Want to keep learning?

This content is taken from the Darden School of Business, University of Virginia's online course, Marketing Analytics. Join the course to learn more.

Skip to 0 minutes and 1 second Okay, now that we worked on some fun stuff like brand personalities, brand architecture, let’s do some real work now. Let’s do some hard work here, let’s understand how to measure all of these. What is the financial value of all of this brand personality? How does a brand add value to a firm? A really famous brand valuation model is called the Interbrand brand valuation model. Interbrand is a consulting company that does this over a lot of years. And it comes out with this ranking of the most valuable brands. And this is what they published as how they value the brand.

Skip to 0 minutes and 43 seconds So let’s walk through this flow chart here and understand what are the different components, and how they eventually lead to brand value, a dollar value of the brand. These things are really important because they then get used in mergers and acquisitions, when companies are trying to buy each other, when they have to value the asset of the company. The brand value becomes a big asset that they really need a good evaluation on. So let’s walk through this here and see how Interbrand does its brand evaluation model. So there are three components to this brand valuation model. We have the financial analysis, the market analysis, and the brand analysis.

Skip to 1 minute and 28 seconds So the market analysis and brand analysis, Interbrand does through surveys of consumers.

Skip to 1 minute and 37 seconds Financial analysis comes from company’s balance sheet.

Skip to 1 minute and 46 seconds The way it works is, you look at a balance sheet and you identify the residual earnings and forecast of the balance sheet. How much is the residual earnings that are remaining in the balance sheet after accounting for income and other capital assets that are known. And from there, you are then merging that residual analysis and residual earnings with market analysis, how important is a brand in this market. If you are a beverage, maybe a brand is really important, versus if you are a chemicals company. So the importance of a brand is then merged to see what part of the residual earnings is due to a brand.

Skip to 2 minutes and 32 seconds And then the next part of the service is from what is called the brand analysis. So in this, they’re looking at, what is the strength of the brand, how strong is the brand’s relationship with these consumers. And they do this through surveys of consumers, and they identify a risk rate. That is, how strong is the brand going to be in the future. So then they merge this value of a brand on the firm’s residual earnings and the risk rate. That is, how well is this relationship that the consumer has with the brand. So think of the, and then match these two to form the brand value.

Skip to 3 minutes and 18 seconds So think of brand earnings as the current value of the brand, and the risk rate is how volatile or risky the brand is going to be going into the future. So you merge these two, you get the net present value, or the total value of the brand looking into the future. Okay, so let’s look at some of these brand values, how much they are, are they millions or billions? Let’s look at the top ten most valuable brands, according to Interbrand. Ta-da, as of 2014, the biggest brand is probably no guess, Apple, second is Google, third is Coca-Cola, and look at the values here.

Skip to 4 minutes and 5 seconds The number up there is in millions, for Apple, it’s about $118 thousand million, it’s a big value. Same with Google, Coca-Cola, and then if you go down the list you’ve got IBM, Microsoft, GE, Samsung, Toyota, McDonald’s, and Mercedes-Benz. These are the top brands in 2014, according to Interbrand, and this shows you how much valuable brands are to these companies. So this measure is really good, as I had told before, in terms of mergers and acquisitions. If somebody wants to buy Apple, who, I don’t know will do that, and who has so much money to buy that. But this is the value of the Apple logo, of the Apple brand, so that’s good, but this gives you just the financial value.

Skip to 5 minutes and 5 seconds If you’re a marketer, you also want to know what it really means, what can I do to the brand to improve it, but it doesn’t give me much diagnostics. For that, what I like is what is called a Young and Rubicam brand asset valuator. And that’s totally based on consumer surveys, and it has four different elements here. What they call as differentiation, how different is the brand from other brands in its competitive set? How relevant is the brand today to you, the consumer? Do you hold the brand in great esteem, and how much you know about the brand. So differentiation and relevance together, here, give the brand’s strength and vitality.

Skip to 5 minutes and 51 seconds Esteem and knowledge gives stature, and strength and stature gives you the asset, the value of the brand. So this is really in terms of marketing, it gives you how the brand is differentiated, is it relevant, what is the esteem and knowledge? All of these concepts packaged into what is called the asset of the brand. So why do I think it’s so useful for marketing, and why do you think it gives me diagnostics, let’s look at that. If you think about differentiation, it is the brand’s point of difference, relevance, how appropriate the brand is to you. Esteem, do we regard this brand in good esteem, and knowledge, how much we know.

Skip to 6 minutes and 35 seconds So, the way the brand asset valuator makes a really useful for marketers and gives good diagnostics is, if you could do a two by two by cross tabulating brand stature and brand strength. So if you take these two things, brand stature is esteem and knowledge, the value of the brand on esteem and knowledge is then cross tabulated with the value of the brand strength, which is the differentiation and relevance. You get four quadrants, and these quadrants are really diagnostic for how marketers approach a brand. Let’s start with, say, this aspiring brand which is high on brand strength but probably low on brand stature.

Skip to 7 minutes and 21 seconds This aspiring brand is highly differentiated, but as you can see, it is low on relevance, on esteem and knowledge. At the same time, the exact opposite would be an eroding brand, which is high on knowledge, But is low on everything else, and it’s really low on differentiation. And let’s go to the other side here, a fading brand, maybe it has some differentiation. But it is low on relevance, esteem, and knowledge. A power brand is one which is high on all four, highly differentiated, relevant, people hold it in high esteem, and people are knowledgable. Let’s say maybe we can call this, Red Bull is one example, or Apple, as we saw, in the Interbrand ranking over there.

Skip to 8 minutes and 26 seconds A brand on decline would be one which people are knowledgeable about. They hold it in very high esteem and it’s relevant, but the differentiation is just not there. And an unfocused brand is not good in anything. So if you’re a marketer, this really gives you the dimensions of how consumers hold your brand in. What is the relationship with the brand with the consumers, and, for example, it gives you good diagnostics too. So let’s look at aspiring brands, for example, this brand has good differentiation, but you need good advertising, for example, to build awareness.

Skip to 9 minutes and 11 seconds And you increase the knowledge of the brand that way, and then as consumers start using the brand, they start seeing that it is relevant, and over time, probably build esteem. You can see how these two evaluation methods are good complements. A Y&R brand asset valuator gives you diagnostics on what you need to do with the brand. It gives you the relationship of the brand with the consumer. But it not really gives you the dollar value, the financial value of brand, which the Interbrand rankings do. Interbrand gives you the financial value, and Y&R gives you what the value means in terms of relationship with the customers and gives good diagnostics.

Skip to 9 minutes and 55 seconds As both of them together complete the picture in terms of how to value a brand.

Measuring Brand Value

Learn about two ways brands are evaluated to measure their value. One method, Interbrand Brand Valuation Model, provides a picture of the brands financial value. The other, Y&R Brand Asset Valuator, provides some diagnostics to understand how to improve the brand.

Share this video:

This video is from the free online course:

Marketing Analytics

Darden School of Business, University of Virginia