Microsoft PowerPoint - 2b Brand Valuation · Web view(Aaker 1996) Price premium...

Brand ValuationProf. Dr. Sven Reinecke

Overview

Prof. Dr. Sven Reinecke Marketing Management Control

I. Relevance of Brand Strength and Brand Equity

II. Methods of Brand Valuation: An Overview

III. Drivers of Brand Strength and Brand Value

IV. Conclusions

Strong Brands Provide Customer Value


100%Risk reduction

100%Informatio

n efficiency

100%Intangible

value(e.g. emotional)

Strong Brands Provide Customer Value


Source: in reference to MCM/McKinsey/GfK.

Brand Valuation: Purposes


Internal/ managementpurposes

Brand management

Evaluation of brand strategy Planning and control Budget allocation

External purposes

Transfer of trademark rights

Mergers & acquisitions, bankrupcy

Licencing, franchising Loan security purposes

Violation of trademark rights

Compensation for damages

Documentation of trademark rights

Financial accounting Ratio for financial analysts

Source: in reference to Sattler 1995.

Overview





IV. Conclusions

Brand Value of VW: Huge Valuation Differences (2012)

9.25Bio.

$

27.3Bio.$


Interbrand Semion

Brand Valuation: Major Challenges


Terminology (definition of "brand")

Separation problem (separation of brand and product)

Interdependence problem (possibility to isolate different brands in order to allocate costs and revenues "correctly")

Monetary transformation from (non-financial) brand strength to (financial) brand equity (forecast, selection of value drivers, determination of interest rate …)

Consideration of brand extension and transfer

Context-specific relatedness of brand valuation

Brand Valuation: Major Challenges


Source: in reference to Tomczak/Reinecke/Kaetzke 2004

Comprehensive Methods of Brand Valuation

Source: Tomczak/Reinecke/Kaetzke 2004 in reference to Aaeker 1991, Srivastava/Shocker 1991;

Simons/Sullivan 1993; Keller 1998; Sattler 1998;Cravens Guilding 1999; Baumgarth 2001.


Cost-based methodsEvaluation of total brand investments or estimation of replication costs

Related to past performance Cost allocation? Brand replication often impossible

Capital-based methodsEvaluation of possible market price of a brand

Existence of a “market for brands" questionable Brand values fluctuate heavily

(indication for inefficient markets)Income-based methods

Evaluation of preferences that cannot be attributed to product differences (e.g. price premium, discounted license fees)

Price premium: feasible & under- standable, but not always possible

Static approach (no consideration of brand extensions)

Time horizon? interest rate? forecasts?

Indicator-Based Methods of Brand Valuation (1/3)

Source: in reference to Tomczak/Reinecke/Kaetzke.


Brand knowledge(Keller 2003)

Brand awareness:a) depth: recall, recognition;b) breadth: purchase, consumption

Brand associationsa) strong: relevance, consistency;b) favorable: desirable, deliverablec) unique: points-of-parity, points-of-difference

Icon Added Value(Icon Brand Navigation)

Brand iconography:vividness, advertising pressure, advertising memorability, uniqueness, appeal

Brand assets:brand likeability, brand confidence, brand loyalty

Icon Added Value: The Brand Iceberg


Brand iconographyVividness, advertising pressure, advertising memorability, uniqueness, appeal

Brand likeability,brand confidence, brand loyalty

Brand assets

Source: in reference to Icon Added Value.


Source: Tomczak/Reinecke/Kaetzke. Prof. Dr. Sven Reinecke Marketing Management Control

Brand Equity Ten(Aaker 1996)

Price premium Satisfaction/loyalty Perceived quality Leadership/popularity Perceived value

Brand personality Organizational associations Brand awareness Market share Market price &

distribution coverage

Brand Asset Valuator(Young & Rubicam)

Hierarchic four-criteria model:Brand strength (growth potential) Differentiation (basis) RelevanceBrand stature (image) Esteem (perceived quality, popularity) Knowledge (true understanding of a

brand's personality)

Brand Asset Valuator


GrowthLeadingbrands

Young brands Branderosion

high

Brand strength

(differentiation & relevance)

low

lowBrand stature

(esteem &

kno

wledge)

Brand Asset Valuator


high

Source:Young & Rubicam


Source: Tomczak/Reinecke/Kaetzke. Prof. Dr. Sven Reinecke Marketing Management Control

GfK Brand Potential Index (BPI)(Högl/Twardawa/ Hupp 2001)

Purchase intention Uniqueness Brand loyalty Brand sympathy

Price premium Brand confidence acceptance Brand identification

Perceived quality Willingness to Brand awareness recommend

Interbrand- Modell (Interbrand)

Multiplicator-based model (operating profit * industry specific multiplier)

Indicators used to evaluate brand strength (in order to determine risk-adequate interest rate for discounting purposes): market, brand stability, brand leadership, brand trend, brand support, brand diversification, brand protection

Interbrand Brand Equity Ranking 2016


Source: Interbrand 2016.

