Interbrand’s method looks at the ongoing investment and management of
the brand as a business asset. This means that our method takes into
account all of the many ways in which a brand touches and benefits its
organization – from attracting and retaining talent to delivering on
customer expectation. The final value can then be used to guide brand
management, so businesses can make better, more informed decisions.
There are three key aspects that contribute to the assessment: the
financial performance of the branded products or services, the role of
brand in the purchase decision process and the strength of the brand.
Financial performance measures an organization’s raw financial return to the investors. For this reason, it is analyzed as economic profit, a concept akin to Economic Value Added (EVA).
To determine economic profit, we remove taxes from net operating profit to get to net operating profit after tax (NOPAT). From NOPAT, a capital charge is subtracted to account for the capital used to generate the brand’s revenues; this provides the economic profit for each analyzed year.
For purposes of the rankings, the capital charge rate is set by the industry weighted average cost of capital (WACC). The financial performance is analyzed for a five-year forecast and for a terminal value.
The terminal value represents the brand’s expected performance beyond the forecast period. The economic profit that is calculated is then multiplied against the role of brand to determine the branded earnings that contribute to the valuation total as noted earlier.
Role of brand
Role of brand measures the portion of the decision to purchase that is attributable to brand – this is exclusive of other aspects of the offer like price or feature. Conceptually, role of brand reflects the portion of demand for a branded product or service that exceeds what the demand would be for the same product or service if it were unbranded.
Role of brand determinations for this study derive, depending on the brand, from one of three methods: primary research, a review of historical roles of brand for companies in that industry, or expert panel assessment. The percentage for the role of brand is multiplied by the economic profit of the branded products or services to determine the amount of branded earnings that contribute to the valuation total.
Brand strength measures the ability of the brand to secure the delivery of expected future earnings. Brand strength is reported on a 0 to 100 scale, where 100 is perfect, based on an evaluation across 10 dimensions of brand activation. Performance in these dimensions is judged relative to other brands in the industry, and in the case of exceptional brands, relative to other world-class brands.
The brand strength inversely determines, through a proprietary algorithm, a discount rate. That rate is used to discount branded earnings back to a present value based on the likelihood that the brand will be able to withstand challenges and deliver the expected earnings. (Read about brand strength and Interbrand’s 10 brand strength components.)
BRAND VALUE RESULTS
The parts come together so that forecast financial performance projects
economic profits that are multiplied by the role of brand to reveal
branded earnings, which, based on the brand strength, are discounted
back to a present value and totaled to arrive at a brand value.
Criteria for Inclusion
There are several criteria when valuing brands for our retail ranking. Besides leading in market share, a leading brand must behave as a leader — setting trends, quality standards, authority, etc.
Using our database of retail brands, populated with critical information over the past several years of valuing retail brands specifically, and with over 30 years of consulting on retail brand experiences through Interbrand’s retail arm, Interbrand Design Forum, we formed an initial consideration set of leading brands. All brands in the set were then subjected to the following criteria that narrowed the candidates:
- There must be substantial publicly available financial data. If the company does not produce public data that enables us to identify the branded business, as is sometimes the case with privately held companies, it cannot be considered for the list.
- Economic profit must be positive, showing a return above the operating and financing costs.
- To be defined as a retailer, a brand must generate at least 50 percent of its revenues from sales through its branded retail locations. For example, while Apple was considered, it failed to make this requirement. In addition, we limit the list to those traditional stores and e-commerce sites that sell goods; we have excluded restaurants and service-based sellers, such as financial services and auto dealerships.