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Can technology support better brand valuation

Can technology support better brand valuation






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    Can technology support better brand valuation Can technology support better brand valuation Document Transcript

    • 1. Brand Valuation a. Usage & Why It has been long known that brand is the core of intangible assets. However, it is a recent phenomenon where interest in the financial evaluation of it, is gaining recognition (19) . This rings true where the prominent role of brand valuation is consequential in mergers and acquisitions which began in the 1980’s. Despite the commercial importance of brands, the management of them still lags behind that of their tangible counterparts. Even though measurement has become the mantra of modern management, it is astonishing how few agreed systems and processes exist to manage the brand asset. When it comes to managing and measuring factory output the choice of measures is staggering, as are the investments in sophisticated computer systems that measure and analyze every detail of the manufacturing process. The same is true for financial controlling. But, strangely, this cannot be said for the management of the brand asset. Although many brand measures are available, few can link the brand to long-term financial value creation (19) . Nor has investment in brand management reached a level or sophistication comparable with other controlling measures. As the importance of intangibles to companies increases, managers will want to install more value based brand management systems that can align the management of the brand asset with that of other corporate assets. There is a similar lack of detail about the contribution of brands in the financial reporting of company results. Investments in and returns from tangible assets are reported at sophisticated and detailed levels, but this is not true for intangible assets. For example, Coca-Cola’s balance sheet, income statement and cash flow calculation tell us about working capital, net fixed assets and financial investments, but little about the performance of the most important company asset, the Coca-Cola brand (8) . The same is true for most other brand owning companies. Current accounting regulations are deficient in their treatment of intangible assets. The increasing value placed on intangibles through mergers and acquisitions over the past two decades has forced accounting standards to acknowledge and deal with intangible assets on the balance sheet. However, the standards deal only with the bare minimum accounting for acquired intangibles, formerly known as goodwill. As a bizarre consequence, the value of acquired brands is included in companies’ balance sheets but the value of internally generated brands remains unaccounted for (9) . Overall, there is an increasing need for brand valuation from both a management and transactional point of view. With the development of the economic use approach, there is at last a standard that can be used for brand valuation. This may well
    • become the most important brand management tool in the future (12) . Brand valuation in this form brings together market analysis, brand metrics and financial performance in a meaningful and pragmatic structure allowing leading edge brand companies the opportunity to significantly improve their business model. Marketers understand brand equity metrics and market performance measures of the brands under their stewardship in a competitive context, and will have access to volume, net turnover, gross margin and brand contribution financials (7) . But what they do not have are the tools to measure and understand the impact of marketing investment on the long term equity and future earning potential of their brands (4) . Understanding the linkage between brand equity and brand performance delivery focusing on a brands ability to attract new users and retain the loyalty of existing customers is critical for improved strategic investment decisions (16) . Management decisions will be significantly better informed and the until now separate disciplines of Marketing and Finance will be truly brought together in a combined commercial understanding that puts Brands legitimately at the top of the Board agenda. Brand valuation had also been instrumental in the financial markets for the following reasons: • Licensing the brand to third parties to optimally exploit the brand asset • Assisting in formulating a brand investment decision to assess cost and impact of ROI • Aligning brand ROI among other investments for instance; measuring clearly identified performance targets in relation to the value of the brand asset • Brands can be licensed to international subsidiaries, and in the US, to subsidiaries in different states. Brand royalties can be repatriated as income to corporate headquarters in a tax-effective way • As a value add to the marketing department, turning the cost centre into a profit centre by connecting brand investments and brand returns – remuneration and career development of marketing staff ca also be linked to and measured by brand value development • Effectively allocate expenditures according to the benefit each business unit derives from the brand asset
    • • Organize and optimize the use of different brands in the business linear to their respective economic value contribution • Successfully aiding brand migration and deciding the appropriate brand after a merger according to a clear economic rationale • Develop a balanced scorecard to strategize a focused and actionable measures for optimal brand performance • It is used in both the initial valuation and the periodical impairment tests for the derived values in accordance with country specific accounting standards • To determine contribution of brands to joint ventures so as to clearly define the value that it adds to the transaction, shareholding, investment requirements, and profit sharing • Brands utilization as collaterals in the securitization of debt facilities. Besides serving as a tool in the financial market transactions, evaluation of brands in economic terms are also crucial in the strategic management level to determine royalty rates in licensing brands, evaluating debt levels & risks, and estimating damages in trademark disputes. In brief, today’s society sees the advantage of brand valuation. It is henceforth, applied widely across the following functions: • Monitoring value year on year • Mergers & Acquisitions • Joint venture negotiations • Enhancing management communications • Benchmarking competitors • Creating a brand-centric culture • Brand management and development • Financing and insolvency – securing funds through identification of value of intangible assets • Balance Sheet • Internal licensing, brand control, and tax planning • Expert witness – evaluating the economic damage of trade mark infringement Strategic brand management is an area where brand valuation focuses mainly on internal audiences by providing tools and processes to manage and increase the economic value of brands. In pursuit of increasing shareholder value, companies are keen to establish procedures for the management of brands that are aligned with those for other business assets, as well as for the company as a whole. It is therefore a need to communicate where appropriate, the
    • economic value creation of the brand to the capital markets in order to support share prices and obtain funding. b. History As traditional purely research-based measurements proved insufficient for understanding and managing the economic value of brands, companies have adopted brand valuation as a brand management tool. Brand valuation helps them establish value based systems for brand management. Companies as diverse as American Express, IBM, Samsung Electronics, Accenture, United Way of America, BP, Fujitsu and Duke Energy have used brand valuation to help them refocus their businesses on their brands and to create an economic rationale for branding decisions and investments. By making the brand asset comparable to other intangible and tangible company assets, resource allocation between the different asset types can follow the same economic criteria and rationale, for example, capital allocation and return requirements (1) . Interestingly, many companies have made brand value creation part of the remuneration criteria for senior marketing executives. Academic reports from Harvard and the University of South Carolina and by Interbrand of the companies featured in the “Best Global Brands” league table indicated that companies with strong brands outperform the market in respect of several indices (6) . Although public perceptions of brand valuation are often focused on balance sheet valuations, the reality is that the majority are carried out to assist with brand management and strategy. A strong brand represents an unmistakable mental image of a product or service that is solidly anchored in the consumers’ psyche. Strong brands often receive special treatment by retailers because they automatically have consumers’ acceptance (5) . Also, because strong brands already have consumer confidence, it can be argued that their advertising is more efficient and effective in communicating benefits (8) . The value associated with the product or services are communicated through the brand to the consumer. Consumers no longer demand just a service or a product, but rather a relationship based on trust and familiarity. This in turn, will gain the business patrons who have “bought” into the brand. A look into Ford Motor Company and Cadillac Cimarron advocates likewise.
    • In the early 2000s, Ford Motor Company in North America made a strategic decision to brand all new or redesigned cars with names starting with “F”, in view that all previous sport utility vehicles since Ford Explorer had names starting with “E”. An analyst warned that changing the name of the well known Windstar to Freestar would cause confusion and brand equity built up. However, a marketing manager believes otherwise, and further added that the change in name would highlight the new redesign. By 2007, the Freestar became a discontinued product and Ford announces record losses. Cadillac Cimarron was first introduced on May 21, 1981 to ride on the success of General Motor’s J platform, an economy car. At the launch of Cimarron, the car received high praises from some motoring press critics. However, Cadillac’s enthusiasts were unreceptive of Cadillac’s idea of re-designing J platform and introduce it as Cimarron. Although the Cimarron had grown comparatively more refined by the end of its production run with more Cadillac-like styling to further distinguish it from other J-cars, buyers stayed away and the car was discontinued after 1988 with a production run that year of only 6,454 units. The Cimarron’s failure later drove the division close to bankruptcy in the 1980. Globalization, technological developments, outsourcing and e- business have forced companies to compete more intensely and brands have become the main way of differentiating products and services, creating and sustaining competitive advantage and maintaining customer loyalty. As such, brands have become the main drivers of value within a company. c. Players i. Company Profile Interbrand Interbrand was founded in 1974 as Novamark by John Murphy, a former employee of Dunlop, in London. It forms a division of Omnicom, a New York based marketing services group. Initially focusing on naming consultancy, Interbrand expanded and developed into a full-service branding consultancy with 40 offices in 25 countries. The company has an extensive list of clients, with large corporations spanning many industries. Interbrand produces the weekly online magazine brandchannel.
