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Brand Valuation – How Much Are Brands Worth?
A White Paper By Paul Hague Of B2B International Market Research
What Is A Brand?
Page
  2

                                          We all understand what brands are.
                                          We buy them every day. However,
                                          what is the best definition of a
                                          brand.

                                          It is important to say what a brand is
                                          not:

                                          • It is not just a logo
                                          • It is not just a name
                                          • It is not just a product
                                          When we think of a brand we have an
                                          expectation of what we will receive.

                                          Therefore, the definition that we like
                                          is - a brand is a promise delivered.




                          Brand Valuation: How Much Are Brands Worth? – © B2B International Market Research
Value Perceptions
Page
  3               A good brand has a value and research must try and put a
                  figure on this. For example we can give people 100 points to
                  spend to indicate the weight of different factors that influence
                  their choice of products – price, reliability, product quality,
                  service and of course brand. In business to business markets
                  it is typical that the brand receives only 5 to 10% of the points
                  spend. In consumer markets this figure could be 20 to 30% or
                  even more.

                  When people are asked to place a monetary value on a car
                  (the same car is used in the photographs but different badges
                  are superimposed on the bonnet (hood) to suggest it is a
                  different brand) the Mercedes brand is seen to be worth more
                  than that of Ford and the Ford brand is perceived to be worth
                  more than the Chinese brand.

                  Brands very much influence our price perceptions and if we
                  can raise these perceptions at all, it is equivalent to obtaining a
                  price increase.



                                    Brand Valuation: How Much Are Brands Worth? – © B2B International Market Research
Goodwill & The Value Of Brands
Page
  4




        • Over time, companies build up goodwill which reflects the intangible value that
           comes from the loyalty of customers. Loyal customers who insist on doing business
           with a company to the exclusion of other companies are valued highly. There is
           therefore an important link between goodwill and brands.

        • Nowadays goodwill includes any intangibles that can earn a company profits that
           are over and above what could be achieved from a company’s tangible assets
           alone. This concept of goodwill signifies that it is an asset like any other asset.

        • At the time a company is sold, the real value of goodwill will be realised as it is the
           difference between the tangible assets and the amount that somebody is prepared
           to pay for the company. And before a company is sold, this asset may go
           unrecognized on the balance sheet.


                                                Brand Valuation: How Much Are Brands Worth? – © B2B International Market Research
Valuing Brands
Page
  5           Top 20 world brands - 2011      Over the last few years there have been many
                                              listings of the value of brands. The figure on
                                              the left shows the listing of the global Top 20
                                              brands according to Millward Brown Optimor.
                                              This brand valuation model is similar to listings
                                              by other brand measurement companies such
                                              as Interbrand.

                                              2011 saw big changes in the importance of
                                              brands from the developing world. China now
                                              has 12 brands in the top 100, up from 7 a year
                                              ago. And of the 11 new entrants to the top-100
                                              list, 7 come from the so-called BRIC countries:
                                              Brazil, Russia, India, China.

       The valuation of brands is contentious because it is based on subjective criteria and
       the brand valuations swell the values of companies’ balance sheets and their share
       values. However, in today’s world, brands (especially big consumer brands) have their
       own special status and are not necessarily treated as part of the goodwill.



                                             Brand Valuation: How Much Are Brands Worth? – © B2B International Market Research
Brand Vulnerability
                       • Brands are dependent on people’s perceptions and
Page
  6
                          are vulnerable. Brands are built on spoonful's of
                          trust that can be destroyed by one false move.
                       • Perrier, one of the world’s leading suppliers of
                          bottled water, suffered an embarrassing blow to its
                          reputation in 1990 when a North Carolina study
                          reported benzene in their product. At first Perrier
                          tried to wriggle out of any culpability with various
                          explanations. They finally had to admit that it was an
                          isolated incident of a worker having made a mistake
                          in the filtering procedure and that the spring itself
                          was completely unpolluted.
                       • In order to retrieve their brand position of purity,
                          Perrier recalled 160 million bottles of water.
                       • There is no doubt that if this event had taken place
                          at a time when the Perrier company was being sold,
                          it would have knocked millions of dollars off the
                          purchase price.


                                Brand Valuation: How Much Are Brands Worth? – © B2B International Market Research
Brands On The Balance Sheet
Page
  7

                                                 • The capitalisation of a company's brand
                                                     value on the balance sheet is contentious
                                                     as it requires the brand to be separated
                                                     out from the other intangibles and, as in
                                                     the case of the Perrier problem, the brand
                                                     value can melt away quickly.

