Brand Valuation

In this presentation, we will understand the concept of brand and its valuation, in details, like, the various attributes of a brand, its benefits, its values and culture. We will also discuss about the various methods of brand valuation.
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1. Learning Objectives
Understand

The concept of Brands

Why and when brands need to be valued.

Different methods that may be used to
assess the value of particular brands..

Chapter Eleven Brand Evaluation

2. Structure

11.1 Introduction.
11.2 Brand

11.3 Valuation of a Brand

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10.3 Summary

Chapter Eleven Brand Evaluation

3. 11.1 Introduction

Brand is a name, a term, a sign, a symbol, a design or a
combination of any or all of them that marketers use to
convey the identity of its goods / services to customers and
differentiate its own products / services from those marketed
by others.

Organizations spend large amounts of money , efforts and
time to build a brand. Once established, they receive returns
from the brand on a long term basis.

Chapter Eleven Brand Evaluation

4. 11.2 Brand

Brands convey :

1. Attributes / special features / distinguishing
elements e.g. Raymond's suiting are stylish.

2. Benefits — the attributes should transform to
benefits e.g. style, fashion and modernity may transform to
“emotional benefits’, just as high quality will transform to

“iunctional benefits”

3. Values — most brands associate some values e.g.
Raymond's the “complete man” has the value proposition viz.
long lasting.

4. Culture — Raymond's again projects a culture of
family bonding. Raymond’s man cares for family.

Chapter Eleven Brand Evaluation

5. 11.2 Brand

Brand image is a schematic memory of a brand — it contains
the target market's interpretation of the product’s attributes,
benefits, usage situations, users , as well as, the
manufacturers / marketers characteristics. e.g. HP is a
reliable printer.

My

Chapter Eleven Brand Evaluation

6. 11.2 Brand

Brand Equity : a set of assets associated with a brand which
adds to the value provided by the products / services to its
customers — it is in effect the aggregate of the potential
customers’ beliefs that it will deliver on its promise..

The assets can be —

brand awareness

brand loyalty
perceived quality of the brand and
brand association.

Besides the above , intellectual property viz. patents can also
be an asset.

Brand Managers create and enhance the assets to build
brand equity.

Chapter Eleven Brand Evaluation 6

7. 11.2 Brand

Brand awareness : in essence it is the registration of the
brand’s presence in the mind of the consumers. It may range
from mere recognition — to recall — to top of the mind of the
consumers.

Brand loyalty : while loyalty is an outcome of good quality ,
we can better define it in terms of customer's behaviour and
attitudes. A customer who has found a satisfactory brand will

resist the promotional activities of the rival brands.

Brand association : consumers associate a brand with
certain tangible and intangible attributes., the endorsers
standing or visual symbol.

Perceived quality of the Brand : is based on the judgements
of quality and is not necessarily same as actual quality. It has
more to do with customer's feelings and beliefs.

Chapter Eleven Brand Evaluation

8. 11.3 Valuation of a Brand

What are the uses for brand valuation.?

What are the methods that may be used to value a brand?
The concept of brand valuation emerged in late 1970's when
conglomerates were looking at low profile but sound,
business houses for acquisition. At the time of negotiation the
balance sheet of such target companies needed to be
spruced up by the intangible but yet very much real worth of

the brands marketed by these businesses.

Valuing brands , therefore, necessitate breaking up a
company into its component brands and then valuing these
brands by some applicable methods. The main argument
against valuing a brand and pegging a financial figure to it is
a] subjectivity and resulting arbitrariness in and b] infrequency
of transactions.

Chapter Eleven Brand Evaluation

9. 11.3 Valuation of a Brand

Methods;

1. Historical| Cost Method:

Value the brand as the sum of all costs incurred in bringing
the brand to its current state. The biggest drawback in
the method is difficulty in identifying the costs involved
and separating them from marketing expenditure which
was responsible for brand building.

It is argued that there is hardly any relationship of the costs
incurred in the past to build a brand to its current value.

2, Replacement Cost Method:

This approach values a brand using an estimated cost of
creating a similar but new brand. Here the biggest
difficulty is in estimating costs. Assumptions required for
estimation are often questionable and arbitrary.