    • Millward Brown Millward Brown is a market research company, with its headquarters based in the UK. Millward Brown was the first company to provide continuous tracking studies, and has researched more advertisements and more brands than any other research company. Proprietary tools include Dynamic Tracking, Link (TM) advertising pre-testing, and Brand Dynamics (TM) brand equity system. Millward Brown currently works with 70 of the Businessweek's 100 Best Global Brands. As of 2007, Millward Brown, including its affiliated licensee companies, has some 80 offices in 46 countries worldwide. The company is the largest company member forming part of the Kantar Group, a division of the WPP Group. Kantar Group also includes Diagnostic Research/Added Value (DR/Added Value), Research International and Kantar Operations. Kantar Operations handles all operational aspects of the research projects carried out by Millward Brown, in addition to those run by DR/Added Value and Research International. Absolute Brand The company is central to its mission: “Creates, builds, and values brands & other intangible assets”. To fulfill their clientele’s various demands, Absolute Brand works closely with third party companies, especially in the field of requirements of FASB 141 business Combinations and 142 Goodwill and Other Intangible Assets such as purchase price allocations, valuations of intangibles, and impairment reviews. Besides, Absolute Brand is experienced in applying FIN 46R to complex international mergers and acquisitions involving hundreds of legal entities. They have also created a logical and transparent step by step application process. Brand Finance Services include brand valuation, marketing finance audit, forecasting and econometric modeling, and benchmarking performance. Brand Finance is the international leader in the valuation of intangible assets. During the last decade, they have carried out valuations in many jurisdictions for accounting, tax and commercial purposes.
    • The company advises tax authorities on intangible asset valuation and transfer pricing. Brand Finance’s robust valuation approach is enhanced by an integrated knowledge of marketing, licensing and brand transactions. They help clients leverage value from their brands through acquisitions and disposals, licensing, structured finance, and tax planning. Lippincott Set up in 1943, the company currently serves over 3,000 clients globally, including Coca Cola to Citibank. They believe in crafting clarity from complexity, focusing mainly on communication aspect of branding to create a common culture of brand experience which ultimately builds the clientele’s business. Intangible Business Main focus of the company lies within brand valuation, brand management, and brand strategy. Clientele list includes sectors of banking, legal, financial, and marketing. Intangible Business is the world’s leading brand valuation consultancy which is dedicated to intangible asset valuation for balance sheet, management, and litigation purposes. Bravo Bravo devised a tried and tested model for evaluating brand strength to measure brand value. Their approach claims to be avoiding disruption to clients’ business and provide an independent assessment of their brand strength and an estimate of overall brand value. The company’s 3 steps approach entails gathering market research and translating it into brand strength. After which, a weighted average profit of the brand is calculated, resulting in the client’s total brand value. Brand Amplitude Brand Amplitude is an independent brand research and consulting firm, providing quantitative and qualitative online research and brand strategy consulting. The company emphasizes on brand research and brand strategy consulting, allowing direct access to senior level
    • branding experts, innovative approaches to quantitative and qualitative research, industry standard brand strategy process, and secondary research investigations. ii. Pros & Cons Company Proposition of Services Contra of Services Interbrand • A division of Omnicom, meaning it would have more access to knowledge bank, network, and funding. • Started as naming consultancy, thus more experienced in the field. • Produces weekly online magazine which keeps them in the hearts and minds of clients, as well as reaching out to broader markets. • Controlled by Omnicom, unable to act as an independen t entity. Millward Brown • 1st company to provide continuous tracking studies • Has researched more advertisements and brands than any other companies. • Proprietary tools. • Strong standing with large corporations forming their clientele base. • Emphasizes on market research rather than focusing on branding valuation. • Under Kantar Operations which handles all operational aspects, allowing Millward limited control. Absolute Brand • Better versed in technical aspects • Dependent on 3rd party
    • of branding & marketing such as FIN 46R and FASB 141 & 142. • Made international mergers & acquisition more logical and transparent. companies, who may not liaise directly with clients, hence, communica tion issues might arise. Brand Finance • Focus on brand valuations & business audits. • International leader in valuation of intangible assets. • Advises tax authorities on intangible assets valuation and tax pricing. • More versed in taxation & financial measures, hence more likely to apply Economic Use method of valuation. This might give rise to confidential ity issues as the process requires client to disclose their forecasted revenue. Lippincott • Good in brand communication. • Global client base. • Does not have strong focus in brand valuation. Intangible Business • Main focus on brand valuation, management, & strategy. • Positioned them self as one stop branding consultancy. • World’s leader in brand valuation • Lacking cross functional integration.
    • consultancy. Bravo • Original tried & tested model for brand evaluation. • Non disruption of client’s business. • Provide independent assessment of brand strength. • More associated with marketing research company. • Does not gain a deeper understandi ng of client’s business environmen t as they do not work on-site. Brand Amplitude • Independent entity allows them to have more room for creativity & control. • Access to senior level branding experts. • Due to being independen t, it might have limited access to knowledge bank from other fields, and funding. d. Methods i. Each Method 1. Reason to use method a. Relief From Royalty (Discounting) This method calculates how much a brand owner is relieved from paying for the use of the brand by virtue of owning it. It applies the traditional licensing agreement whereby the brand owner receives a royalty on income generated by the brand. Future brand earnings are discounted to reflect the time value and risk attached to those future cash flows and tax is deducted.
    • Forecasting revenue and calculating a royalty rate are therefore two key components. b. Financially Driven Approaches (Cost / Expenses Based) This approach defines the value of a brand as the aggregation of all historic costs incurred or replacement costs required in bringing the brand to its current state. Financial investment is an important component in building brand value, provided it is effectively targeted. • Comparables This is an approach to arrive at a value for a brand on the basis of something comparable. But comparability is difficult in the case of brands as by definition they should be differentiated and thus not comparable. Furthermore, the value creation of brands in the same category can be very different, even if most other aspects of the underlying business such as target groups, advertising spend, price promotions and distribution channel are similar or identical. Comparables can provide an interesting cross-check. However, they should never be relied on solely for valuing brands. • Premium Pricing This method calculates the net present value of future price premiums that a branded product would command over a generic equivalent. The primary purpose of many brands is not necessarily to obtain a price premium, but rather to secure the highest level of future demand.
    • Therefore, it can be said that the value generation of these brands lies in securing future volumes rather than a premium price. This is especially applicable to many durable and non-durable consumer goods categories. However, this method is flawed due to the insufficient generic equivalents to which the premium price of a branded product can be compared to. The price difference between a brand and competing products can be an indicator of its strength, but it does not represent the only and most important value contribution a brand makes to the underlying business. • Economic Use On the contrary with most approaches which are driven exclusively by brand equity measures or financial measures lack either the financial (net present value of future expected earnings) or the marketing component (commercial function that brands perform within business) to provide a complete and robust assessment of the economic value of brands, economic use approach is based on fundamental marketing and the financial principles; combining brand equity and financial measures. It has become the most widely recognized and accepted methodology for brand valuation.
