Measuring outcomes of brand

equity

Leroy J. Ebert DipM MCIM, Chartered Marketer, MSLIM

Manager Marketing and Business Development – Logiwiz Ltd.

Presentation Developed as Course Material for the SLIM Diploma

in Brand Management

Usefulness of brand value

• Mergers and acquisitions

• Brand Licensing

• Fund Raising

• Brand management decisions

Accounting Background

• Tangible Assets – Property, plant & equipment, inventory and cash

• Intangible assets – Specialized resources, patents, trademarks, licensing agreements, skills of management and customer relations

Historic Approach

• Calculate the investments made on the brands intangible and tangible assets

Cost approach

• Cost approach – The amount of money that is required to reproduce or replace the brand incl R&D, test marketing, advertising etc.

• Historic or replacement cost

• The disadvantage is that it is looking at the past glory and not future potential

• Difficult to identify the true cost for old brands like Toyota, sony etc.

Market Approach

• The present value of the future economic benefit to be derived by the owner of the asset

• The brand is valued based on what others in the market have paid for similar assets. With so few brands being bought and sold, using this method may be as difficult as finding a recent sale of another brand with a similar awareness, strength, or economic and legal situation against which to benchmark.

The Income Approach

• 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.

• 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.

• Capitalizing the actual profitability of a brand after allowing for the costs of maintaining it and the effects of taxation

Interbrand’s Brand Valuation Model

• Market segmentation – product/service, distribution channels, consumption patterns, geography, existing and new customers. Value the brand in each segment.

• Financial role – identify and forecast the earnings from intangibles (branded revenues less operating cost, applicable taxes and a charge for the capital employed

• Demand – Asses the role the brand plays in driving demand for products and services in the market in which it operates

• Competitive bench marking – This method relies on extensive competitive benchmarking and a structured evaluation of the brands market, stability, leadership position, growth rate etc. see next slide

Brand assessment model

Brand value calculation

• Calculate the brand value as the NPV of the forecast brand earnings, basically calculate the future income in today’s terms

Stock market reaction to brand equity

• Brand with greater and sustained equity generated shareholder returns of up to 30 time more than its counterparts.

Content Extracted from “Strategic Brand Management” 3rd Edition

Authors: Kevin Lane Keller

M.G. Parameswaran

Issac Jacob

Presentation developed from SLIM Diploma In Brand Management Students

Presentation developed by Leroy J. Ebert (25th April 2014)