Corporate Brand Valuation A need for Acquistion, Mergers and Investment
71Brand Valuation
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Reliance a Brand of High Value
Towers of Petronas a top Malaysian brand
Singapore has valuable brands in ASEAN
Brand valuation is a necessary in Mergers, Acquisitions and investment
Brand and Its value How Important are they?
Brand name as we all know plays an important role in the success of any business. We are willing to take the risk of buying an expensive product if we are very sure that it comes from reliable source and we trust the manufacturer. Along with a brand name a logo or symbol to help people recognize the brand is often registered. Once registered it becomes the property of the company. The trade mark is a very valuable asset of a company and there have been legal fights over one company creating a trade mark similar to another company as it could confuse the consumer and may rob the good will of the owner.
What do trade mark and brand name do ?
They help the consumer make the decisions faster because the consumer has faith in some brands than others.
A good brand name keeps the product on sale for many years.
It will help the company get a good market share if the company’s brand is well recognized.
It will help the company produce more products under the same name and thus reduce the time and promotion expenditure in selling the new products.
It gives a legal right for the company making the company beneficiary of all the positive effects and also makes the company responsible for any damages or any negative effects that the brand may have caused..
Brand Valuation and its Importance
It is therefore clear that company’s work hard to create strong brands and nurture them carefully. Brands thus created generate revenue for number years in the form of sales and also have some intangible name associated with them due to the “good will” generated by them in the public. Therefore, it is necessary that brands should be valued like other assets of the company. If the company were to go for sale the price of the shares will be based on the brand value .
Brand valuation helps in accounting in areas like balance sheet reporting, tax planning, licensing and franchising, mergers and acquisitions, litigations, investor relations and securitized borrowing
From a marketing perspective brand valuation is useful to determine budget and allocate resources on high priority, track performance and see if the marketing teams are able to value or not and also to examine if the strategies need change.
Brand value allows top management to communicate to the mangers within the organization, on company’s performance and increase their confidence levels and loyalty.
It helps to plan the new products and see what extensions should be added especially to make best use of the high value brand names.
The most commonly used brand valuation methods are -
Different approaches have been used to determine the brand value. There are some well known professionals like Deloitte and Interbrand , who determine the brand values and publish them in Business magazines. For example a list of top 100 brands is published every year in Business week.
1 The Market Transactions method-study the transactions comparable to the brand being valued provided there are enough transactions and there is no tie up between the transactions and other assets
2 Cost Method- where the cost of obtaining brand recognition through advertising and marketing is taken into consideration. This method cannot be easily used for established brands where the cost of advertising and brand recognition are less compared to new brands.
3 Income Method- where the relief from royalty is estimated to assess the brand value. This implies that the cost of renting the brand is assessed by the valuator. That is, how much will some other company pay to rent this brand name? This can be done by finding the licensing value of comparative brands in the market and the specific features of the brand being valued. The main ingredients of this method are the company’s sales and future growth, the expected life of the brand, how the brand value will decline with time and the taxes.
4. The Interbrand method consist of assessing the future earnings of the brand, discount the future earnings to present value, deduct the cost of owning the tangible assets to arrive at the value added by the intangible factors and finally assess the risk associated with these earnings. The risk is dependent on the
brand’ competence to gain market dominance, remain stable in the market and the possibility of the brand breaking into international markets.
Who would be Interested in Brand Valuation?
Apart from the list of top 100 global brands published each year, very often, the advertising agencies or chambers of commerce of some of the countries are interested in getting the brand with in their countries valued. It is also a prestige issue for the countries to know that they host the most valuable global brands
Among the top global brands, brands like Coco Cola, IBM, GE, Mc Donald’s are very prominent. In 2009 Interbrand (http://interbrand.com/best_global_brands_aspx) has shown that the top brands are CoCoCola ( gained overprevious year), IBM ( gained 2 percent), Microsoft ( down by 4 percent), GE ( gone down ), Nokia ( down by 3 percnet), Mc Donald (gained ) Toyota (down ) Intel (down) and Disney. As can be seen majority are American with one Finnish and Japanese brands. The gains and losses are good indicators are Corporate Brand management and can reflect the chase in consumer franchise a signal for Corprorate performance review.