    • 2. Example if possible a. Use Ebay for Sample Older deals point to a habit of mis-pricing a brand. Skype, for example, was acquired by eBay in 2005 for $2.6 billion. In the same year, Skype generated only $7 million in revenues from its 53 million subscribers in 225 countries – a multiple of 371 times annual turnover. The valuation was clearly not based on current performance but in anticipation of heroic annual growth. Despite revenues forecast to exceed $200 million two years after acquisition, eBay’s investment appears not to have paid off as it was subject to an impairment charge of $1.4 billion in 2007. Ebay admitted an overpayment. However, EBay has now become a household name in the same manner as Hoover and Xerox are. Online auctioning is widely known as “EBay’ing”. By capturing the mind of the consumer, eBay now occupies a strategic position that must be viewed as virtually impossible to challenge. Looking ahead eBay will continue to expand by the promotion of their core service competencies thereby attracting new members. EBay has no acquisition plans for 2006. International expansion remains a high priority for the industry, especially in China. Some experts believe this market will become eBay’s biggest market in just five to ten years. Competition is expected to increase as three of the other online giants, Yahoo!, Google and Amazon.com as they continue to enhance their presence in the online-auctioning market. b. Interbrand Method Example Required According to Interbrand, brand valuation is as necessary as valuing assets with significant quantifiable economic value. Interbrand’s approach is based on the three economic functions of a brand (Fig.3.1.1): 1. To create cost synergies Fig 3.1.1
    • 2. To generate demand for the products and services 3. To secure future demand and thus reduce operative and financial risks. Given this concept of economic worth, the value of a brand reflects not only what earnings it is capable of generating in the future, but also the likelihood of those earnings actually being realized. Broadly speaking, their methodology comprises of four core elements: • Financial analysis – to identify business earnings and ‘Earnings from Intangibles’ for each of the distinct segments being assessed. • Market analysis – to measure the role that a brand plays in driving demand for services in the markets in which it operates and hence to determine what proportion of earnings from intangibles are attributable to the brand. • Brand analysis – to assess competitive strength and weaknesses of the brand and hence the security of future earnings expected from that brand. • Legal analysis – to establish that the brand is a true piece of ‘property’. In corporate finance, Economic Value Added (EVA) is an estimate of true economic profit after making corrective adjustments to GAAP accounting, including deducting the opportunity cost of equity capital. EVA can be measured as Net Operating Profit After Taxes (NOPAT) less the money cost of capital. Interbrand has refined its processing of contracts into a 5- step discounted Economic Value Added (EVA) Methodology: 1. Segmentation The value of a brand can only be determined precisely through the separate assessment of individual segments that represent a homogenous customer group.
    • Incidentally, brand management can only obtain the insights it needs t increase the brand’s value systematically if the brand has been evaluated in all its segments. 2. Financial Analysis The brand valuation processes starts with an assessment of the company’s value and then determines the value contributed by the brand. The first step towards isolating brand earnings from other forms of income is to determine the Economic Value Added (EVA) which tells whether a company is able to generate returns that exceed the costs of capital employed. 3. Demand analysis Interbrand analyzes the brand’s value chain and identifies the position of the brand in the minds of customers. To determine the brand’s share of EVA, the company examines what factors influence demand and motivate customers to purchase. The sum of these brand contributions on the demand drivers is expressed as the Role of Brand Index (RBI) which, multiplied with the EVA, yields the brand earnings. 4. Brand Strength Analysis By analyzing the strength of a brand on the basis of 7 factors (i.e. market, stability, brand leadership, trend, brand support, diversification, and
    • protection), Interbrand assesses the risk of a business. The analyses will result in the Brand Strength Score (BSS). 5. Net present value of brand earnings The economic value of future brand earnings is inversely correlated with the brad’s estimated risk and this risk is directly linked to brand strength. The transformation of brand strength into brand risk (or into discount rate), is completed using an S-curve. The procedure reflects the dynamism of the market, where brands at the extreme ends of the scale react differently from brands in the middle range as regards changes in their strength. The strongest brands are discounted with the risk-free rate of the total market while average-strength brands are discounted with the industry WACC (cost of equity in the financial service industry). Discounting the forecast period (present value) and the calculation of an annuity (terminal value) results in the total value of the brand. Since this procedure focuses on value creation, it is independent of potential and probable changes in organizational structure. The total value of the brand is calculated as the sum of its segment values (sum-of-the- parts).
    • Interbrand bases its valuation method on this concept of economic use and the fundamental question: how much more valuable is the business because it owns certain brands (6) ? It is thus a marketing measure that reflects the security and growth prospects of the brand and a financial measure that reflects the earnings potential of the brand. Samsung Electronics - a client of Interbrand which deals in the business of consumer products, retail, and telecommunications & technology; faces a weakening brand in 1998 among its competitors, Sony, Nokia, Panasonic, and Ericsson. Interbrand was appointed to perform a detailed valuation of Samsung brand in all its key markets (58 segments) to demonstrate how the brand generates shareholder value, to provide strategic long-term recommendations and to deliver metrics against which the progress of the brand building process could be monitored and reliably measured. Samsung successfully followed Interbrand’s recommendation to reposition Samsung as an innovative premium brand focusing on the promotion of hero products such as cell phones and TVs. A global marketing organization has been established to ensure consistent management of the Samsung brand around the world and brand value became a critical key performance indicator. The valuation was also used to inform allocation of marketing resources and assess overall Return On Investments (ROI) of the brand building efforts. As a result, the Samsung brand has become a key value driver for the business resulting in significant increase in brand and shareholder value. Samsung is today the only serious challenger to Sony around the world.
    • Interbrand had successfully rendered their brand valuation services, applying the discounted Economic Value Added methodology on Samsung Electronics. Another client of Interbrand is AT&T. When SBC merged with AT&T to form the largest telecommunications company in the United States, a number of critical branding decisions needed to be made. Interbrand was asked to position this new entity in a way that would ensure success in both the business and the residential spaces. Extensive brand research confirmed that AT&T currently has an internationally recognized, iconic brand with a valuable heritage. The AT&T brand is associated with integrity and performance by business of all sizes, as well as different government sectors. And although SBC achieved significant success throughout the 13 states it served, the AT&T brand commands a 98% awareness rating across the US. Interbrand was determined to leverage AT&T’s current brand equity rather than adopting the SBC name or start from scratch with an entirely new brand identity. This meant repositioning the business; something that was critical given AT&T had very publicly exited in 2004 from the residential market and now, with the SBC residential business being re- branded, was returning only 2 years later. As part of Interbrand’s new brand strategy for AT&T, the decision was made to signal a new era with a fresh new look. Interbrand developed an evolution of the classic Saul Bass logo to visually communicate the new brand positioning. Blue remains the primary colour while dimension was added to the globe to signal its new, additional reach. A new luminosity makes the brand more approachable and a degree of transparency helps capture the honesty and openness central to the revitalized brand. Interbrand made the solid monolithic type softer and lower case, making it more personable, dynamic, and fitting for a business at the
    • forefront of bringing new, meaningful technology to its customers. In addition to the logo, Interbrand designed a comprehensive graphic identity system that ties together all the communications throughout the business in a cohesive yet flexible way. AT&T continues to work with Interbrand on projects including brand valuation, brand architecture, product naming, and on-line brand management tools to help establish AT&T as the leader of the telecommunications industry. AT&T launched and supported the new brand with an impressive communications campaign. The brand has been extremely well received internally and externally. The heritage has been leveraged while imbuing the brand with new and more relevant meaning to key audiences. AT&T is redefining and delivering valuable telecommunications services with new, highly credible and approachable brand that is successfully straddling both consumer and business sectors. Interbrand was engaged by AT&T to work on brand valuation, in the telecommunications & technology service line. 3. Problems e. Current Customer Data Collection Methods used in Brand Valuation • Opinion Poll An opinion poll is a survey of public opinion from a particular sample. Opinion polls are usually designed to represent the opinions of a population by conducting a series of questions and then extrapolating generalities in ratio or within confidence intervals. The wording of a poll can include bias, as the bias can be in the opinion. For instance, the public is more likely to indicate support for a person who is described by the operator as one of the "leading candidates" (14) . This support itself overrides subtle bias for one candidate, as in combining some candidates in an "other" category or
