Enfoque de diseño

 Projections of all revenues from that brand in the future

 Deduct operating costs, taxes, capital costs to operate the brand

 Difference represents brand‘s Intangible Earnings (like EVA / intellectual capital) 2) Role of Branding

 Measuring how the brand influences customer demand at the point of purchase

 Analyse (Brand Earnings / Intangible Earnings) % solely attributable to the brand

 Identifies and weights key drivers of customer demand, their dependence on brands

 Calculated as a %age and applied to Intangible Earnings to derive Brand Earnings. 3) Brand Risk

 Brand specific risk rate at which forecast Brand Earnings are discounted to their NPV

 Discount based on risk free rate (yield on government bond + brand premium based on Brand Strength analysis)

 Assesses risk profile of projected Brand Earnings based on brand franchise security 4) Brand strength

www.dramitrangnekar.com 44 [email protected]  Measured against 7 key attributes- Market, Stability, Leadership, Support, Trend,

Geography and Protection

 Provides brand specific discount rate for the Brand Earnings forecast 5) Brand Value Calculation

 A financial representation of a firm‘s earnings due to superior demand created for its products and services through the strength of its brand

 Brand value is the financial worth today, similar to market cap of a firm

 Brand value is calculated as the NPV of projected Brand Earnings

 Brand value depends on good financial performance + strong market/ing position

 Higher Brand Value looks at long term results than short-term performance

Applications of Brand Valuation in Brand Management

 Strategic asset (M&A, licensing, valuation, PE) as economic value considered not sale

 Key brand value (Coke, Apple, Microsoft) is significant portion of company value

 Brand building becomes a corporate objective not a marketing initiative

Compare brand value to shareholder value, intangible/ tangible assets

ssess Brand value across customers, segments, geographies, channels, competition

Brand value change to assess internal performance, increase accountability, ROI

Part of value based management frameworks ( EVA, BSC, shareholder value)

Establish best practices brand management, integrate brand value in corporate planning

Performance benchmark (quarterly brand value score card review) Approaches to Brand Valuation:

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brand hypothetically. Rarely used as costs incurred are substantially less than actual brand value. Eg Property price cannot match cost in building it.

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brands. Issues- all market transactions not publicly available, cannot be easily compared

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now on the discounted value of future brand earnings

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from its owner, hence a royalty rate based on sales is applicable. As company owns the brand it does not need to incur this charge hence the name ‗royalty relief'. Future sales (rather than future gross profit) are forecast, hence royalty rate applied to provide an income attributable to the brand that is then discounted back to a net present value.

Briefly, brand's value is a product of 2 quantities

(1) Annual "net" after tax profits, adjusted to exclude the earnings expected for an equivalent unbranded product, and averaged over time;

(2) A "multiple" (or discount rate), reflecting brand's "strength"

Brand strength factors (greater a brand's strength, the higher its multiple) (i) Leadership—ability to influence the market.

(ii) Stability—ability to maintain a consumer franchise.

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(iv) International Scope—cross national/cultural potential. (v) Trend—long term appeal to consumers.

(vi) Support—strength of communications.

(vii) Protection—security of the brand owner's legal or property rights.

Brand valuation approaches (http://www.brandchannel.com/papers_review.asp?sp_id=357)

 Earlier, intangibles (brands, technology, patents, employees) not financially valued

 Unexplained differences in book valuation and market capitalization

 1980s M&A activity led to valuation of companies and brands, today majority business value is derived from intangibles

 Average corporation life is 25 years, average age of world‘s Top 100 brands 60 years

 A study (Interbrand- JP Morgan) concluded that on average brands account for over one-third shareholder value with McDonald‘s accounting for 70% and Coca-Cola 51%

Approaches to brand valuation

Financial values on brands is now widely accepted. With transfer pricing, licensing deals, M&A and value based management, brand valuation plays a key role in business today.

Research-based approaches- Brand equity models measure consumer behavior and attitudes that have an impact on the economic performance of brands through consumer research where they interpret and measure consumers‘ perceptions that influence

purchase behavior. Their integration into an economic model helps them assess economic value of brands

Financially driven approaches- Cost-based approaches fail as there is no direct

correlation between investment made and value added by a brand

Comparables- brand value is arrived at on the basis of something comparable, but value

creation of brands in the same category can be very different, even if most other aspects of the underlying business are similar. Comparables are useful for cross-checking

Premium price- Brand value is calculated as NPV of future price premiums that a

branded product would command over an unbranded or generic equivalent. However brand objectives are based on ability to secure future demand than current premium.

Economic use- This approach combines brand equity and financial measures, and is

widely accepted methodology for brand valuation 3,500 brand valuations worldwide.

 Brands help generate customer demand, which translates into revenues and long term repurchase and loyalty

 Brand‘s future earnings are identified and discounted to a NPV using a discount rate that reflects the risk of those earnings being realized

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Steps to capture complex value creation of a brand:

1. Market segmentation- Brands influence customer choice, but influence varies