                                                 • So, whether or not the value of a brand
                                                     can be separately assessed realistically,
                                                     remains a problem of confirming or
                                                     reassessing its value each year.

       • Assessing the value of assets can be difficult on other parts of the balance sheet.
          For example, property is a significant asset and yet its valuation can also fluctuate
          widely from year to year. The difference in the case of brands is the lack of an
          efficient market for them. The procedures and practices of valuation in this area
          are not yet agreed.



                                                 Brand Valuation: How Much Are Brands Worth? – © B2B International Market Research
Industrial Brands
Page   • This presentation has argued strongly that brands have a value that can be built up
  8       over time. The value of a company’s brands can be assessed and put on the balance
          sheet with just as much legitimacy as any other asset.

       • In the past, goodwill on the balance sheet incorporated the value of brands. Today, the
          intangible value of brands are just as important as a company’s physical assets.
          However, we have yet to see this translated into the balance sheets of business to
          business or industrial companies because it is assumed (wrongly) that these
          organisations do not have brands that significantly influence the buying decision.
                     Influence on the
                     buying decision

                                                         Ra tiona l influences on the
                                 70%
                                                               buying decis ion




                                        Emotiona l influences on the
                                             buying decis ion                                           10%


                                                                     Strategic b2b           Basic
                                        Luxury                        goods and            goods and
                                                      Cars
                                        goods                           services            services



                                                        Brand Valuation: How Much Are Brands Worth? – © B2B International Market Research
Branding in B2B Markets
Page
  9    • In business to business markets the name
          of a company is usually the umbrella brand
          under which all products are sold. Thus,                       A 10% increase in the value
          the main brand of the company and its                          of a brand is equal to a 10%
          operating name are intrinsically linked.                       price increase and we know
                                                                         what that does to profits!
       • For many companies, B2B branding
          equates to having product names that they
          call brands but which are simply labels by
          which the products are ordered.

       • The value of a business to business
          company lies in its incorporated name and
          this has a real value that should carry a
          premium.

       • Industrial companies need to wise-up to the
          opportunity of increasing their brand
          values.



                                                  Brand Valuation: How Much Are Brands Worth? – © B2B International Market Research
Thank you for reading our White Paper on Brand
                                     Valuation Methods and Brand Equity Research.
Page
10                                   To access further white papers and publications by
                                     B2B International, please visit:
                                     http://www.b2binternational.com/publications/

                                     Keep up-to-date with industry developments and
                                     news by following our blog:
                                     http://www.b2binternational.com/b2b-blog/

                                     Find out what’s going on at B2B International by
                                     following us on Twitter:
                                     @B2B_Insight




       Head Office        Tel          +44 (0)161 440 6000
       Bramhall House     Fax          +44 (0)161 440 6006
       14 Ack Lane East
       Bramhall           E-mail:      info@b2binternational.com
       Stockport          Website:     www.b2binternational.com
       Manchester
       SK7 2BY
       UK

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Brand Valuation - How Much Is A Brand Worth?