    • vice versa. 21st century polling varies in complexity due to these circumstances. Some potential for inaccuracy in opinion polls includes but not limited to: coverage bias, response bias, wording of questions, as well as non-response bias. • Advertisement Tracking Also known as Ad Effectiveness Tracking or post- testing, it is a continuous in-market research that monitors a brand’s performance including brand and advertising awareness, product trial and usage, and attitudes about their brand versus their competition (17) . Depending on the speed of the purchase cycle in the category, tracking can be done continuously (a few interviews every week) or it can be “pulsed,” with interviews conducted in widely spaced waves (eg. every three or six months). Since the researcher has information on when the ads launched, the length of each advertising flight, the dollars spent, and when the interviews were conducted, the results provide an accurate rear-view mirror look at the marketplace and how it was affected by the advertiser’s marketing messages and decisions. Some ad tracking studies are conducted by telephone while others are conducted on the Internet. The two approaches produce very different measures of advertising awareness because the interviews tap into consumer memories of advertising using fundamentally different measures, recall versus recognition. For example, with an Internet study, the respondent can be shown a few memorable, de-branded still images from the TV ad or a de-branded version of a print or Internet ad and then answer three significant questions. • Do you recognize this ad? (recognition measure) • Please type in the sponsor of this ad. (unaided awareness measure) • Please choose from the following list, the sponsor of this ad. (aided awareness measure) A telephone survey does not allow for visuals. Verbal descriptions are very difficult to provide for mural ads or for a campaign that has several ads featuring the same character(s) in the same situation with only slight
    • changes. Telephone is not considered a flexible enough methodology to be used in all situations. • Survey Questionnaire Questionnaires have advantages over some other types of surveys in that they are cheap, do not require as much effort from the questioner as verbal or telephone surveys, and often have standardized answers that make it simple to compile data. However, such standardized answers may frustrate users. Questionnaires are also sharply limited by the fact that respondents must be able to read the questions and respond to them (14) . Thus, for some demographic groups conducting a survey by questionnaire may not be practical. • Innovation Game The phrase Innovation Game refers to a form of primary market research where customers play a set of directed games as a means of generating feedback about a product or service. The research is primary because the data collected is gathered directly from customers or prospects and is intended to answer a specific research question. (Secondary research is data collected previously by others, usually through primary research, that may or may not address a specific research question.) “Customers” who play innovation games are commonly direct recipients or consumers of a specific product or service. In some cases, though, game players may be any person or system who is or would be affected by a product or service. Innovation games are directed by a facilitator whose responsibilities include: explaining the game to be played, controlling the pacing and tempo of each game, monitoring participation levels, and managing time of the overall game-play event. The successful operation of an innovation game relies on collaborative play among the participants and a set of observers drawn from disparate functional groups within an organization. For example, a typical game setting for a word processing software might include participants drawn from two or three corporate customers along with observers comprised of the product’s quality assurance manager, technical architect, product manager, developer, sales executive,
    • or any one else on the product team. Arguably, the most important observer is the product manager because that person is responsible for acting on the data generated by the game. However, a single observer cannot possible capture all of the nonverbal and nuanced communication that players exhibit, so all observers play a significant and irreplaceable role in the effective utility of the game. • Projective Techniques These are unstructured prompts or stimulus that encourages the respondent to project their underlying motivations, beliefs, attitudes, or feelings onto an ambiguous situation. They are all indirect techniques that attempt to disguise the purpose of the research. Examples of projective techniques are: word association, sentence completion, story completion, cartoon tests, thematic apperception tests, role playing, and third person technique. • In-depth Interviews Interview which is conducted one-to-one, and lasts between 30 - 60 minutes, and yields very rich depth of information, yet flexible and very useful at probing for hidden issues. Best method for in-depth probing of personal opinions, beliefs, and values. By nature, the interview is loosely structured, a key difference on comparison with surveys. The interviews can be quite time consuming and at times, the response might be difficult to interpret (11) . The downside, this method requires experienced interviewer, which might come by as costly. On another caveat, interviewer biasness might also be easily introduced. However, the interview starts with general questions and rapport establishing questions, then proceeding on to more purposive questions. There is no social pressure on respondents to conform, and no group dynamics. Three most commonly applied questioning styles in the interviews are: laddering, hidden issue questioning, and symbolic analysis.
    • • Focus Group / Paid Survey This is an interactive group discussion lead by a moderator. Similar to in-depth interview in the way the questions are loosely structured. The moderator would then encourage for free flow of ideas. Each group is usually made up of 8 to 12 members who fit the profile of the target group or consumer. A session usually lasts for 1 to 2 hours and is usually recorded on video for further inference. The room usually has a large window with one-way glass, where participants can not see out, but the researcher can see in (8) . This method of data gathering is fast yet inexpensive. Computer and internet technology can also be used for on-line focus groups. However, respondents feel a group pressure to conform and group dynamics usually comes in helpful in developing new streams of thought and covering an issue thoroughly. • Statistical Survey (Attributable to geographical situation) Due to the externalities in geographical variances in business environment, Statistical Survey had recently been included in the valuation of brand. This survey is fast and can be done via telephone, mail, online, personal in-home survey, as well as personal mall intercept. Surveys may focus on opinions or factual information depending on its purpose, and many surveys involve administering questions to individuals. When the questions are administered by a researcher, the survey is called a structured interview or a researcher- administered survey. When the questions are administered by the respondent, the survey is referred to as a questionnaire or a self-administered survey. This method of data collection is efficient and fast, hence very large samples are possible. Statistical techniques can be used to determine validity, reliability, and statistical significance. Surveys are flexible in the sense that a wide range of information can be collected. They can be used to study attitudes, values, beliefs, and past behaviors on a certain brand. Because they are structured and standardized,
    • they are relatively free from several types of errors and easy to administer. However, since they depend on the subject’s motivation, honesty, memory, and ability to respond, it is subjected to bio-sensory of the subject such as mood, ability to remember and recall, ability to relate, ability to provide accurate answers, or they may even be totally unaware for their reasons for any given action. Some subjects might also be motivated to give answers that present themselves in a favorable light. Structured surveys, particularly those with closed ended questions, may have low validity when researching affective variables. Although the chosen survey individuals are often at random sample, errors due to non-response may exist. That is, people who choose to respond on the survey may be different from those who do not respond, thus biasing the estimates. 2. Branding A Country – The Unexplored Avenue a. What entails “Branding” a country? Branding a country takes time, commitment, and focus. While many of the countries that ranked high have “scored” well, not all of them have fully created their brands as places that differentiate, nor do they stand for something in the hearts and minds of key audiences, expand and drive business opportunities or perpetuate loyalty and preference. It is easily summarized by Simon Anholt’s Nation Brand Hexagon (Fig 2.1.1) As both tourism and international trade becomes more cluttered and competitive, brand is one of the few ways to truly differentiate. Those countries willing to truly work on brand building will be more likely to enjoy competitive advantage, higher returns, longer term momentum, and stronger advocates. Countries must first understand that a brand is not only a creative expression, but also a promise of value. The brand must reflect and ultimately enable a country’s business goals, Fig 2.1.1
    • economic objectives, and long term development vision. The brand platform must be broad enough to speak compellingly to the many audiences that a country is seeking to influence, as well as align and mediate the many competing goals a country is seeking to achieve (13) . As the landscape continues to be competitive and crowded, customers, investors, and visitors often struggle to differentiate one country from another. Successful countries will learn the power of contracting and focus (20) . They will resist the temptation to try and be everything to everyone. Importantly, they should stay consistent and focused for an extended period. Differences are important identifying a strong brand for a country (20) . With just a little negative light shed on a small company representative of a certain country, the particular country will suffer the impact. That is how strong an effect branding could impact not just certain companies, but also the whole nation (15) . Branding countries applies some approaches from commercial brand management practice to countries, in an effort to build, change, or protect their international reputations (2) . It is based on the observation that the "brand images" of countries are just as important to their success in the global marketplace as those of products and services. Increasing interconnectivity through advances in information technology, coupled with an increasing importance of the symbolic value of products, have led countries to emphasis their distinctive characteristics. The branding and image of a nation-state "and the successful transference of this image to its exports - is just as important as what they actually produce and sell." Just exactly, how important branding a country is? One may ask. Here is a compiled list of reasons;