Chapter Eleven Brand Evaluation

10. 11.3 Valuation of a Brand

Methods;

3. Market Value Method:

Is based on what people are willing to pay for the brand, if it
was put up for sale. Brands [like flats or cars ] are not
often put up for sale and buyers for brand also are not
easy to come by.

After market value is available for few brands it is not possible

to interpolate the values to remaining brands.

4, Premium Price Method:

This method tries to value a brand in terms of the price
premium that the brand may command over unbranded
or generic equivalent. A price premium is used to
calculate brand value by going through four steps.

Chapter Eleven Brand Evaluation

11. 11.3 Valuation of a Brand

Methods;

4. Premium Price Method: contd|

A price premium is used to 1] calculate additional profits
earned by the brand over, may be five years. 2] less
additional production or marketing costs, 3] arrive at net
present value using appropriate interest and / or inflation
rate 4] arrive at a value of the brand based on the profit

stream Over five years.

The major difficulty is faced in finding equivalent unbranded
or generic product.

Another drawback of the method is, it assumes that brand
value is reflected in price premium alone. But in reality it
has direct reflection on sales volume and market share
also

Chapter Eleven Brand Evaluation

12. 11.3 Valuation of a Brand

Methods;

5 Royalty Relief Method:

Here brand value is determined at net present value of the
royalty payments that the company would have to pay to
license the brand, if it did not own the brand. Thus the
value of the brand equals license fees or royalties
company is relieved from paying due to its ownership of

the brand.

The method faces the problem in determining the royalty
amount. Royalties 1] can be on a simple % or a tiered %
basis, 2] payment frequency varies, 3] base can be
inventory price, vendor price or item price, and 4] have a
certain contract period.

Chapter Eleven Brand Evaluation

13. 11.3 Valuation of a Brand

Methods;
6. Young and Rubican Brand Asset Valuator Model:
This model evaluates a brand on consumer perceptions on
two dimensions
brand’s strengths
brand's stature.
‘Brand Strength” is a combination of differentiation

[ distinctiveness of brand in the market] and relevance
[ its appropriateness or meaningfulness to the customer].

‘Brand Stature’ is a combination of esteem | the quality
perception i.e. popularity and regard) for the brand in the
minds of the consumers] and knowledge [ understanding
by the consumer of what the brand stands for].

Chapter Eleven Brand Evaluation

14. 11.3 Valuation of a Brand
Brand Asset Valuator Model

Perceived Personal
distinctiveness appropriateness
of the brand of the brand
(differentiation) (relevance)

‘Brand Asset
Valuator [BAV]
approach

Regard for the Understanding of the
brand (esteem) offering (knowledge)

Chapter Eleven Brand Evaluation

15. 11.3 Valuation of a Brand

Methods;
7 Economic Use Method:

This method attempts to calculate the value of the brand to its
owners in terms of the net present value of the profit
streams attributable to the brand. It starts with an
analysis of the profitability of the brand to the business

Interbrand Group PLC value a brand against two factors
1. Earnings — that reflect the profit potential of a brand
and
2. Strengths — that reflect the potential future earnings.

Chapter Eleven Brand Evaluation

16. 11.3 Valuation of a Brand
Methods;
7 Economic Use Method:

A brand’s strength is a composite value constituted by
measuring leadership, stability, attractiveness of market,
appeal of the brand across markets in different areas,
brand's trend , supports it has in the market and
available legal protection.

One approach — called Earning Multiple method — is to base
on the past few years profits and the other — called
Future Earning Method — projects profits a few years into
the future.

The method calls adjustments for inflation, taxation and
assigns weights for earnings close to the year of
valuation.

Chapter Eleven Brand Evaluation 16

17. 11.4 Summary

Brand is a name , a term, a sign , a symbol, a design or a
combination of any or all of them, that marketers use to
convey the identity of its goods / services to customers
and differentiate its own products / services from those
marketed by others.

Several methods have been used from time to time to
evaluate brands .

Historical cost method.

Replacement cost methods.

“Market Value” method.

“Premium Price” method.

Royalty relief method.

Young and Rubicon brand asset valuator model
Economic use method.

Chapter Eleven Brand Evaluation

18. Well students with this we have completed the
eleventh session on

Brand Evaluation
And with it our sessions on the subject of
Marketing Finance.

Good Luck!

Chapter Eleven Brand Evaluation

19. "weschool

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Master's level Distance Learning Program - PGDBA

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