  • 1. Brand Valuation – How Much Are Brands Worth? A White Paper By Paul Hague Of B2B International Market Research
  • 2. What Is A Brand? Page 2 We all understand what brands are. We buy them every day. However, what is the best definition of a brand. It is important to say what a brand is not: • It is not just a logo • It is not just a name • It is not just a product When we think of a brand we have an expectation of what we will receive. Therefore, the definition that we like is - a brand is a promise delivered. Brand Valuation: How Much Are Brands Worth? – © B2B International Market Research
  • 3. Value Perceptions Page 3 A good brand has a value and research must try and put a figure on this. For example we can give people 100 points to spend to indicate the weight of different factors that influence their choice of products – price, reliability, product quality, service and of course brand. In business to business markets it is typical that the brand receives only 5 to 10% of the points spend. In consumer markets this figure could be 20 to 30% or even more. When people are asked to place a monetary value on a car (the same car is used in the photographs but different badges are superimposed on the bonnet (hood) to suggest it is a different brand) the Mercedes brand is seen to be worth more than that of Ford and the Ford brand is perceived to be worth more than the Chinese brand. Brands very much influence our price perceptions and if we can raise these perceptions at all, it is equivalent to obtaining a price increase. Brand Valuation: How Much Are Brands Worth? – © B2B International Market Research
  • 4. Goodwill & The Value Of Brands Page 4 • Over time, companies build up goodwill which reflects the intangible value that comes from the loyalty of customers. Loyal customers who insist on doing business with a company to the exclusion of other companies are valued highly. There is therefore an important link between goodwill and brands. • Nowadays goodwill includes any intangibles that can earn a company profits that are over and above what could be achieved from a company’s tangible assets alone. This concept of goodwill signifies that it is an asset like any other asset. • At the time a company is sold, the real value of goodwill will be realised as it is the difference between the tangible assets and the amount that somebody is prepared to pay for the company. And before a company is sold, this asset may go unrecognized on the balance sheet. Brand Valuation: How Much Are Brands Worth? – © B2B International Market Research
  • 5. Valuing Brands Page 5 Top 20 world brands - 2011 Over the last few years there have been many listings of the value of brands. The figure on the left shows the listing of the global Top 20 brands according to Millward Brown Optimor. This brand valuation model is similar to listings by other brand measurement companies such as Interbrand. 2011 saw big changes in the importance of brands from the developing world. China now has 12 brands in the top 100, up from 7 a year ago. And of the 11 new entrants to the top-100 list, 7 come from the so-called BRIC countries: Brazil, Russia, India, China. The valuation of brands is contentious because it is based on subjective criteria and the brand valuations swell the values of companies’ balance sheets and their share values. However, in today’s world, brands (especially big consumer brands) have their own special status and are not necessarily treated as part of the goodwill. Brand Valuation: How Much Are Brands Worth? – © B2B International Market Research
  • 6. Brand Vulnerability • Brands are dependent on people’s perceptions and Page 6 are vulnerable. Brands are built on spoonful's of trust that can be destroyed by one false move. • Perrier, one of the world’s leading suppliers of bottled water, suffered an embarrassing blow to its reputation in 1990 when a North Carolina study reported benzene in their product. At first Perrier tried to wriggle out of any culpability with various explanations. They finally had to admit that it was an isolated incident of a worker having made a mistake in the filtering procedure and that the spring itself was completely unpolluted. • In order to retrieve their brand position of purity, Perrier recalled 160 million bottles of water. • There is no doubt that if this event had taken place at a time when the Perrier company was being sold, it would have knocked millions of dollars off the purchase price. Brand Valuation: How Much Are Brands Worth? – © B2B International Market Research
  • 7. Brands On The Balance Sheet Page 7 • The capitalisation of a company's brand value on the balance sheet is contentious as it requires the brand to be separated out from the other intangibles and, as in the case of the Perrier problem, the brand value can melt away quickly. • So, whether or not the value of a brand can be separately assessed realistically, remains a problem of confirming or reassessing its value each year. • Assessing the value of assets can be difficult on other parts of the balance sheet. For example, property is a significant asset and yet its valuation can also fluctuate widely from year to year. The difference in the case of brands is the lack of an efficient market for them. The procedures and practices of valuation in this area are not yet agreed. Brand Valuation: How Much Are Brands Worth? – © B2B International Market Research
  • 8. Industrial Brands Page • This presentation has argued strongly that brands have a value that can be built up 8 over time. The value of a company’s brands can be assessed and put on the balance sheet with just as much legitimacy as any other asset. • In the past, goodwill on the balance sheet incorporated the value of brands. Today, the intangible value of brands are just as important as a company’s physical assets. However, we have yet to see this translated into the balance sheets of business to business or industrial companies because it is assumed (wrongly) that these organisations do not have brands that significantly influence the buying decision. Influence on the buying decision Ra tiona l influences on the 70% buying decis ion Emotiona l influences on the buying decis ion 10% Strategic b2b Basic Luxury goods and goods and Cars goods services services Brand Valuation: How Much Are Brands Worth? – © B2B International Market Research
  • 9. Branding in B2B Markets Page 9 • In business to business markets the name of a company is usually the umbrella brand under which all products are sold. Thus, A 10% increase in the value the main brand of the company and its of a brand is equal to a 10% operating name are intrinsically linked. price increase and we know what that does to profits! • For many companies, B2B branding equates to having product names that they call brands but which are simply labels by which the products are ordered. • The value of a business to business company lies in its incorporated name and this has a real value that should carry a premium. • Industrial companies need to wise-up to the opportunity of increasing their brand values. Brand Valuation: How Much Are Brands Worth? – © B2B International Market Research
  • 10. Thank you for reading our White Paper on Brand Valuation Methods and Brand Equity Research. Page 10 To access further white papers and publications by B2B International, please visit: http://www.b2binternational.com/publications/ Keep up-to-date with industry developments and news by following our blog: http://www.b2binternational.com/b2b-blog/ Find out what’s going on at B2B International by following us on Twitter: @B2B_Insight Head Office Tel +44 (0)161 440 6000 Bramhall House Fax +44 (0)161 440 6006 14 Ack Lane East Bramhall E-mail: info@b2binternational.com Stockport Website: www.b2binternational.com Manchester SK7 2BY UK