    • • In 2005, worldwide receipts from international tourism reached $682 billion, an increase of $49 billion from the previous year. This rise is comparable to the combined receipts of the Caribbean, Central America, South America and South Asia. • Total receipts from international tourism, including international passenger transport exceeds $800 billion: more than $2 billion a day is earned by international tourism. • Travel and tourism activity is expected to grow by 4.2% per year in real terms between 2007 and 2016. • The world’s travel and tourism economy directly and indirectly accounts for 1 in every 11.5 jobs (234,305,000) and is 8.7% of total employment. Nation branding appears to be practised by many western countries, including the United States and United Kingdom (where it is officially referred to as Public Diplomacy), South Africa, New Zealand, and most Western European countries. There is increasing interest in the concept from poorer states on the grounds that an enhanced image might create more favorable conditions for foreign direct investment, tourism, trade and even political relations with other states (20) . Anti-globalization proponents often claim that globalization diminishes and threatens local diversity, but there is evidence that in order to compete against the backdrop of global cultural homogeneity, nations strive to accentuate and promote the distinctiveness of local characteristics and competitive advantages. Globalization and economic boom from the late 1960s had spurted the growth of tourism industry. For some countries, it is relatively an easy task to handle. England and Spain for example, had a wonderful historical value, strong tourism industry, attractive tourists spots, and at the same time,
    • accessible. On top of the assets mentioned, there is also media assistance which continually gives them free publicity by covering the popular tourist spots. Singapore, just like many of its neighbors, had also worked hard in trying to fight for tourist traffic. They eventually succeeded in the year 2000, when the tourism industry sector contributed close to US$6 billion to the country’s economy. It was an arduous task for the country to get this far. To begin with, in the past, Singapore was not a well known tourist attraction. More over, in the past, the west was by far a better choice for tourists due to its strong publicity and branding (2) . Furthermore, Asian used to have a thinking that visiting another Asian country makes no difference with visiting their home country. Though Singapore is strategically located on the geography map, it is too small a country and was often overlooked. The fact that Singapore at that time was the best free trade country in East Asia prompted foreign visitors to have a re-look into the country which they often neglect when it comes to tours. In the 1964, the Singapore Tourism Board was formed. However, they only started working hand in hand with a few branding consultants only in the 1980s, to come up with the slogan “The most wonderful tropical island in the world.” This turned out to be an effective campaign to invoke foreigners’ mind of Singapore when they think of touring. People of the world then started looking at Singapore from a different perspective, not one that was filled with dirt, huts and Kampongs (villages). In recent years, Singapore has enjoyed tremendous tourism growth as a result from their effectively targeted branding and image upholding. The tourism arrivals had grown from 7,197,871 in 1997 to 10,300,000 in
    • 2007, a hefty increase of 30.13%. For accuracy purposes, the figure provided above has not included the tourism and travel in other sectors such as educational, Meetings, Incentives, Convention, & Exhibition (MICE) and medical. According to a report released by FutureBrand and Weber Shandwick, in 2006 (3) Australia was ranked highest on their brand valuation, followed chronologically by United States of America, Italy, France, Greece, United Kingdom, Spain, New Zealand, Maldives, and India. In 2007, however, the system has ranked United Kingdom on top of the list, followed by Germany, Canada, France, Switzerland, Australia, Italy, Sweden, Japan, and Netherlands whereas China was ranked in the 22nd place. Under the Anholt’s “Most Improved country Brands” and “Rising Star Country Brands” category, China was ranked first on both. Brand changes the world – literally. b. Case study of “brands” with China perspectives (Both as a nation and as a manufacturer) Other than Rudolf Giulliani’s masterpiece of transforming New York from a scary city to one of the safest places in the world or Spain’s repositioning from a country on the edge of modern European dynamics to one right at heart, let’s take a look at how interestingly Asian has spent their effort all these while. We all know that after Tokyo, the next hottest business centre in Asia in the last few decades is China - Hong Kong. The Chinese has a commendably great sense of loyalty to the country, and has stronger local and family ties in comparison to the western counterpart. In Shanghai, for instance, companies are run pretty much like
    • the feudal system of the past. They only hire locals, and transact with people of the same denomination. Family ties are all that is needed to run a business, and hand shake is a form of silent consent to close a deal. In Chinese context, Guangxi is something that could be passed from generations to generations. This is a social system built based on lifelong trust. This form of bonding is genuinely an Asian value. Business in England under the ruling of Queen Victoria was more or less controlled in the hands of 3 families, while the business model of China was only in speaking different dialects. While guangxi can’t be seen or touched, it is not so for the results. In 2002, the Gross National Product (GNP) of the Chinese, including Hong Kong and Taiwan amounts to around US$450 billion, and that figure had yet to include the capital and gold valuations. In Indonesia, the Lippo Group was built by a Chinese, Lee Mo Tie, locally known as Mochtar Riady. His reign started with boutique business, watches dealer, to controlling television cables market, financial services, retailers, and to date, Lippo has a share in China’s main electric generator. All this was accomplished by guangxi. However, flexibility is a virtue. In the late 1990s when Asian faces a major crisis and Indonesia was one of the most badly hit countries, Lippo did not waste a chance. By being flexible and pragmatic in their guangxi, they managed to quickly acquired trusts and partnership from western companies. Unlike the western counterparts where branding is system centric, in the Asian context, guangxi is one unique, yet major influencer of branding. China’s economy development for the past 20 years had been tremendous. The once closed economy now has increased its foreign trade by 12 folds from US$38 billion
    • in 1980, to reach US$474 billion in 2000, and counting up to date. While doing so, China had always strived for improvements in quality, and expanded its export to almost every country in the world. China’s entrance into the world trade organization (WTO) would give rise to further economy boom, and opening the doors to more opportunities to foreign companies and investors. During its first 20 years, Lenovo evolved from a small distributor of imported computers into China’s leading computer firm. In 1984, the Chinese Academy of Sciences provided about $25,000 for 11 of its computer scientists to form the New Technology Developer, Inc. (NTD). NTD set up shop in a small concrete bungalow in Beijing with a mandate to commercialize the Academy’s research and use the proceeds to further computer science research. NTD generated early revenues by distributing imported computers such as IBM PCs to government agencies and large state-owned companies. In 1987 the company introduced its first original product, the Legend Chinese- character card, which translated English- language operating systems into Chinese. It included a popular “association” feature that allowed users to form common Chinese phrases by typing in just a few Chinese characters. Unlike competing software products, the Legend card was a piece of hardware that attached to PC motherboards, thereby saving valuable hard drive space. NTD bundled the Legend card with the imported PCs it distributed, achieving substantial first year sales of the card, which accounted for 38% of company revenue and 46% of profit. The Legend card’s popularity gave a boost to the PC distribution business and the firm won several new contracts, including one to distribute HP PCs in China. With the success of the Legend card securing the firm’s reputation, NTD was renamed Legend Computer Company in
    • 1989. Legend launched its own-brand PC into the Chinese market in 1990. Initially marketing only to China’s business sector, the company sold 2,000 units in 1990 and 17,000 units by 1992.15 Legend then pioneered the home computer concept in China, introducing a line of home PCs and a retail network in 1993. The Legend PC business division was formally established through a 1994 reorganization that coincided with the company’s listing on the Hong Kong Stock Exchange. By 1995, Legend was the world’s fifth-largest manufacturer of motherboards. Another case study we could look into would be the experience by a mobile phone company – Ericksson. The company wanted to invest in futures of China’s Telecommunication (as well as selling as much mobile phones as possible, along the way). They decided to run a special campaign to influence their goals. Whilst the other competitors are running advertisements on technology, Ericksson took a different alternative. They created a television script, focusing on the livelihood of Chinese. The storyline revolved around communication between the closely knitted communities. Communication is definitely enough of an impact and to bring across the message – Ericksson’s core business. Chinese legendary movie director Zhang Yimou was convinced to take their script and turn it to a movie. The final product is an emotionally sensitive, smart, simple, and advance international context. Not only had the move won the nation’s embrace, but it also grabbed a few internationally prestigious awards and accolades. The result was the work of an astoundingly wonderful collaboration between the West and the East.
