“If this business were split up, I would give you the land and bricks and mortar, and I would take the brands and trademarks, and I would fare better than you.” ~ John Stuart, Chairman of the Quaker Oats Company
While great brands are often household names with substantial brand-building budgets — and score high in “sex appeal” —the real secret behind a great brand is that it does something very simple. Great brands are single-minded and clear about what they promise. Great brands then deliver on that promise.
The implication is that any organization can create a great brand, regardless of its size and its resources. In fact, the larger, more complex and global an organization is, the harder it becomes to stay true to knowing what that promise is, and ensuring its delivery.
When you look at a list of “great brands” that have significant emotional and financial value, invariably you will see businesses that are crystal clear on delivering on their promise and unwavering in their focus on it. The phrase “ruthless consistency” applies. When these brands falter, it is almost always when they lose focus on their promise and ensuring its delivery.
If brands that stand the test of time establish emotional and financial value, how can they assess and measure that value? And if the following could be seen as some foundation, the question is—to what degree have recent advances in analytics, AI, and social media been accounted for in the quest for getting an accurate and relevant read on the value of a brand?
Here is a brief “brand valuation 101” primer:
Brands have financial value — depending on your industry, anywhere from 10 percent to upward of 50 percent or more of the value of the enterprise. The London Stock Exchange endorsed the concept of brand valuation in 1989 by allowing the inclusion of intangible assets when seeking shareholder approval in acquisitions. Brands will be major drivers of corporate value in the 21st century — investors and business leaders have recognized this. Financial managers and planners are increasingly using brand equity tracking models to facilitate business planning.
There are many approaches to brand valuation, here are 6:
1. Assessing Attributes
This subjective means of assessment assigns values to attributes such as satisfaction, loyalty, awareness and market share that are either tracked separately or weighted according to industry. Young & Rubicam has also developed a “Brand Asset Valuator” — an attribute assessment approach based on differentiation, relevance, esteem and knowledge. Other approaches no doubt exist, but the concept remains the same. Such methods often use an assigned value, rather than a measured value, and thus are subject to challenge.
2. Brand Equity
This approach combines three elements — effective market share, the sum of market shares in all segments, weighted by each segment’s proportion of total sales; relative price, a ratio of the price of goods sold under a given brand, divided by the average price of comparable goods in the market; and durability, the percentage of customers who will buy that brand in the following year.
3. Brand Valuation
Brand valuation methods seek to take the most robust financial data available to the model in order to arrive at a plausible valuation of a brand. While these methods are also subject to challenge, they at least strive to create an objective-as-possible marker or view of a brand’s strength.
WPP performs an annual valuation published as “The Brand Z Top 100 Most Valuable Brands” report. This uses a company’s financial data as well as market dynamics and an assessment of the role of a brand in income generation, and then forecasts the future on the basis of brand strength and risk. There are other similar “blended” formulas that can be developed or used to assess what is, through a particular lens, most important in a brand.
5. Royalty Relief
Brand Finance publishes its own Global 500 study annually using a “royalty relief” approach that calculates the net present value of the hypothetical royalty payments an organization would receive if it licensed its brand to a third party.
6. Net Promoter Score
A popular measure is “net promoter score” or NPS. NPS is a metric developed by Fred Reichheld, Bain & Company, and Satmetrix. Its power is its simplicity. Customers are asked “How likely are you to recommend company/brand/product X to a friend/colleague/relative?” and score their response from 0 to 10. “Promoters” give a 9 or 10 score, “passives” a 7 or 8, and “detractors” a 0 to 6 score. The NPS score is the percentage of promoters less the percentage of detractors, and ranges from −100 to +100.
All of these methods have strengths and weaknesses, but the important thing is to establish an organization’s brand as an intangible asset that is worth a significant amount of money — and it should be respected and managed accordingly.
This is a high-level summary, but as measurability continues to emerge, it’s interesting to think about how brand value can be assessed in the age of a “fourth industrial revolution.” I’d suggest that in addition to the above approaches, brand value may need to reflect social media sentiment, online reviews and customer experience sentiment — perhaps measured and reported in near real time.
Where is brand valuation headed? Does data, AI, automation, analytics, social media have a role to play? I believe this topic has not had ample discussion. What do you think? Let’s continue the conversation.
Contributed to Branding Strategy Insider by: Kevin Keohane, director of brand and talent strategy, PartnersCreative
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