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.

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

8. has risen in prominence as the brand’s
contribution to the market capitalization of an
organization is appreciated

9. 80% of Google’s $125 billion market
capitalization is attributed to its brand

10. 100 Best Global Brands
Coca-Cola
2009 Rank: 1 (1 in 2008)
2009 Brand Value: $68,734m (3%)

11. 100 Best Global Brands
IBM
2009 Rank: 2 (2 in 2008)
2009 Brand Value: $60,211m (2%)

12. 100 Best Global Brands
Microsoft
2009 Rank: 3 (3 in 2008)
2009 Brand Value: $56,647m (-4%)

13. 100 Best Global Brands
GE
2009 Rank: 4 (4 in 2008)
2009 Brand Value: $47,777m (-10%)

14. 100 Best Global Brands
Nokia
2009 Rank: 5 (5 in 2009)
2009 Brand Value: $34,864m (-3%)

15. 33%
average contribution to value of a company

16. 15%
average contribution to value of a company
in an emerging market

17. the rise of brand valuation

18. the valuation of brands
started to emerge in the
1980s
photo by Youssef Abdelaal

19. Former UK-based Grand Metropolitan
was the forefront of placing the value of
brands on a balance sheet

20. British firms used brand valuations
primarily to boost their balance sheets

21. in 1988, UK food conglomerate RHM
relied heavily on its brands to defend
itself against a hostile takeover

22. treatment of acquired
goodwill changes

23. the big difference is that brands are no
longer amortized over their useful life

24. they can now claim indefinite life and
their value assessed annually

25. photo by Zach Rathore
better but no cigar
just yet

26. brand valuation useful for

27. in mergers and acquisitions by more
accurately assessing the value of the
various parties

28. decisions on business investments and
performance by making brand asset
comparable to other company assets

29. decisions on brand investments within a
brand portfolio, market segmentation
or distribution channel

30. decisions on the cost of licensing the
brand to subsidiaries or third parties

31. raising of funds by allowing brands to
be used as collateral

32. but which brand valuation to use
therein lies the problem

33. 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

34. in South Africa, Interbrand valued
Vodacom’s brand at R6,5 billion and
Brandmetrics valued the brand at R21
billion.

35. the answer lies in very different approaches

36. valuation approaches

37. market research | financial analysis

38. market research financial analysis

39. financial segments into three

40. Cost approach - amount of money
required to reproduce the brand

41. Market approach - also known as
the comparable approach to similar
brand transactions

42. Income approach - argues that the
value of the brand is the discounted
cash flow from future earnings
attributable to the brand

43. four valuation models

44. Millward Brown Y&R Interbrand Brand Metrics
TBWA
WPP Omnicom

46. “When given a monetary value, a
brand increases its power as a business
driver and planning tool”
Joanna Seddon
CEO Millward Brown Optimor

47. Collecting the data

48. 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

49. 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

50. Data for the evaluation is also is sourced
from Bloomberg, analyst reports,
Datamonitor industry reports, and
company filings with regulatory bodies.

51. corporate
earnings
branded
earnings
branded
intangible
earnings
branded earnings

52. branded intangible earnings X brand contribution
Portion of intangible earnings attributable to the brand, this percentage
originates from the consumer and B2B customer research

53. “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

54. 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

56. 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

57. The BAV research is based on four
key pillars: differentiation, relevance,
esteem and knowledge

58. 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.

59. Relevance
If a brand is not relevant, or personally
appropriate to consumers, it will not
attract or retain them. Relevance
powers penetration.

60. 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”.

61. 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

62. 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.

63. 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.

64. high
(Differentiation & Relevance)
Brand Strength
low high
Brand Stature
(Esteem & Knowledge)
BAV Power Grid

66. high
(Differentiation & Relevance)
Brand Strength
low high
Brand Stature
(Esteem & Knowledge)

67. high
06
(Differentiation & Relevance)
Brand Strength
03
00
low high
Brand Stature
(Esteem & Knowledge)
eBay

68. high 03 06
(Differentiation & Relevance)
Brand Strength
low high
Brand Stature
(Esteem & Knowledge)
Google

69. give it a try at
http://www.thebrandbubble.com/explore/

71. Best known of the brand valuation
methodologies. Created to find an
approach that incorporated marketing,
financial and legal aspects

73. Interbrand starts by assigning
sales to individual brands &
projecting five years ahead
photo by Darren Hester

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

75. Future earnings are discounted to arrive
at net present value

76. Discounts calculated with current
interest rates and the brand’s overall risk
profile

77. 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

78. “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

80. Developed by south african academics,
adopted by TBWA’s Disruption consultancy,
now with Prophet

81. featured in
kevin lane keller’s
strategic brand management

82. 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

83. 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)

84. uses the delphi
forecasting technique
to calculate economic profit owing to brand

85. called the resource recognition procedure

86. The resource recognition procedure
starts with experts representing major
functions sitting with a facilitator to
identify drivers of economic profit

87. 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

88. 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

89. 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

90. the scores are summed to produce
brand premium profit
which is the portion of economic
profit attributable to the brand

91. 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

92. then
brandmetrics takes a long view
using category expected analysis and
brand knowledge structure

93. 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

94. 40
Expected life for
dominant brand
Expected life
in years
Expected life for
marginal brand
0

95. 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

96. 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

97. Brand premium profit projected into future
and discounted back to the present

99. If all so logical then why
do the different
valuation models differ
so much

100. There are areas in the valuation
methodology that are subjective and/or
assumptive

101. their little black boxes
photo by Andrew Magill

102. “The valuation of brands is still a relatively
new concept... brand valuation is without
question partly art and partly science”
Interbrand

103. “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

104. “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

105. and that’s not the end of it

107. 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

108. Businesses, and the financial markets, think
that brands are worth more than the
consumers who buy them

109. and what the valuation models suggest is
that brand valuation is increasing

111. 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

113. 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)