    • c. Country brand valuation – looking ahead at middle & long term trends & influences on local corporations Country of origin / design / manufacture is known to give rise to country of origin associations in consumers’ minds. Country of origin associations may refer to the economic stage of the country (macro) or products produced in the country (micro). Country image is thus conceptualized at both the country (macro) level and the product (micro) level. Where brand is concerned, many companies falls into the caveat of associating their brand name with their country of origin’s brand name, in the hope that the association would generate more sales and in turn, revenues. The link between company’s brands along side the image of the country / people’s perception towards a certain country is as illustrated in Fig 2.3.1. While it is not incorrect to state that brand popularity which rides on country’s image would deliver a global brand image and eventually lead to a higher market share, there are admonitions to watch (20) . It has to be first understood that branding a country, works on a much larger scale as compared to branding a company. Due to its complex nature, branding a country is subjected to many externalities. Some of which are: • Issues in relation to government rules and regulations • National wide pandemic • Disasters & catastrophes • Global issues such as war, terrorism, and conflicts • Trade restrictions • Global warming & environment • Consumerism • Activist groups Fig 2.3.1
    • • Spending power Brand popularity can be used as an “external cue” for product quality, which can be readily available to buyers and can therefore immediately influence their evaluation of alternatives. First, popularity appears to provide value to customers by enhancing their confidence in forming purchasing decisions. Popularity can provide assurance to buyers, particularly when consumers evaluate products’ features of which are not easily compared among other alternatives such as automobiles. In general, everything else is being equal; consumers reduce risk by purchasing popular models rather than unpopular ones. Secondly, popularity can also provide value to customers by enhancing their interpretation and or information processing (20) . It can help consumers interpret, process, and organize huge quantities of information about products and brands. The third reason and probably the most important one, is that the perceived quality associated with popularity can be added to the value of the brand, which will positively influence the probability of the brand being chosen among alternative brands. These benefits, such as perceived quality, awareness, and positive associations, are considered key elements of brand equity. These benefits of purchasing popular brands can affect consumer purchase directly and immediately in the current period. The effect of brand popularity on market share, however, seems to go beyond the current period and extend to future ones. To be effective, images arising from popularity must become part of a longer process. For example, perceived quality image associated with brand popularity can enhance customer satisfaction with regard to the usage experience. Knowing that a car is the top- selling brand can affect the experience of
    • driving it; the user can actually “feel” different. It is generally believed that if brand popularity provides such intangible value to customers, then customers tend to “return” value to firms by enhancing their brand loyalty as well as transferring its good image to others through word-of-mouth, which will ultimately influence the sales of the brand in future periods (15) . The conceptual or theoretical explanation for the long term effect of brand popularity on market share through consumer brand loyalty (i.e. the causal link of brand popularity → brand loyalty → market share) has been empirically validated. The second causal link (i.e. brand loyalty → market share) implies that once brand loyalty is created, it will positively influence market share. Brand loyalty positively influences sales of a consumer durable even with limited repeat purchase, by word-of-mouth reputation among consumers; for example, a loyal consumer recommends others to buy the brand of his loyalty. Studies also documented the advantage of being the most popular brand in terms of market share or profit. Although the effect of timing of entry on the established leadership has proven controversial, these studies seem to agree that if a brand is established as the most popular brand, then it will acquire more favorable evaluations from consumers in terms of their attribute ratings, overall attitudes, and intentions, which in turn has produced larger shares in the long run at the aggregate market level (18) . In summary, although brand popularity has a positive effect on market share immediately in the current period, there has been no empirical test for the relationship, at least in the area of marketing or international marketing. By examining 2 effects simultaneously, the study can measure the short term effect more precisely than previous studies; by examining the short
    • term effect along with the long term effect, a more precise picture can be drawn about the 2 effects. Brands originating from a particular country seem to create intangible assets or liabilities that are shared by those brands originating from the same country. Since brands from the same country tend to be perceived as similar, consumers’ perceptions may not be purely brand-specific but rather, country specific. Country related intangible assets or liabilities have typically been considered as country image, given that similar images have been created over time for brands originating from the same country. For instance, in the automobile industry, brands originating from Japan tend to have similar brand images in terms of the perceived quality of product features. The similar image of brands from the same country has been noted to be particularly important when products cannot be easily evaluated by consumers, as in the case of automobiles, and consumer electronics, where consumers seek external cues for drawing inferences. There are studies to support that country of origin seem to provide evidence of the presence of country image differences. Differences in terms of country image can be attributed to the unique characteristics of their home countries in terms of demand conditions, factor conditions, rivalry, and related and supporting industries. Country specific endowments create the environment in which companies are born and learn to compete effectively in certain areas and, as such, affect essential ingredients for achieving competitive success. Country images, built over long periods, are intangible assets that make a positive contribution to market sales or share by
    • influencing the effectiveness of marketing variables on sales. Given a country specific brand image, some strategic choices will prove more effective than others. 3 Can Internet Technologies Help f. Customer Satisfaction & Awareness Surveys Qualitative research is a field of inquiry that crosscuts disciplines and subject matters. Qualitative researchers aim to acquire an in- depth understanding of human behavior and the reasons that govern human behavior. Qualitative research relies on reasons behind various aspects of behavior. Simply put, it investigates the why and how of decision making, not just what, where, and when. Hence, the need is for smaller but focused samples rather than large random samples, which qualitative research categorizes data into patterns as the primary basis for organizing and reporting results. Qualitative researchers typically rely on four methods for gathering information: (1) participation in the setting, (2) direct observation, (3) in depth interviews, and (4) analysis of documents and materials. Quantitative research is the systematic scientific investigation of quantitative properties and phenomena and their relationships. The objective of quantitative research is to develop and employ mathematical models, theories and/or hypotheses pertaining to natural phenomena. The process of measurement is central to quantitative research because it provides the fundamental connection between empirical observation and mathematical expression of quantitative relationships. With the increasing use of the Internet, online questionnaires to gather customers’ data as well as satisfaction and awareness level have become a popular way of collecting information. The design of an online questionnaire often has an affect on the quality of data gathered. There are many factors in designing an online questionnaire such as guidelines, available question formats, administration, quality and ethic issues should be reviewed. All leading business organizations as well as small enterprises are focusing on feedback management to constantly improve services at all levels. “Customer is the king” a well known phrase definitely holds a lot of weight, many firms primarily concentrate on customer satisfaction and hence conduct a customer satisfaction survey at regular intervals in order to get a run down on the level of customer satisfaction about products and services they are offering. Such a survey can also help a company or organization get a detailed overview as to where it stands in today’s highly competitive markets.
    • A powerful customer satisfaction survey will not only help in sharp evaluation but at the same time also provide an analysis on the action plan to be taken after the survey has been conducted and to apply the conclusions derived. It can be said that Customer Satisfaction Surveys have been carried out in a form or another since the time markets have existed; but today with the growing competition and the choices available to customers, “feeling” the customer becomes necessary and is frequently a required mode. These surveys can immensely help in taking the right decision and making instant changes, which may be required to catch up with the latest trends in the market, or even take a leap towards new trends. Customer satisfaction surveys can help in several ways such as increasing awareness of excellent customer service, minimizing negative mouth publicity, increasing customer confidence, reducing customer complaints, improving the overall quality and controlling production costs. Powerful survey software can help conduct an effective customer satisfaction survey. There is no doubt that these survey tools have led to a tremendous increase and improvement in production scenarios all over the world, hence these tools are required to be sophisticated and feature rich. Great emphasis has been placed on the role of internet in today’s society lifestyle. Internet follows along in the line of work, fun, entertainment, as well as education. In fact, to many of us internet has become a part of our life. Many users enjoy the nearly unlimited access to information and files across the globe at an instant at their finger tips. All these, are offered at the comfort of their seat. With the fast increasing importance and capability of internet, Customer Satisfaction Surveys should also be mounted online. This will provide customers their own time, pace, and space in completing the survey. Furthermore, they would not be subjected to interview bias or group dynamics and conformity as in the case with face to face or hardcopies of information / data gathering. When information is gathered at a more relaxed pace where confidentiality is secured, the subject / respondent would be more willing and forthcoming with their frank replies. This would in turn ensure the company that the data / information collected is of highest quality possible. In summary, internet / online technology fully support the marriage between qualitative research and quantitative research. Hence, data