200.0

180.0

160.0

140.0

120.0

100.0

80.0

60.0

40.0

20.0

0.0

178.12

133.25

73.10 72.80

Brand Equity in Billions US$

53.58 52.50 51.81 50.34 43.49 43.13 41.54 39.38

Change.in % +5 +11 -7 +8 +9 -19 +14 +33 +18 +2 +12 -1

App

le

Goo

gle

Coc

a-C

ola

Mic

roso

ft

Toyo

ta

IBM

Sam

sung

Am

azon

Mer

cede

s

GE

BM

W

McD

onal

ds

Interbrand Brand Valuation: Overview



Brand segmentation 0

1 Financial analysis 2 Demand analysis 3 Strength analysis

4

Present value of future brand (segment) revenues

Brand risk (discount

Branded

Interbrand Brand Valuation: Financial and Demand Analysis



Phase 1: Financial analysisFuture revenues of brand./. necessary costs to achieve brand revenues./. taxes and capital costs for working and invested capital (weighted

average cost of capital, WACC) EVA (Economic Value Added)

Phase 2: Demand analysis − role of brand in industry• Determination and weighting of drivers of customer demand (e.g.

price, quality, distribution coverage)• Evaluation of role of brand for each of these drivers• Aggregation of total role of brand„Role of brand index“in %

• Multiplication of EVA with role of brand index= Branded Earnings (= future brand revenues)

Interbrand Brand Valuation: Brand Strength Score



r

i

Bra

r nan

dd

Interbrand Brand Valuation: Brand Risk

Marketing Management Control

Riskless interestrate

Discount rate

Industry WACC

D credit- worthiness

Source: Interbrand Zinzmeyer & Lux. Brand strength score

Prof. Dr. Sven Reinecke

Interbrand Brand Valuation: Brand Calculation


YearRevenue Operating costs

Operating capital

Interest rate (15 %) Discount factor Discounted brand revenues

Cash value until 2008 Continuing value (growth rate = 2 %)Net present value of brand segment

Source: Interbrand Zinzmeyer & Lux.

Interbrand Brand Valuation: Brand Calculation


Prof. Dr. Sven Reinecke

Interbrand Brand Valuation: Evaluation


+ feasible model using "financial logic"+ well-known, high number of practiced evaluations+ differentiation of brand segments

– typical problems of scoring models:– subjectivity: selection and weighting of indicators?

(e.g. brand support is an input factor, not an outcome)

– independence of indicators (correlations?)

– arbitrary fixing of S-curve (interest rates)– interconnection of brand value and tax system

Interbrand Brand Valuation: Evaluation


Stock Market Reactions on Brand Value Announcements

it is stronger in periods with higher investor riskaversion.

Source: Dutordoir et al., IJRM 2015.


Significant and abnormal stock price reactions on brand value announcement days

Shareholders put more weight on brand value information for companies with lower cash levels, lower industry concentration, higher market to book ration and

Evaluation of Indicator-Based Methods of Brand Valuation

High feasibility, suitable for portfolio models

Basic assumptions are very simplistic, seldom empirically based, unsatisfying operationalization

Partly missing consistency, subjective selection of indicators and weighting

Seldom financial calculation of brand equity(exception: e.g. Interbrand)

Brand Equity-Rankings

„Science is somewhat fascinating.Such a small investment of facts yields to impressive predictions.”

Mark Twain

Brand Valuation: Limitations

Challenges of financial calculations:• strong systematic measurement error

- reliablity?- validity?

Challenges of behavioristic brand valuation:• operationalization• missing objectivity

Solution:• multi-method-approach

• expert opinions

Overview




IV. Conclusions

Determinants of Brand Equity & Brand Value

Brand knowledgeAwareness

Degree of

Image• perceived quality• other associations

X

Size of

Size and quality of customer

base

Brand strength/

Uniqueness competence field equity

Loyality

-Brand protection

Source: Tomczak.

Degree of Brand Awareness

Exclusiveawareness

Top of mind

Unaided awareness

Aided awareness

unknown

Markenwissen

Brand knowledge

Brand awarenessBrand imageTypes, intensity, degree, number, relevance, uniqueness ofassociations

Soruce: Keller 1993; Esch 1993

Quantity and Quality of Customer Base

Only people in

Switzerland Almost every men

Overview

IV. Conclusions




Brand Valuation: Conclusions

The financial brand value (= brand equity) is helpful in specific situations (e.g. mergers & acquisitions, licensing, legal cases). Otherwise it should be interpreted in the long run only (trend analysis) due to severe systematic measurement errors.

For brand management, the multi-dimensional brand strength (awareness, brand associations, competence field) is much more important that the financial brand equity.

For a sound brand valuation a multi-method-approach is recommended.

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