The global brand list is dominated by American brands, brands of Japan, Germany, Switzerland, France, Sweden, Britain and Netherlands. It is rare to see the Chinese brands despite growth and market size. The Chinese brands have not been able to take hold of the global market though their presence is increasing. In ASEAN markets the brands from China have a respectable presence.
In markets like Malaysia where public sector is dominant brands like Petronas (Oil company), Malaysian Airlines, May Bank are some brands that come out on the top. It is possible that many private limited brands are not included due to lack of reliable and accurate data.
In Singapore some brands like Sing Tel, UOB, DBS Bank, Asia Pacific Breweries, Shangri-la , Singapore air lines dominate the list frequently.
In India Reliance, Tatas, HUL, Wipro, Procter and Gamble. Reckit Coleman, Colgate Palmolive are brand that dominate. State Bank of India is also among top brands.
Value of the Brand Valuations skills
Brands key assets of a company. Brands just cannot be associated with costs alone but must also be valued from the intangible perspective.
In the final analysis the company value is dependent on the intangible component more than the value of tangible assets when acquisition or merger takes place . In share markets, even for speculators and especially those who look at the stock market from long term perspective brand values become very important.
Therefore, all MBAs in finance and Chartered Accountants and Certified Public Accountants and Financial Analysts will need to develop this skill if they have not done so. Brand Valuation, should have enough demand in the future .
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Thanks Neil
Interesting hub. I enjoy reading it.
Thanks again very mcu. i am happy to hear that.
Ramkkasturi
It's Time to Put "Brand" on the Balance Sheet
The idea of putting the corporate brand on the balance sheet is an audacious proposition. One that can revolutionize marketing, change the role of everyone responsible for the health of brands, and make the US more competitive in the world.
The gap between marketing and finance has never been greater. And, the chasm will never get smaller unless valuing the intangible brand and putting it on the balance sheet becomes a reality. The fault doesn't reside with marketers, rather current accounting standards are inefficient for valuing brands.
Financial standards don't account for increased value when intangible assets are key drivers of the brand. Corporate financial statements and annual reports are insufficient for assessing the performance of the brand value.
In 2007, I spearheaded a blue ribbon committee that approached the Financial Accounting Standards Board (FASB). The group, an academic, a CFO, an accountant, and myself, approached the board of directors and petitioned them to change the way they account for brand value.
One of the results was FAS 157, which allows for valuing the corporate brand only when a company is bought or sold. Unfortunately, it does not value the brand over time, or the way brand equity is actually created. While a step in the right direction, it didn t give us the tools we were looking for.
Today, we have an opportunity to create a win/win situation for marketing and finance. Every professional communicator knows inherently the amazing value of branding. We experience this value creation every day. Unfortunately, we don't have a way to account for this value and when marketing budgets are not accountable they tend to be under-funded.
We see an opportunity because accounting standards are changing. FASB and IASB (International Accounting Standards Board, the primary accounting standard authority in Europe) have been coordinating efforts to develop one global accounting standard. IASB has a more open-minded view of brand value so this is an encouraging development for a full discussion of the topic.
Where there is change, there is opportunity. Communications professionals and the organizations to which they belong should take advantage of this time of change to get their fair share of the marketing budgets.
The metrics for measuring brand value have advanced by light-years. Interbrand, Millward-Brown, Corebrand, and others have been working on brand value metrics for the past twenty years. But, we're competitors. We all keep our data and our analytics inside a black box. What I suggest is a change to the status quo. We should find the best value measurement practices in the industry. We should work cooperatively to identify how value is created, and devise the best possible way of valuing brands.
