BRAND EVALUATION
- Brand evaluation is a method used to determine the tangible and intangible assets of a corporate or product brand. The goal is to quantify the overall impact of a brand and – partly – to convert it to monetary terms. There are more than 40 different approaches and models for brand evaluation.
- Performing a brand evaluation provides an objective sense of your brand's value and gives you a sense of what your brand is worth. It also can allow you to identify potential problems with your brand.
Brand valuation is the job of estimating the total financial value of the brand. Like the valuation of any product, of self review, or conflicts of interest if those that value the brand also were involved in its creation.
The ISO 10668 standard sets out the appropriate process of valuing brands, and sets out six key requirements:
- transparency,
- validity,
- reliability,
- sufficiency,
- objectivity, and
- financial, behavioural, and legal parameters.
Brand value
Traditional marketing methods have examined the price/value relationship in terms of dollars paid. Many marketer believe that customers perceive value to mean the lowest price. While this may be true for commodities, many branding techniques are moving beyond this evaluation.
BRAND VALUATION METHODS:
1. Research based approaches.
2. Financial Approach.
3. Market approach.
4. The Economic Use Approach.
1.RESEARCH BASED APPROACHES
- Research-based approaches use consumer research to assess the performance of brands.
- Research approaches do not put a financial value on brands; instead, they measure consumer behaviour and attitudes that have an impact on the economic performance of brands.
- Although the sophistication and complexity of such models may vary, they all try to explain and measure consumers’ perceptions that influence purchase behaviour.
- They include a wide range of perceptive measures. Through different methods of statistical modelling, these measures are arranged either in hierarchic order, to show degrees of relationship towards the brand (from awareness to preference and purchase).
- The disadvantage of the research-based techniques is that they do not differentiate between the effects of the brand on consumers and the effects of other factors such as research, development and design. They therefore do not provide a clear link between the specific marketing indicators and the financial performance of the brand. A brand can perform strongly according to these indicators but still fail to create financial and shareholder value.
2.FINANCIAL APPROACH
Financially driven approaches are based on financial performance of a certain
brand.
Financially-driven approaches include: The cost approach , comaprables and income approach.
1. The cost approach
- In real estate appraisal, the cost approach is one of three basic valuation methods. The others are market, or sale comparison, and income.
- The fundamental premise of the cost approach is that a potential user of real estate won't, or shouldn't, pay more for a property than it would cost to build an equivalent.
- The cost of construction minus depreciation, plus land, therefore is a limit, or at least a metric, of market value.
2.Comparables -
- This approach is used to arrive at a value for a brand by observing and valuing comparables of different brands.
- Comparables can provide an interesting cross-check; however, they should never be relied on solely for valuing brands.
3. The income approach
This approach measures the value by reference to the present value of the economic benefits received over the rest of the useful life of the brand. There are six recognised methods of the income approach.
- Price premium method – estimates the value of a brand by the price premium it generates when compared to a similar but unbranded product or service. This must take into account the volume premium method.
- Volume premium method – estimates the value of a brand by the volume premium it generates when compared to a similar but unbranded product or service. This must take into account the price premium method.
- Income split method – this values the brand as the present value portion of the economic profit attributable to the brand over the rest of its useful life. This has problems in that profits can sometimes be negative, leading to unrealistic brand value, and also that profits can be manipulated so may misrepresent brand value. This method uses qualitative measures to decide the portion of economic profits to be accredited to the brand.
- Multi-period excess earnings method – this method requires a valuation of each group of intangible assets to calculate the cost of capital of each. The returns for each of these are deducted from the present value of future cash flows and when all other assets have been accounted for, the remaining is used as the value of the brand.
- Incremental cash flow method – Identifies the extra cash flow in a branded business when compared to an unbranded, and comparable, business. However it is rare to find conditions for this method to be used since finding similar unbranded companies can be difficult.
- Royalty relief method – Assume theoretically a company does not own the brand it operates under, but instead licenses the use from another. The royalty relief method uses available data of similar arrangements in the industry and assigns the value of the brand as the present value of future royalty payments.
3. THE MARKET APPROACH
- In this approach a comparison with the market is done.
- For example if a person wish to buy a property in place A, it is quite likely that the price of neighbourhood would be checked before arriving at conclusion on the existing property, leading to an approach based on the market.
- This valuation method relies on the estimation of value based on similar market transactions (e.g. similar license agreements) of comparable brand rights.Given that often the asset under valuation is unique, the comparison is performed in terms of utility, technological specificity and property, having also in consideration the perception of the asset by the market.
- Data on comparable or similar transactions may be accessed in the following sources:
- Company annual reports.
- Specialized royalty rate databases and publications.
- In court decisions concerning damages.
4. ECONOMIC USE APPROACH
- The economic use approach provides the multidimensionality to brand valuation as it combines brand equity with financial measures.
- Companies such as Interbrand and MillwardBrown compile a list of most valuable brands each year which is based on economic principles and replies to the fundamental question: how much more valuable is the business because it owns certain brands.
- This brand valuation includes both 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.
Uses of brand valuation
Common purposes are:
- value reporting
- licensing
- dispute resolution
- legal transaction
- accounting
- strategic planning
- management information
- taxation planning and compliance
- liquidation
- litigation support
- Investor's presentation/ Shareholder's report
- Raising funds.
APPLICATIONS OF BRAND VALUATION SYSTEM
Brand valuation systems are now used in majority of strategic marketing financial
decisions.
There are two main categories of applications:
• Strategic brand management – brand valuation for the purpose of internal analyses
by providing tools and processes which enable the increase of economic value of
brands.
• Financial transactions – brand valuation helps with transactions with external partners.
PERCEIVED QUALITY
Perceived quality can be defined as the customer's perception of the overall quality or superiority of a product or service with respect to its intended purpose, relative to alternatives. Perceived quality is, first, a perception by customers.
•Special associations that occur in many contexts; empirically shown to affect ROI.
•Associated with price elasticities and brand usage.
•Associated with specific function benefit variables.
•Measured as a scale in comparison to alternative brands.
–High vs. average vs. inferior
–The best vs. one of the best vs. one of the worst vs. the worst
–Consistent vs. inconsistent quality.
WAYS TO INCREASE PERCEIVED QUALITY
1. Cite Research
One way to increase perceived quality is to use government, academic or industry research to show that products like deliver a benefit.
Example:The survey a sugar-free gum marketer quoted showing that four out of five dentists recommended sugar-free gum to patients who chewed gum. Many food companies now tout the cholesterol-lowering benefits of key ingredients in their products.
2.Use Celebrity Endorsements:
Consumers often respond positively to a well-known figure they trust or a recognized expert who gives an endorsement of a product or service.
Many small businesses use local college coaches or doctors to endorse a product or service.
