Brands (their value) account for an increasing amount of corporate value. It is a huge challenge for businesses to understand what drives their brand value and what is required to maintain and increase this value.
Brand Value is estimated and driven in many ways by different organizations. These include:
- Checking brand health
- Competitive analysis
- Monitoring return on investment (ROI)
- Developing licensing programmes
- M&A evaluation.
Understanding and appreciating brand value drives brand creation programs, market research and this together influences the organization’s brand strategy.
Checking brand health:
Brands need to be resilient to allow the organization to withstand a series of mismanagement and unexpected market conditions. Hence, they need to be in good health.
Brand valuation methods are used to understand the drivers of value and the health of the brand in the eyes of the consumer. By identifying the drivers of value, resources can be allocated to monitor and improve the brand’s position.
In an M&A scenario, brands are frequently the key driving force behind outcomes. Ensuring that these brands are healthy prior to acquisition is an important step to ensuring value creation. Hence monitoring the brand equity on an ongoing basis, looking at the brand from both a financial and a marketing perspective, is very important.
In monitoring the brand equity, organizations need to focus on competitive and market analysis, gross margin evaluation in total, by channel and by product line, consumer research, historical and future sales, brand investment and net brand contribution (NBC). This, along with knowledge of the relevant competitive context, paints a clear picture of the health of the brand in the eyes of both consumers and shareholders.
Brands are maintained and controlled by implementing specific brand plans. These plans incorporate an analysis of Key Performance Indicators (KPIs) which encourage people to work as a team. Different aspects of the business are rated and continuously analyzed to check performance fluctuations. In this way the strategic role of the portfolio and its components is evaluated.
There are generally three different approaches to brand valuation: the income brand valuation approach, the market brand valuation approach and the cost approach to brand valuation. Some other brand valuation methodologies can also used on a needs specific basis.
The resulting information is used in a number of ways including on-going brand management and development, a benchmark of return on investment (ROI); compliance with US GAAP, IAS and IFRS and negotiating with licensees or joint venture partners. The Information from a brand valuation is also useful in brand transactions, dispute resolution and for investor relations.
For most activities, customers often have alternatives. It is therefore important to compare performance with that of direct and indirect competition. The relative performance is more meaningful than absolute. All aspects of the competition should be analyzed – from marketing investment and consumer perception to products and profitability.
Brand value is an effective way of tracking brand performance. Regular brand valuations bring together consumer, market and financial information to give a complete picture and the ultimate benchmark of a brand’s performance. This is built into a brand value tracker to monitor return on investment. Monitoring a brand’s value is an efficient way of tracking ROI on marketing activity. It incorporates business information, market intelligence, consumer perception research and financial information to form an intelligent and accurate brand ROI measurement mechanism.
Brand licensing can generate new revenue streams for brands, with little direct cost. It is important to research all the possible opportunities for brand licensing, giving in-depth analysis so informed decisions can be made over which markets to penetrate, which sector to enter and which players to build relationships with.
The opportunities are based on value – which would give the highest return and add most value to the business. Monitoring the performance of the licensing arrangements and the contribution each makes to the value of the brand overall is an important step to ensuring the brand and business benefits from licensing in the long-term. Short term success can often be damaging to a brand’s value and should be discouraged.
Brand valuation allows organizations to identify suitable targets to buy, sell or merge with. It can also highlight possible joint venture partners. Valuing the brands of one’s own business or those of a target’s prior to M&A activity can be beneficial in terms of economies of scale, synergies, portfolio effect and the competitive advantage a merger would create.
A risk assessment is also carried out, identifying potential investors’ exposure to risk which then enables risk minimization strategies.
Brands are generally a major factor in influencing purchasing decisions as well as a key factor enabling premiums to be charged. Monitoring brand value is therefore an informed method of putting metrics on marketing activity. And because long term information is used, it provides the ability to plan business activity into the future.