Brands are intangible and conditional assets
that are dependent on tangible assets to deliver the full value of their
benefits. Of course partial value may be realized without material assets
through licensing. Brand Equity on the other hand, as defined by Marketing
Science, is ‘the set of associations and behavior on the part of a brand’s
customers, channel members and parent corporation that permits the brand to
earn greater volume or greater margins than it could without the brand name'.
Broadly speaking, Brand Equity is the intrinsic value
customers attribute to a brand, beyond its fair market value. This
metric can be calculated in several ways, especially between the
disciplines of Marketing and Finance. In Finance, this metric is an
intangible portion of Firm value that is typically valued during times
of acquisitions/divestitures. For publicly traded firms, financial Brand
Equity can be measured as the difference between Market Value of the
firm (total outstanding share multiplied by share price). On the other
hand Marketing Brand Equity is measured as a weighted function of
several constructs:
Brand Awareness:
Brand Awareness
can be measured by customer ability to recall brand related features or
advertising, either aided or unaided.
Brand Resilience:
This is the
Brand’s ability to resist new competitors in the category by defending
market share against market entrants.
Brand Premium:
Brand Premium is
the extent to which customers will pay a premium for your product when
compared to similar competing products. This can be negative if the product
needs to be offered at a discount to competitors to induce purchase.
Brand Leverage:
One dimension of
Brand Equity is the trust customers put in the Brand by their willingness to
try new products or line extensions under the brand name. Extensive usage of
Brand Leverage could result in Brand Dilution, especially if the new
products or line extensions fall below customer expectations.
Market Leverage:
Market leverage
of a brand is its ability to gain market access via distribution channels.
Brand Equity can be
considered as a weighted average of each of these metrics. Weights for each
Brand Equity can be derived from expert judgment or by quantitative methods,
for example by regressing long-term market-share time-series (approximated
by moving average estimates) against time-series of each of these metrics
collected from a sufficiently large and random sample of respondents.
Brand Valuation
Brand value is as important an aspect of a firm's value as the value of it's
tangible assets and cash-flows. Brand value has several different dimensions
and components. Brand Assets are indirect drivers of brand value because
they help maintain the brand's competitive position, premium and consumer
perception, which in turn help the brand drive excess cash-flow over and
above what the tangible assets and services of the firm would be expected to
generate.
Consumer-based Brand Valuation Models
These models rely on consumer perception to assess quantify different
attitudes and behavior that ultimately result in financial benefit to the
brand. These methods do not necessarily quantify the financial impact of
the brand's equity. Another potential drawback is that these methods on
survey data to quantify consumer perceptions and there may be a gap
between stated vs. actual attitudes.
Financial Brand Valuation Models
Financial valuation models include cost-based approaches that basically
assumes that the value of the brand is the summation of all investments in
the brand including R&D, Marketing and Advertising. The disadvantage is
obvious, valuation will be biased by management quality and effectiveness
behind these investments. This can definitely provide a number to the
shareholders when considering if an offer covers their costs or not.
Another approach is Comparable Valuation- by creating a set
of brands most similar to the brand being valued, for which estimates of
brand values are known (through M&A, or disclosed values). Again not the
most accurate approach, since every brand by definition has unique
characteristics that differentiates it from other brands making comparison
very difficult. However this approach can definitely provide another data
point for triangulation.
Price premium that consumers pay for the brand's products
vs. Generic or Private Label products- problem is it is always difficult
to say what is really generic. One advantage is that it is closer to
market perception of the brand though.
A more complicated financial approach is the Economic Use
model that that values the brand as the net present value (NPV) of all
future cash-flows/earnings generated by the brand in it's specified use.
This is also an approach that ties the value of the brand to financial
realities, but may underestimate value of growing brands and overestimate
values of maturing brands.
All in all the best approach is to use all of the above and
take a weighted average approach.
MetriScient™ a
PORTAL BY
JOY JOSEPH
