Measuring Brand Value | Patrick Collings 2010

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This presentation provides an introduction to brand valuation and, among other things, discusses some of the more prominent methodologies and why they produce such different results. The presentation …

This presentation provides an introduction to brand valuation and, among other things, discusses some of the more prominent methodologies and why they produce such different results. The presentation looks at the importance of brand valuation but also highlights the criticism of the current methodologies. I am retiring this presentation from my lecture series and in future will integrate brand valuation into a broader presentation on brand measurement.

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  • 1. measuring brand value patrick collings sagacite image by david mcchesney
  • 2. as the contribution of brands has become appreciated so has the need to value them
  • 3. “...customer equity is the preamble of financial equity. Brands have financial value because they have created assets in the minds and hearts of customers.” Jean-Noël Kapferer
  • 4. “...customer equity is the preamble of financial equity. Brands have financial value because they have created assets in the minds and hearts of customers.” Jean-Noël Kapferer
  • 5. in this session the value contribution of the brand brief history of brand valuation types of valuation models review of four valuation models the looming brand bubble
  • 6. brand valuation is one type of measure, and a relatively new one
  • 7. has risen in prominence as the brand’s contribution to the market capitalization of an organization is appreciated
  • 8. 80% of Google’s $125 billion market capitalization is attributed to its brand
  • 9. 100 Best Global Brands Coca-Cola 2009 Rank: 1 (1 in 2008) 2009 Brand Value: $68,734m (3%)
  • 10. 100 Best Global Brands IBM 2009 Rank: 2 (2 in 2008) 2009 Brand Value: $60,211m (2%)
  • 11. 100 Best Global Brands Microsoft 2009 Rank: 3 (3 in 2008) 2009 Brand Value: $56,647m (-4%)
  • 12. 100 Best Global Brands GE 2009 Rank: 4 (4 in 2008) 2009 Brand Value: $47,777m (-10%)
  • 13. 100 Best Global Brands Nokia 2009 Rank: 5 (5 in 2009) 2009 Brand Value: $34,864m (-3%)
  • 14. 33% average contribution to value of a company
  • 15. 15% average contribution to value of a company in an emerging market
  • 16. the rise of brand valuation
  • 17. the valuation of brands started to emerge in the 1980s photo by Youssef Abdelaal
  • 18. Former UK-based Grand Metropolitan was the forefront of placing the value of brands on a balance sheet
  • 19. British firms used brand valuations primarily to boost their balance sheets
  • 20. in 1988, UK food conglomerate RHM relied heavily on its brands to defend itself against a hostile takeover
  • 21. treatment of acquired goodwill changes
  • 22. the big difference is that brands are no longer amortized over their useful life
  • 23. they can now claim indefinite life and their value assessed annually
  • 24. photo by Zach Rathore better but no cigar just yet
  • 25. brand valuation useful for
  • 26. in mergers and acquisitions by more accurately assessing the value of the various parties
  • 27. decisions on business investments and performance by making brand asset comparable to other company assets
  • 28. decisions on brand investments within a brand portfolio, market segmentation or distribution channel
  • 29. decisions on the cost of licensing the brand to subsidiaries or third parties
  • 30. raising of funds by allowing brands to be used as collateral
  • 31. but which brand valuation to use therein lies the problem
  • 32. 2008 Brand $m Brand $m 1 Coca-Cola 66 667 Google 86 057 2 IBM 59 031 GE 71 379 3 Microsoft 59 007 Microsoft 70 887 4 GE 53 086 Coca-Cola 58 208 5 Nokia 35 942 China Mobile 57 225
  • 33. in South Africa, Interbrand valued Vodacom’s brand at R6,5 billion and Brandmetrics valued the brand at R21 billion.
  • 34. the answer lies in very different approaches
  • 35. valuation approaches
  • 36. market research | financial analysis
  • 37. market research financial analysis
  • 38. financial segments into three
  • 39. Cost approach - amount of money required to reproduce the brand
  • 40. Market approach - also known as the comparable approach to similar brand transactions
  • 41. Income approach - argues that the value of the brand is the discounted cash flow from future earnings attributable to the brand
  • 42. four valuation models
  • 43. Millward Brown Y&R Interbrand Brand Metrics TBWA WPP Omnicom
  • 44. “When given a monetary value, a brand increases its power as a business driver and planning tool” Joanna Seddon CEO Millward Brown Optimor
  • 45. Collecting the data
  • 46. Data for the evaluation is first drawn from the researched opinion of thousands of brands in 17 categories by knowledgeable consumers and B2B customers across 31 countries
  • 47. The brand’s advantages are unique: Bonding “it’s my brand” The brand is better than most brands Advantage in the category The brand is acceptable quality and Performance does what it is supposed to Relevance The brand meets their needs Presence They are aware of the brand No Presence Have not heard of the brand
  • 48. Data for the evaluation is also is sourced from Bloomberg, analyst reports, Datamonitor industry reports, and company filings with regulatory bodies.