    • collected will not only be an accurate representation of the majority, but also their honest opinion. Companies are then able to make fair judgment and analysis based on the data / information collected. Great care and importance shall be placed on the data / information gathering process so as to assist the company in minimizing future operational and transactional risks. As a result, companies would also be able to make better decision and save resources and funding by devising more effective campaigns – therefore, increasing Return On Investments (ROI). g. Ranking Brand Valuations against similar companies in same Industry using internet technology Internet technologies had been supported with the sporadic growth of online companies, dealing with e-commerce, or service providers. One such company, Alexa Internet, Inc. is a California based subsidiary company of Amazon.com that is best known for operating a website that provides information on web traffic to other websites. Founded in 1996, the company offered a toolbar that gave Internet users guidance on where to go next, based on the traffic patterns of its user community. Alexa also offered context for each site visited: to whom it was registered, how many pages it had, how many other sites pointed to it, and how frequently it was updated. In 1999, Alexa was acquired by Amazon.com for about $250 million in Amazon stock. That was just the beginning of the string of efforts by Alexa to mount its brand value, as well as gathering user data for brand valuation purposes for other sites. Alexa began a partnership with Google in spring 2002 and with the Open Directory Project in January 2003. Live Search replaced Google as a provider of search results in May 2006. In September 2006, they began using their own Search Platform to serve results. In December 2006, they released Alexa Image Search. Built in- house, it is the first major application to be built on their web platform. The company also provides site info for the A9.com search engine. Alexa opened its extensive search index and web crawling facilities in December 2005 to third party programs through a comprehensive set of web services and APIs. Another online marketing data provider which assists in gathering valuable customer information for brand valuation purposes is ComScore, which was founded in August 1999. The company
    • works by tracking all internet data on its surveyed computers in order to study online user behavior. ComScore maintains a group of users who have monitoring software (with brands including PermissionResearch and OpinionSquare) installed on their computers. In exchange for joining the ComScore research panels, users are presented with various benefits, including computer security software, internet data storage, virus scanning, and chances to win cash or prizes. The company is open about collecting user data and the software’s ability to track all of a user’s internet traffic, including normally secure (https://) connections used to communicate banking and other confidential information. The company further estimates that 2 million users are part of the monitoring program. However, self selected populations may not be representative of the population as a whole. In a bid to gather only the most accurate data, ComScore adjusts the statistics using weights to make sure that each population segment is adequately represented. They had even regularly recruit panelists using random digit dialing and other offline recruiting methods to accurately determine how many users are online, aggregated by geography, income, and age. Also, to ensure the accuracy of the data, ComScore verifies its users’ demographics during the course of measuring statistical data. ComScore has changed the face of marketing measurement by solving the challenge of accurately measuring worldwide consumer behavior through its proprietary data capture technology and online network. This unified system collects and reports the information needed to support smarter decisions for a variety of business functions, including market and competitive research, media planning and analysis, segmentation analysis, market testing, attitudinal surveys, financial analysis, and brand valuation. The most heard of however, might probably be Nielsen Media Research online, the online leader in internet media and market research. The company developed Nielsen Ratings, an audience measurement system to determine the audience size and composition. Nielsen operates in over 100 countries and was founded in 1923. Generally, Nielsen Ratings for television are gathered by extensive use of surveys where viewers of various demographics are asked to keep a written record of the television programming they watch throughout the day and evening, or by the use of Set Meters, which are small devices connected to every television in selected homes. These devices gather the viewing habits of the home and transmit the information nightly to Nielsen through a “Home Unit”
    • connected to a phone line. Set Meter information allows market researchers to study television viewing habits on a minute to minute basis, seeing the exact moment viewers change channels or turn off their TV. In addition to this technology, the implementation of individual viewer reporting devices allows the company to separate household viewing information into various demographic groups. In 2005, Nielsen began measuring the usage of digital video recordings and initial results indicate that time- shifted viewing will have a significant impact on television ratings. 4 Conclusions: a. Any correlations found (Try to support research topic) A report by Morgan Stanley as seen in fig 4.1.1, shows that the number of internet users throughout the world has grown significantly, rising from 379MM in year 2000 to 1,343 in year 2007. According to a report released by Pew Internet (http://www.pewinternet.org/trends/User_Demo_4.26.06.htm and http://www.pewinternet.org/trends/Internet_Activities_2.15.08.htm ), 62% of home internet users runs on high speed (broadband, T1, T2, or cable), while the remaining percentage connects on dial up. The site further states their findings that in the United States, 92% of respondents use internet to read and check emails, 91% use a search engine to find information, and more than 66% transact online. Fig 4.1.1
    • Nielsen Ratings further states their research findings that internet users in general have increased, in both traffic volumes, number of users, as well as average hours spent on each site (http://www.nielsennetratings.com/press.jsp? section=pr_netv&nav=3). The proof that use of internet has been sporadic throughout the world was also reported by Nielsen Global Online Survey. The press release reported at least 85% of world’s population, -equivalent to over 875 Million consumers and counting, have shopped online. (http://www.nielsen.com/media/2008/pr_080128b.html). The facts and key details presented above are especially significant to branding senior level managers in devising a feasible plan and blueprint to bring up the level of brand on a higher notch in application of internet technologies. Further to the above, these are days when mergers and acquisitions (M&A) are globally becoming important paths to stronger corporate growth. Indian and Chinese companies for example, are involved in big-ticket deals, as evident from the fact that the Indian and Chinese economy broke into the league of top 10 markets globally for M&As, in the first quarter of 2007. In these transactions, rarely does a company pay book value to acquire another business entity. The difference between book value and the actual acquisition price paid is because of intangible asset of which brand is an important one. According to Mr. Amit Jain, Associate Vice President of Transaction Advisory Services of Ernst & Young, estimating the financial value of a brand helps in determining the premium over book value that a buyer should pay. Therefore, brand valuation generates significant interest. A systematic brand valuation method based on justifiable assumptions would help the buyers defend what they are buying and why. It is crucial for them to determine the target brands’ value in driving long term business decisions. Brand, to put it simply, is a covenant with the consumer, a promise that the brand and its products will meet the expectations generated over time. Brands provide the basis for differences between apparently similar offers. They play a key role in generating and sustaining the financial performance of a business. In industry where competition is increasing and there is surplus capacity, strong brands help in differentiating products in the market.
    • A good example of the role a brand plays in M&A transactions is the story of Volkswagen’s (VW) 1998 acquisition of Rolls-Royce. VW acquired the Rolls Royce paying more than £400 million. But, the deal didn’t include the illustrious Rolls-Royce brand because of various reasons, including legal ones. Subsequently, when BMW acquired the rights to the Rolls-Royce brand and its visual icons for £40 million, it was opined that BMW got the better of the deal. The opinion was proven right as BMW revitalised the Rolls-Royce Marque starting from only a name and a radiator grille. The importance of brands is being reflected in the number of brand-driven transactions. That brands are crucial is what makes the companies pay large sums for them. The case in point is the 2007 market buzz in the bottled water segment in India where Danone, Coca-Cola and Wipro are in talks with Mr. Chauhan to buy Bisleri at 4-6 times sales value, if public sources are to be believed. Bisleri is believed to have annual sales of about Rs 500 crore which could mean these companies valuing the brand at Rs 2,000 crore to Rs 3,000 crore. China has seen mergers & acquisition deals on the rise since 2006 after deregulation in the private equity transaction sector. However, according to China Daily, aside from the financial sector, China’s merger and acquisition activity showed little growth in terms of deal value. The call for an approach to valuing, negotiating, and managing brands during a merger is necessary, even post merger to: i. Determine how the brands shift demand in practice ii. Connects to the business strategy and overall brand strategy iii. Supports, and is supported by, the post merger integration plan F Fig. 4.1.2 shows a status report on brand activity in Mergers and Acquisition deals.