Here s what CoreBrand brings to the table. We know everything a company says and does impacts the corporate brand. As a result, the brand impacts financial performance in two ways: revenues and stock performance.
Product branding relates to the revenue side of the equation. You build brand power, measured as "familiarity" and "favorability" toward the brand, which impacts sales, earnings and cash flow, and ultimately, stock performance.
But, there's also a direct relationship between corporate brand building and stock performance. This impact is the "reputation" portion of the intangible asset, known as goodwill, which is a very stable number and this is the number that should be on the balance sheet.
Drilling deeper you can analyze both sides of these value equations with two different models. On the product branding side, look at market share analysis and business share analysis, then project market share at different spending levels. Then, through a discounted cash-flow analysis, evaluate Return on Investment (ROI).
On the corporate branding side, you need consistent, quantitative research over time. Model against industry peers and the stock market, then project ROI based on improving the position and market capitalization. Finally, evaluate ROI performance based on improving the brand equity and value.
The benefits of valuing your brand are significant. The corporate brand is an intangible asset that represents the reputational portion of goodwill. It averages about 5-7% of the market cap of every company in the CoreBrand 800 (companies tracked in the Corporate Branding Index. The corporate brand can be accurately consistently measured and valued over time. You can measure it against specific competitors, peer groups and entire industries. It can be managed like other business assets. And, it can grow or lose value over time on an ROI basis.
There was recently an article in The Wall Street Journal (April 10, 2010), "Reality Stars go on to Stock Success" about CEOs appearing on Undercover Boss, and the fact that their stock price increased after each episode. Well, as my daughter would say, "Duh." We know it works and it's a very consistent model.
The red bar is a "peer group." It can be your competitors. It can be an industry. It can be any number of companies you want to evaluate against. That's the brand equity value you measure every single quarter. Then, you have the client's brand equity; again you evaluate it quarterly contrasted against the peer group. Finally, you evaluate the improvement or decline on a quarterly basis, as well as the communications pressure. It becomes a simple, clean dashboard for the corporate brand.
This is a more realistic and meaningful valuation approach than current royalty relief methods, and a more logical answer than the profit-analysis method. CoreBrand has over 20 years of quantitative research on over 800 companies across 49 industries to support these valuations.
This brand equity valuation allows you to look at your brand over the continuum of time, which allows a company interested in its past performance to go back in time and evaluate what happened if or when we did something. You can identify specific events: a change of management, an advertising campaign, reorganizations or mergers. You can evaluate what happened, because that data exists in our archives.
This evaluation tool is a systematic method for budgeting, evaluating ROI, or simply setting the value of the company's reputation. With FASB and IASB working hard to bring these accounting standards together, we have an enormous opportunity to put the brand on the balance sheet.
Thanks for this comment.I agree evaluating it against specific competitors has more value. I had done some research, published and presented a paper at Hawaii International Business Conference 2008. It appeared in the proceedings. There I presented the concept of relative brand values as strategic measure. Thanks for your contribution. The potential in this area is more than one can see. Even the business schools need to do more in this area
Ramkkasturi
A very useful and important hub.Wish I had read it earlier. It would have helped me a lot. I am wondering why `the corporate world is not making the best use of it
Thank you for the comments.It will gain popularity as more and more corporates are looking towards the intangible assets and their capitalization.
I think today the game is much more about engaging with the consumer, understanding what their needs are, getting that consumer to actually communicate back, make it a two-way dialogue as opposed to a one-way form of communication.
Tis is a great hub. Really interesting topic that I haven't seen a lot of content on. Perhaps this is why many large PR and marketing firms are now touting "brand development and management" as part of their offerings. It's really quite amazing to think what stands behind a name. When I conduct interviews - I often ask the interviewee what the first five words are they think of when they hear "******* *****" and it's always entertaining to hear the ways in which they've interpreted our brand through the media and otherwise.
Neil Ashworth 2 years ago
Cool hub!!!