vision of company. Both these CEOs built strong relationship with the customers and employees. They have always seen brand as an important asset of company. Their initiatives helped Dell and Virgin to emerge as global companies.
Brand: The Changing Dimensions
Branding, with time, may have changed in form but elements of branding remain unchanged. Though branding is an enticing act for most marketers and consumers to associate certain positive, and exciting feelings with the process of brand management, there is a difference between the participation level of employees and customers. For the customer, it is an act of excitement and fun, which is done for awareness development. But for marketers, the same branding exercise means not only advertising and awareness development, but also strengthening the internal as well as the external core of brand.
Branding as an exercise is influenced by external and internal environments. The business functions, viz., marketing, sales, finance, production, research & development, and personnel have a definite role to play in brand-building exercise. Moreover, these functions are inter-dependent and intrinsically linked with one another for better functioning of business. The other set, which constitutes the external environment, comprises customers, competitors, advertising and public relation agencies, and distribution channels.
A company can develop power brands by maintaining a right balance between the external and internal environments. Bringing this balance helps brand create value through consistent positive quality delivery and its offerings, which satisfy customers and makes them opt for the brand regularly. At the other end, it also helps build a strong marketshare, maintain good price levels and generate strong cash flows. Companies like Coca-Cola, Microsoft, Intel, Nokia, Levi’s, Gillette, Disney, GE, American Express and Sony enjoy power brand status. These brands realized long back that brand management, as a function, has crossed the boundaries of marketing, penetrating into all other functions of business operations. They have also realized that the success of their business is mostly based on the success of their brands. They are experiencing brand-based business model. Sam Hill and Chris Lederer, associates of Booz-Allen & Hamilton, advocate that the next decade might see the brand-based business models becoming the dominant corporate norm. To develop a brand-based business, companies have to focus on a strong brand portfolio rather than an individual brand. To develop a portfolio of brands, it is required to classify brands of company into three groups: lead brand, strategic brand, and support brand. The lead brand is the center of brand portfolio – it carries most of the burden of the company’s sales and pulls customer to company’s product. The strategic brand lures new users to the brand portfolio. The support brands pull those customers who are on the fence, into the company’s product.
The key to the success of brand portfolio management is to think of brands as an asset and to measure the risk and return of brand. Moreover, developing a brand portfolio in this ever-dynamic business environment is not enough. Companies for sustained growth also need to convert their brand into Masterbrand, which helps create strong relationship with customers, provide direction to the employees, offer value proposition backed by entire company, help company erect greater barrier to entry, and infuse ability to innovate and change. Masterbrand also explains why a strong brand should reflect the organizational values, culture and strategy, which is very much reflected in branding strategy of global Masterbrand like American Express, AT&T, IBM, Samsung, and Sony.
Branding as an exercise is influenced by external and internal environments. The business functions, viz., marketing, sales, finance, production, research & development, and personnel have a definite role to play in brand-building exercise. Moreover, these functions are inter-dependent and intrinsically linked with one another for better functioning of business. The other set, which constitutes the external environment, comprises customers, competitors, advertising and public relation agencies, and distribution channels.
A company can develop power brands by maintaining a right balance between the external and internal environments. Bringing this balance helps brand create value through consistent positive quality delivery and its offerings, which satisfy customers and makes them opt for the brand regularly. At the other end, it also helps build a strong marketshare, maintain good price levels and generate strong cash flows. Companies like Coca-Cola, Microsoft, Intel, Nokia, Levi’s, Gillette, Disney, GE, American Express and Sony enjoy power brand status. These brands realized long back that brand management, as a function, has crossed the boundaries of marketing, penetrating into all other functions of business operations. They have also realized that the success of their business is mostly based on the success of their brands. They are experiencing brand-based business model. Sam Hill and Chris Lederer, associates of Booz-Allen & Hamilton, advocate that the next decade might see the brand-based business models becoming the dominant corporate norm. To develop a brand-based business, companies have to focus on a strong brand portfolio rather than an individual brand. To develop a portfolio of brands, it is required to classify brands of company into three groups: lead brand, strategic brand, and support brand. The lead brand is the center of brand portfolio – it carries most of the burden of the company’s sales and pulls customer to company’s product. The strategic brand lures new users to the brand portfolio. The support brands pull those customers who are on the fence, into the company’s product.
The key to the success of brand portfolio management is to think of brands as an asset and to measure the risk and return of brand. Moreover, developing a brand portfolio in this ever-dynamic business environment is not enough. Companies for sustained growth also need to convert their brand into Masterbrand, which helps create strong relationship with customers, provide direction to the employees, offer value proposition backed by entire company, help company erect greater barrier to entry, and infuse ability to innovate and change. Masterbrand also explains why a strong brand should reflect the organizational values, culture and strategy, which is very much reflected in branding strategy of global Masterbrand like American Express, AT&T, IBM, Samsung, and Sony.
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