    • There is now ample evidence to show that brand decisions made and as importantly, decisions avoided, can affect an organization’s long-term ability to achieve its strategic objectives. That is especially true in the case of mergers and acquisitions (10) . If an acquirer’s top managers give too little attention to brand or fail to understand each brand’s strategic role, they may overpay for assets that are not used. They may also unwittingly put constraints on future business strategy or build high barriers to effective integration of the two companies. Also, given the dominance of the Internet, (accounting for almost 50% of travellers uses the web for their travel search), it has become a requirement for any savvy country to built a modern, world class website to showcase its country, which offers extensive information, provides a range of tools, design, and usability to increase their brand prominence. b. Need of company to do this work in each international market. o Local Regulatory Environment Etc… As we have covered on how important brand valuation is, it is time now to look into why brand valuation companies are just as important as any other companies in supporting daily business operations. The marketing principle which we have covered earlier on refers to the commercial function that brands perform within businesses. Firstly brands help to generate customer demand; customers can be individual consumers as well as corporate customers depending on the nature of the business and the purchase situation. Customer demand translates into revenues through purchase volume, price and frequency (12) . Secondly, brands secure customer demand for the long term through re-purchase and loyalty. On the other hand, the financial principle refers to the net present value of future expected earnings. Contemporary corporate finance theory suggests that discounted cash flow (DCF) and net present value (NPV) of future earnings are the appropriate concepts for assessing the financial value of any type of asset. Today, even tangible assets that have traditionally been valued on a cost or comparables basis are professionally valued according to DCF. The net present value calculation was initially based on discounted cash flows (DCF) but refers today equally to economic profit models which many companies use for their financial forecasting. In net
    • present value terms DCF and economic profit result by definition in the same value. To capture the complex value creation of a brand (12) , the following valuation steps should be performed: • Market Segmentation As we might have known, Brands influence customer choice; however, their influence differs depending on the market it operates in. The brand’s markets are split into non-overlapping and homogenous groups of consumers according to applicable criteria such as product or service, distribution channels, consumption patterns, purchase sophistication, geography, existing and new customers, etc. The brand is valued in each segment and the sum of the segment valuations constitutes the total value of the brand. Basically, there are 2 segmentation styles to be adopted: industrial market segmentation (which entails major segmentation and minor segmentation) for business to business dealings, as well as market segmentation which focuses more on consumers and end users. In an industrial major segmentation the following determinants come into play: o Company / organization size o Geographic location o Standard Industry Classification core o Purchasing situation o Decision making stage o Benefit segmentation o Customers’ business potential o Purchasing strategies o Supply chain position Whereas in the case of industrial minor segmentation, the following determinants are being considered: o Buying decision criteria o Purchasing decision o Structure of decision making o Perceived importance of the product o Attitudes towards the supplier Determinants of a market segmentation targeting at end users are: o Geographic variables o Demographic variables o Psychographic variables o Behavioural variables
    • Seeing that all the above variables concerned counts heavily on knowledge of locality, it is best that any company wishing their brand to be valued, select the right local company to partner in a market segmentation project. Since this is considered as one of the very first steps in brand valuation, it is crucial for a local company which has a firmer grasp of the market and local situation to undertake the mission. The variables involved in segmentation includes but not limited to measurability, sustainability, and operational relevance to strategy. Hence, a local based company which should be more familiar with the current situation in a certain locale should be engaged. • Financial Analysis Financial analysis refers to an assessment of the viability, stability and profitability of a business, sub-business or project. It is performed by professionals who prepare reports using ratios that make use of information taken from financial statements and other reports. These reports are usually presented to top management as one of their bases in making business decisions. Based on these reports, management may: Continue or discontinue its main operation or part of its business; Make or purchase certain materials in the manufacture of its product; Acquire or rent/lease certain machineries and equipments in the production of its goods; Issue stocks or negotiate for a bank loan to increase its working capital. Or any other decisions that allow management to make an informed selection on various alternatives in the conduct of its business. Financial analysts often assess the firm's: 1. Profitability- its ability to earn income and sustain growth in both short-term and long-term. A company's degree of profitability is usually based on the income statement, which reports on the company's results of operations; 2. Solvency- its ability to pay its obligation to creditors and other third parties in the long-term; 3. Liquidity- its ability to maintain positive cash flow, while satisfying immediate obligations; 4. Stability- the firm's ability to remain in business in the long run, without having to sustain significant losses
    • in the conduct of its business. Assessing a company's stability requires the use of both of the income statement and the balance sheet, as well as other financial and non-financial indicators. The assessment should also consider local governing regulations and country centric economy. At this juncture, again a local assessment would be an advantage, due to the deeper understanding of how business in each country is conducted and its limitations. • Demand Analysis Assess the role that the brand plays in driving demand for products and services in the markets in which it operates, and hence to determine what proportion of Intangible Earnings are attributable to the brand measured by an indicator referred to as the ‘Role of Branding Index’. This is calculated by firstly identifying the various drivers of demand for the branded business, then determining the degree to which each driver is directly influenced by the brand. The Role of Branding represents the percentage of Intangible Earnings that are generated by the brand. Brand Earnings are derived by multiplying the Role of Branding by Intangible Earnings. Since the analysis of demand is independent of locale, it is best to engage a valuation company with multinational presence. This is due to the fact that demand analysis should be carried out at both local and international level, especially for client companies dealing in expert import trades. • Competitive Benchmarking Determine the competitive strengths and weaknesses of the brand to derive the specific Brand Discount Rate that reflects the risk profile of its expected future earnings (this is measured by an indicator referred to as the ‘Brand Strength Score’. This comprises extensive competitive benchmarking, and a structured evaluation of the brand’s market, stability, leadership position, growth trend, support, geographic footprint and legal protect-ability. In determining competitive benchmark, no doubt, a local company should answer to the call. A local valuator would best know the much needed deriving variables such as market, stability, leadership position, growth trend, support, geographic footprint and legal protect-ability.
    • • Brand Value Calculation Brand Value is the net present value (NPV) of the forecast Brand Earnings, discounted by the Brand Discount Rate. The NPV calculation comprises both the forecast period and the period beyond, reflecting the ability of brands to continue generating future earnings. In answering to the task, an experienced valuator with multinational reach is preferable. Not only has the valuator carries a wide range of experiences along, but most importantly is that they are mostly accurate in calculating the final item in the checklist – Brand Value. Today, many companies including LVMH, L’Oréal, Gucci, and Prada have recognized acquired brands on their balance sheet. Some companies have used the balance-sheet recognition of their brands as an investor-relations tool by providing historic brand values and using brand value as a financial performance indicator. In terms of accounting standards, the UK, Australia and New Zealand have been leading the way by allowing acquired brands to appear on the balance sheet and providing detailed guidelines on how to deal with acquired goodwill. In 1999, the UK Accounting Standards Board introduced FRS 10 and 11 on the treatment of acquired goodwill on the balance sheet. The International Accounting Standards Board followed suit with IAS 38. And in spring 2002, the US Accounting Standards Board introduced FASB 141 and 142, abandoning pooling accounting and laying out detailed rules about recognizing acquired goodwill on the balance sheet. There are indications that most accounting standards, including international and UK standards, will eventually convert to the US model. This is because most international companies that wish to raise funds in the US capital markets or have operations in the United States will be required to adhere to US Generally Accepted Accounting Principles (GAAP). The principal stipulations of all these accounting standards are that acquired goodwill needs to be capitalized on the balance sheet and amortized according to its useful life. However, intangible assets such as brands that can claim infinite life do not have to be subjected to amortization. Instead, companies need to perform annual impairment tests. If the value is the same or higher than the initial valuation, the asset value on the balance sheet remains the same. If the impairment value is lower, the asset needs to be written down to the lower value. Recommended valuation methods are discounted cash flow (DCF) and market value approaches. The valuations need to be performed on the business unit (or subsidiary) that generates the revenues and profit.
    • The accounting treatment of goodwill upon acquisition is an important step in improving the financial reporting of intangibles such as brands. It is still insufficient, as only acquired goodwill is recognized and the detail of the reporting is reduced to a minor footnote in the accounts. This leads to the distortion that the McDonald’s brand does not appear on the company’s balance sheet, even though it is estimated to account for about 70 percent of the firm’s stock market value, yet the Burger King brand is recognized on the balance sheet. There is also still a problem with the quality of brand valuations for balance-sheet recognition. Although some companies use a brand-specific valuation approach, others use less sophisticated valuation techniques that often produce questionable values. The debate about bringing financial reporting more in line with the reality of long-term corporate value is likely to continue, but if there is greater consistency in brand-valuation approaches and greater reporting of brand values, corporate asset values will become much more transparent. With the wide angle approach of Brand Valuation, it is commonplace to engage knowledge specific partners such as: • Financial Evaluator o Accountants o Auditors o Financial Institutions • Market & Legal Auditor o Market Research Company o Advertising & Promotion o Law Firm • Brand Centric Partners o Public Relations firm o Underwriter o Brand Consultant o Brand Evaluator It is therefore conclusive from the above, that an experienced, locally present, multinational brand consultant and valuator is unequivocally needed to ensure the client company realize the best of both worlds especially in the many cases of Mergers & Acquisitions, branding and valuations – local knowledge and talents, coupled with global expertise.