  • 49. corporate earnings branded earnings branded intangible earnings branded earnings
  • 50. branded intangible earnings X brand contribution Portion of intangible earnings attributable to the brand, this percentage originates from the consumer and B2B customer research
  • 51. “The Brand Contribution is rooted in real-life customer perceptions and behavior, not spurious ‘expert opinion’: in some categories, brand is important — luxury, cars, or beer, for instance. In categories like motor fuel, on the other hand, price and location play a very strong role. Furthermore, as markets develop, consumer priorities and the role of brand may change.” Millward Brown BrandZ 2009 report
  • 52. branded intangible earnings X brand contribution X brand multiple Growth potential of the branded earnings is taken into account. The multiple, that ranges between one and ten, is derived from financial projections, market valuation and Voltage
  • 53. BrandAsset Valuator (BAV) is Young & Rubicam's comprehensive global database of consumer perceptions of brands: 350,000 consumers,19,500 brands, 44 countries, 173 studies since 1993
  • 54. The BAV research is based on four key pillars: differentiation, relevance, esteem and knowledge
  • 55. Differentiation Measures the strength of the brand’s meaning and distinctiveness. Successful brands are strongly differentiated. The more differentiated, the more likely it will be used and less likely it is to be substituted.
  • 56. Relevance If a brand is not relevant, or personally appropriate to consumers, it will not attract or retain them. Relevance powers penetration.
  • 57. Relevance + Differentiation = Brand Strength Differentiation Differentiation Relevance Relevance D>R D<R The most healthy brands More relevance than have greater differentiation differentiation equals potential than relevance. “Room to commoditization. “Uniqueness grow, brand has power to has faded, price becomes the build relevance”. dominant reason to buy”.
  • 58. Esteem Esteem reflects popularity and quality. Esteem relates to how well a brand fulfills its implied or stated consumer promise. It requires differentiation and relevance to have preceded it, but it can outlive both of them
  • 59. Knowledge Knowledge captures intimacy and understanding, it is the end result of all the marketing and communications efforts and experiences consumers have had with a brand. Consumers understand and remember those brands that demonstrate high knowledge.
  • 60. Esteem + Knowledge = Brand Stature Knowledge Knowledge Esteem Esteem E>K E<K More esteem than Too much knowledge can be knowledge means “I’d like dangerous. “I know you and to get to know you better”. you’re nothing special”. The The brand is better liked brand is better known than liked. than known.
  • 61. high (Differentiation & Relevance) Brand Strength low high Brand Stature (Esteem & Knowledge) BAV Power Grid
  • 62. high (Differentiation & Relevance) Brand Strength low high Brand Stature (Esteem & Knowledge)
  • 63. high 06 (Differentiation & Relevance) Brand Strength 03 00 low high Brand Stature (Esteem & Knowledge) eBay
  • 64. high 03 06 (Differentiation & Relevance) Brand Strength low high Brand Stature (Esteem & Knowledge) Google
  • 65. give it a try at http://www.thebrandbubble.com/explore/
  • 66. Best known of the brand valuation methodologies. Created to find an approach that incorporated marketing, financial and legal aspects
  • 67. Interbrand starts by assigning sales to individual brands & projecting five years ahead photo by Darren Hester
  • 68. Identifies earnings attributable to intangible assets and identifies brand’s contribution, this multiple is known as the role of branding index intangibles
  • 69. Future earnings are discounted to arrive at net present value
  • 70. Discounts calculated with current interest rates and the brand’s overall risk profile
  • 71. Criteria Weighting Notes brands in growing or established markets where market 10% consumer preferences are more enduring would score higher long-established brands in any market would normally stability 15% score higher, because of the depth of loyalty they command a market leader is more valuable: being a dominant leadership 25% force and having strong market share matters long-term profit trend is an important measure of profit trend 10% brand’s ability to remain contemporary and relevant to consumers brands receiving consistent investment and focused support 10% support usually much stronger, but quality of support is important brands that have international acceptance and appeal geographic spread 25% are inherently stronger than regional or national brands securing full protection for the brand under international protection 5% trademark and copyright law
  • 72. “The final result values the brand as a financial asset. BusinessWeek and Interbrand believe this figure comes closest to representing a brand's true economic worth.” BusinessWeek
  • 73. Developed by south african academics, adopted by TBWA’s Disruption consultancy, now with Prophet
  • 74. featured in kevin lane keller’s strategic brand management
