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 owning trademark rights. All brand valuation methodologies are essentially trying to identify this, although the approach and assumptions differ. As a result, published brand values can be different. These differences are similar to the way equity analysts provide business valuations that are different to one another. The only way you find out the “real” value is by looking at what people really pay. As a result, Brand Finance always incorporates a review of what users of brands actually pay for the use of brands in the form of brand royalty agreements, which are found in more or less every sector in the world. This is sometimes known as the “Royalty Relief” methodology and is by far the most widely used approach for brand valuations since it is grounded in reality. It is the basis for a public ranking but 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 review what brands already pay in royalty agreements. This is augmented by an analysis of how brands impact profitability in the sector versus generic brands. This results in a range of possible royalties that could be charged in the sector for brands (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 Brand Strength analysis is based on two core pillars: “Brand Perceptions” which relate to the level of brand familiarity and the views stakeholders have of a brand’s offer; and “Customer Behaviours” which are the impacts that those perceptions have on demand, price, and advocacy. Each brand is assigned a Brand Strength Index (BSI) score out of 100, which feeds into the brand value calculation. Based on the score, each brand is assigned a corresponding Brand Rating up to AAA+ in a format similar to a credit rating.
3. Brand Impact x Brand Strength
The BSI score is applied to the royalty range to arrive at a royalty rate. For example, if the royalty range in a sector is 0-5% and a brand has a BSI score of 80 out of 100, then an appropriate royalty rate for the use of this brand in the given sector will be 4%.
4. Forecast Brand Value Calculation
We determine brand-specific revenues as a proportion of parent company revenues attributable to the brand in question and forecast those revenues 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 and apply the relevant valuation assumptions to arrive at a discounted, post-tax present value which equals the brand value.
Brand Strength Methodology
Analytical rigour and transparency are at the heart of our approach to brand measurement at Brand Finance.
Therefore, in order to adequately understand the strength of brands we conduct a structured, quantitative review of data that reflect the ‘Brand Value Chain’ of brand-building activities, leading to brand awareness, perceptions and onwards 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 essentially a modified Balanced Scorecard split between the Brand Perceptions and Customer Behaviours – as measured through our Global Brand Equity Monitor research. This Brand Strength Index 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 outcomes that they cause on customer behaviours. This covers the core brand metrics which matter most and have been analysed for their impact on market share and revenue growth. These 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
Brand’s ability to influence purchase depends primarily on people’s perceptions. Therefore, 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. Over a period of 3 months towards the end of each calendar year, we collect all this data across all the brands in our study in order to accurately measure their comparative strength.
3. Benchmarking and Final Scoring
To convert raw data into scores out of 10 that are comparable between attributes within the scorecard, we then must benchmark each attribute. We do this by reviewing the distribution of the underlying data and creating a floor and ceiling based on that distribution. Each brand is assigned a Brand Strength Index (BSI) score out of 100, which feeds into the brand value calculation. Based on the score, each brand is assigned a corresponding rating up to AAA+ in a format similar to a credit rating. Analyzing the three brand strength measures helps inform managers of a brand’s potential for future success.
The brand rating scale used to interpret the BSI score is shown below:
Brand Finance Lanka’s long-term market research partners are Breakthrough Business Intelligence and Survey Research Lanka, who provide consumer data to measure brand perceptions and customer behaviors. This research is a vital input in calculating Sri Lanka’s Most Valuable Brands.
Breakthrough Business Intelligence is a full-service boutique market research agency committed to providing insightful partnerships that drive bottom-line results for clients. The agency takes an innovative approach to research, reinventing traditional market research methods where necessary. With the right balance of academic and practicing market researchers, Breakthrough Business Intelligence delivers insights that are relevant in accelerating business growth.
Survey Research Lanka also supports Brand Finance Lanka by providing market research expertise and consumer insights, helping to strengthen the accuracy and reliability of brand perception and customer behaviour data used in the valuation process.
Managing Director of Breakthrough Business Intelligence Dilini Jayasuriya can be contacted through dilini@breakthrough.lk
CEO/Director of Survey Research Lanka Mihirani Dissanayake can be contacted through mihirani@srl.lk