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.
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.
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Clarity internally about what the brand stands for in terms of its values, positioning and proposition. Clarity too about target audiences, customer insights and drivers. Because much hinges on this, it is vital that these are articulated internally and shared across the organization.
Internal commitment to brand, and a belief internally in the importance of brand. The extent to which the brand receives support in terms of time, influence, and investment.
How secure the brand is across a number of dimensions: legal protection, propriety ingredients or design, scale or geographical spread.
The ability to respond to market changes, challenges and opportunities. The brand should have a sense of leadership internally and a desire and ability to constantly evolve and renew itself.
The brand is soundly based on an internal truth and capability. It has a deﬁned heritage and a well-grounded value set. It can deliver against the (high) expectations that customers have of it.
The ﬁt with customer/consumer needs,
desires, and decision criteria across all
relevant demographics and geographies.
The degree to which customers/consumers perceive the brand to have a differentiated positioning distinctive from the competition.
The degree to which a brand is experienced without fail across all touchpoints or formats.
The degree to which a brand feels omipresent and is talked about positively by consumers, customers and opinion formers in both traditional and social media.
The brand is not only recognized by customers, but there is also an in-depth knowledge and understanding of its distinctive qualities and characteristics. (Where relevant, this will extend to consumer understanding of the company that owns the brand).