  • 75. Applies an accounting definition of an asset - resources under the control of an enterprise that will generate future economic benefits for the enterprise - to brands
  • 76. starts by calculating economic profit (economic profit is the amount of after-tax profit a company earns that exceeds the cost of capital the company has used in operating the business)
  • 77. uses the delphi forecasting technique to calculate economic profit owing to brand
  • 78. called the resource recognition procedure
  • 79. The resource recognition procedure starts with experts representing major functions sitting with a facilitator to identify drivers of economic profit
  • 80. 1 supply chain management 10 marketing support 2 brand 11 market knowledge 3 control of costs 12 market dominance 4 consistent product quality 13 sales force 5 brand loyalty 14 high barriers to entry 6 margin management 15 procurement 7 human resources 16 process knowledge 8 customer relationships 17 innovations 9 pricing 18 leadership
  • 81. Through an iterative process reduce list to 5 to 8 items and weight their importance. a score of between 0 and 10 to assigned to each item to indicate the influence of the brand
  • 82. 1 supply chain management 10 marketing support 2 brand 11 market knowledge 3 control of costs 12 market dominance 4 consistent product quality 13 sales force 5 brand loyalty 14 high barriers to entry 6 margin management 15 procurement 7 human resources 16 process knowledge 8 customer relationships 17 innovations 9 pricing 18 leadership
  • 83. the scores are summed to produce brand premium profit which is the portion of economic profit attributable to the brand
  • 84. media titles 80 - 90 % fmcg 65 - 75% retail 63 - 67% insurance 50 - 55% b2b 45 - 60% energy 45 - 50% portion of economic profit attributable to the brand
  • 85. then brandmetrics takes a long view using category expected analysis and brand knowledge structure
  • 86. category expected life analysis The ability of a brand to sustain economic profits is a function of its category Category evaluated according to longevity, stability, competitive activity, vulnerability Criteria scored and assessed to produce years out of 40 for notional dominant brand and out of 10 for marginal brand
  • 87. 40 Expected life for dominant brand Expected life in years Expected life for marginal brand 0
  • 88. brand knowledge structure analysis Market research determines awareness and associations, reduced to score out of 100 Highest scores and lowest represent notional dominant and marginal brands, mathematically transformed into years Brand being evaluated scored in the same way to produce unique number of years for brand
  • 89. Positioning of competing brands along this line 40 Expected life for dominant brand Expected life in years Expected life for marginal brand 0 100 Brand knowledge structure in percentage
  • 90. Brand premium profit projected into future and discounted back to the present
  • 91. If all so logical then why do the different valuation models differ so much
  • 92. There are areas in the valuation methodology that are subjective and/or assumptive
  • 93. their little black boxes photo by Andrew Magill
  • 94. “The valuation of brands is still a relatively new concept... brand valuation is without question partly art and partly science” Interbrand
  • 95. “Many marketing experts, however, feel it is impossible to reduce the richness of a brand to a single, meaningful number, and that any formula that tries to do so is an abstraction and arbitrary” Kevin Lane Keller
  • 96. “The seemingly miraculous conjuring up of intangible asset values, as if from nowhere, only serves to reinforce the view of the consumer skeptics, that brands are just high prices and consumer exploitation” Michael Perry, chairman of Unilever
  • 97. and that’s not the end of it
  • 98. the premise is that there is a $4 trillion dollar bubble hiding in the economy that is twice the size of the sub prime mortgage market
  • 99. Businesses, and the financial markets, think that brands are worth more than the consumers who buy them
  • 100. and what the valuation models suggest is that brand valuation is increasing
  • 101. Perception Reality Brands are less trusted than ever: trustworthy If brand value is increasing so should brand trust ratings dropped almost 50% over the last 9 years If brand value is increasing, brands should be Brands are less liked and respected. Esteem and more liked and admired regards for brands fell by 12% in 12 years. If brand value is increasing, brands should be Brands are less salient than ever. Awareness of better known brands fell by 20% in 13 years. Consumers feel brands are less quality. Brand If brand value is increasing, quality perceptions of quality perceptions fell by 24% over the past 13 brands should be increasing as well years Brand differentiation declined in 40 of 46 If brand value is increasing, more brands should categories and only 7% of prime time commercials be clearly differentiated had a differentiating message
  • 102. patrick collings sagacite e: patrick@sagacite.co.za m: +27 (0)83 616 0967 w: www.sagacite.co.za b: www.collings.co.za t: pjcollings (follow me on twitter)