A brand is defined as a bundle of trademarks and associated IP which can be used to take advantage of the perceptions of all stakeholders to provide a variety of economic benefits to the entity.
What is Brand Value?
Brand value refers to the present value of earnings specifically related to brand reputation. Organisations own and control these earnings by holding trademark rights. All brand valuation methodologies aim to identify this, although the approach and assumptions differ. As a result, published brand values can often vary, similar to how equity analysts can arrive at different business valuations. The only way you find out the “real” value is by looking at what people actually pay. As a result, Brand Finance always incorporates a review of brand royalty agreements, which are found in nearly every sector in the world. This is sometimes known as the “Royalty Relief” methodology, the most widely used approach in brand valuation, grounded in observable market behaviour. While this method is the basis for a public ranking, we always augment it with a real understanding of people’s perceptions and their effects on demand, from our database of market research on over 6,000 brands in over 41 markets.
Brand Finance has produced this study with an independent and unbiased analysis. The values derived and opinions produced in this study are based only on publicly available information and certain assumptions that Brand Finance used where such data was deficient or unclear. Brand Finance accepts no responsibility and will not be liable in the event that the publicly available information relied upon is subsequently found to be inaccurate. The opinions and financial analysis expressed in the report are not to be construed as providing investment or business advice. Brand Finance does not intend the report to be relied upon for any reason and excludes all liability to anybody, government or organisation.
1. Brand Impact
We begin by reviewing existing brand royalty agreements. This is then augmented by an analysis of how brands impact profitability in the sector versus generic brands. Together, these insights inform an estimated range of possible royalties that could be charged in the sector for brands, typically, for example, a range of 0% to 2% of revenue.
2. Brand Strength
We adjust the rate higher or lower for brands by analysing Brand Strength. This analysis is based on two core pillars: “Brand Perceptions”, which relates to the level of familiarity and stakeholder sentiment of the brand, and “Customer Behaviours”, which reflect how those perceptions influence demand, pricing power, and advocacy. Each brand is assigned a Brand Strength Index (BSI) score out of 100, which feeds into the valuation. Based on the score, each brand is assigned a corresponding Brand Rating up to AAA+, similar in format to a credit rating.
3. Brand Impact x Brand Strength
The BSI score is applied to the royalty range to determine a royalty rate. For example, if the sector range is 0-5% and a brand has a BSI score of 80 out of 100, then an appropriate royalty rate in the given sector will be 4%.
4. Forecast Brand Value Calculation
We determine brand-specific revenues as a share of the parent company’s revenues attributable to the brand. These values are forecasted by analysing historic revenues, equity analyst forecasts, and economic growth rates. We then apply the royalty rate to the forecast revenues to derive brand revenues. Finally, we apply the relevant valuation assumptions to arrive at a discounted, post-tax present value, which gives us the brand value.
Brand Strength Methodology
Analytical rigour and transparency are at the heart of our approach to brand measurement at Brand Finance.
Therefore, to adequately assess the strength of brands, we conduct a structured, quantitative review of data reflecting the ‘Brand Value Chain’ of brand-building activities, from awareness and perception to brand-influenced customer behaviour. To manage the ‘Brand Value Chain’ process effectively, we create and use the “Brand Strength Index” (BSI). This index is a modified Balanced Scorecard split between the Brand Perceptions and Customer Behaviours, as measured through our Global Brand Equity Monitor research. The BSI is subsequently explained through an analysis of diagnostic attributes known as “Brand Inputs”, which highlight the actions marketers can take to build core brand strength.
1. Attribute Selection and Weighting
We follow a general structure incorporating the brand perceptions and the customer behaviours they influence. This covers the core brand metrics that matter most and are analysed for their impact on market share and revenue growth. Attributes are weighted according to their importance in driving the following pillar: Brand Perceptions in driving Customer Behaviours; and finally, the importance of Customer Behaviours metrics in driving market share, revenue, and ultimately, business value.
2.Data Collection
A brand’s ability to influence purchase depends primarily on public perception. Accordingly, the majority of the Brand Strength Index is derived from Brand Finance’s proprietary Global Brand Equity Research Monitor research, a quantitative study of a sample of more than 175,000 people from the general public on their perceptions of over 6,000 brands in over 31 sectors and 41 countries. Each year, data is gathered over three months towards the end of the calendar year. This enables consistent, comparative measurement of brand strength across all the brands in our study.
3. Benchmarking and Final Scoring
To convert raw data into scores out of 10 that are comparable between attributes within the scorecard, we must then benchmark each attribute. This involves analysing the distribution of the underlying data and creating a floor and a ceiling based on it. Each brand is assigned a Brand Strength Index (BSI) score out of 100, which feeds into the brand value calculation. Based on the score, we assigned a corresponding rating up to AAA+ in a format similar to credit ratings. Together, these three measures provide insights for managers into a brand’s potential for future success.