Brand Valuation: A versatile strategic tool for business

Interbrand's brand valuation methodology seeks to provide a rich and insightful analysis of your brand, providing a clear picture of how your brand is contributing to business results today, together with a roadmap of activities to ensure that it is delivering even more tomorrow.

Having pioneered brand valuation in 1980s, we have a deep understanding of the impact of strong brands on the key stakeholder groups that influence the performance of your business, namely (current and prospective) customers, employees and investors. Strong brands influence customer choice and create loyalty; attract, retain and motivate talent, and lower the cost of financing, and our brand valuation methodology has been specifically designed to take all of these factors into account.

Role of Brand analysis is about understanding purchase behavior: the brand’s influence on the generation of demand through choice. Brand Strength measures the ability of the brand to create continuity of demand into the future through loyalty and, therefore, to reduce risk. In doing this it considers ‘internal’ (management and employee) and ‘external’ (customer) factors. Finally, these inputs are combined with a financial model of the business to measure the brand’s ability to create economic value for its owner.

It is quite possible that you believe that your brand could be (or is) a significant source of competitive advantage for your business, but you are unsure of how a brand valuation exercise could help you.

The business applications for brand valuation can broadly be categorized into three areas:

· On-going brand management

· Strategy/ business case development

· Financial

Brand management applications

A strategic tool for ongoing brand management, our valuations bring together market, brand, competitor, and financial data into a single, value-based framework within which we assess the current performance of the brand, identify areas for improvement, and develop a roadmap of activities to enhance the future influence of the brand on business results.

Brand Strength is a key diagnostic tool with which we can measure brand performance and better understand the reasons behind a brand’s strengths and weaknesses, both internally and externally. It supports strategic brand management by enabling the creation of a long term roadmap for the brand and the prioritization of activities with highest business impact. Finally, it allows for constructive dialogue between the various parts of an organization that are ultimately jointly responsible for building the brand.

Strategy/ business case applications

The brand valuation model also provides a framework within which one-off business case modeling can be conducted to evaluate brand strategy options, such as positioning, architecture, and extension, and make the business case for brand change.

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. In addition to a detailed breakdown of the expected costs to deliver, a rounded business case will also quantify the expected impact on the top line through the modeling of key revenue drivers and on profit margins from any operational changes required to deliver the new strategy. 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.

Financial applications

When conducting valuations for financial reasons, as well as a rigorously analyzed and defendable valuation number, we also provide strategic branding recommendations, delivering value to the business beyond the number alone.

In an M&A context, brand continues to be a key driver of acquisition premiums. 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.

Interbrand’s brand valuation methodology can also be used to complement other more traditional techniques for setting royalty rates for brands. 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.

To date, we’ve conducted several thousand valuations and the rigor and integrity of our approach has been recognized by businesses, standard setting authorities, academic and regulatory bodies, as well as accountancy and legal practices. This gives us unrivaled breadth and depth of sector knowledge and ultimate market credibility.

For more information on the application of brand valuation, please read our whitepaper.

Contributors

Global Director, Brand Valuation