How Interbrand measures brand value Published July 24, Updated April 23, Published July 24, This article was published more than 10 years ago. Some information in it may no longer be current. The report was published by Interbrand, in conjunction with Report on Business. This valuation approach is a derivative of the way businesses and financial assets are valued.
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Responsibility for Brand Strength factors can be allocated to functions, building engagement and a sense of responsibility for the brand across the organization. Often, it is the latent potential of the brand that is driving this premium through its ability to enter new markets and extend into adjacent categories.
A broad skill set, combining market research, brand, and business strategy, together with business case modeling, is required to quantify the latent financial potential of the target brand.
By identifying the value created by a brand for its business, combined with an evaluation of the relative bargaining power of the parties involved, we are able to advise on the proportion of brand value that should be paid out as a royalty rate in return for the right to exploit the brand.
Considerable investments are made in brands and, ultimately, it is important to determine if these actions are creating value for your customers and, in turn, your shareholders. A strategic tool for ongoing brand management, it brings together market, brand, competitor, and financial data into a single, value-based framework within which the performance of the brand can be assessed, areas for improvement identified, and the financial impact of investing in the brand quantified.
It also provides a common language around which a company can be galvanized and organized. Role of Brand analysis lets us know where investment in and focus on brand improvements will have the biggest impact. Interbrand Pg. It supports strategic brand management by prioritizing areas of highest impact for managers. Finally, when the Role of Brand and Brand Strength analyses are connected to the financial model, they provide a framework for resource allocation and prioritization based on the opportunities to enhance brand performance that are expected to have the greatest impact on brand and business value.
These kinds of changes typically involve significant financial outlay upfront, along with a high degree of uncertainty over when, or whether, a positive return will be made on that investment. Some CEOs are willing to make these critical brand strategy decisions based on qualitative strategic analysis and intuition. The majority, however, are looking for a business case that goes further.
They want to understand the likely overall financial impact on the business over time, covering a range of alternative scenarios. Finally, sophisticated techniques such as Monte Carlo simulation may be employed, running thousands of possible permutations in order to estimate the most likely outcome. By bringing together market, brand, competitor, and financial data, the brand valuation model is the ideal framework within which such business case modeling can be conducted.
Brands are one of the few business assets that can provide long-term competitive advantage. Companies as diverse as Samsung, Philips, Hyundai, and AXA, among many others, have used brand valuation to help them refocus their businesses on their brands, motivate management, create an economic rationale for branding decisions and investments, and make the business case for change.
The number and choice of segments therefore depends on: Although many brand metrics are available, few can link the brand to long-term financial value creation and this, along with its many other applications, makes brand valuation a versatile strategic tool for your business. These are preceded by a decision on segmentation and at the end of the process are brought together to enable the financial value of the brand to be calculated. Segmentation Segments are typically defined by geography, business unit, product, service or customer group.
Why is segmentation important? A brand can only exist and, therefore, create value, if it has a platform on which to do so. Depending on the brand, this platform may include, for example, manufacturing facilities, distribution channels, and working capital. Interbrand, therefore, allows for a fair return on this capital before determining that the brand itself is creating value for its owner.
We build a set of financial forecasts over five years for the business, starting with revenues and ending with economic profit, which then forms the foundation of the brand valuation model. Role of Brand Role of Brand measures the portion of the purchase decision that is attributable to the brand, relative to other factors for example, purchase drivers like price, convenience, or product features.
Customers rely more on brands to guide their choice when competing products or services cannot be easily compared or contrasted, and trust is deferred to the brand e. RBI tends to fall within a category-driven range, but there remain significant opportunities for brands to increase their influence on choice within those boundaries, or even extend the category range where the brand can change consumer behavior.
How Interbrand measures brand value
Let me tackle each of these fallacies in turn. The Question of Variation This takes issue with the fact that, in some cases, the valuations published by the three consultancies that produce the top brand valuation rankings vary significantly. To illustrate the point, consider a brief story of a shareholder dispute that Interbrand was recently involved in. The minority shareholders disputed this value and hired Interbrand and Morgan Stanley to value the business Morgan Stanley using traditional business valuation techniques, Interbrand through a brand valuation lens. An arbitrator was subsequently appointed, the Big Four accountant Deloitte, who reviewed very detailed submissions from all parties involved. So, a great success for our client, but to my point above, a very significant difference in opinion on value of nearly 60 percent , even in a situation where all parties had access to exactly the same data and the valuation received huge levels of scrutiny on all sides.
Brand Valuation: Interbrand Method
Lighted logos of brands are prominently placed at various points of their well-designed stores. Brand owners should like my wife, Datin Azimah: toothpaste Colgate , washing powder Breeze , petrol Shell , and fizzy drink of course, Coke. A leading premium watch brand Brands help their owners to generate enduring revenue. These brands are valuable, and they are important intangible assets for corporations. Many methodologies are developed by brand consulting companies, and one of the most famous methodologies is the Interbrand method.