Aswath Damodaran, Professor of Finance at NYU Stern discussed how to valuate a brand at the L2 Innovation Forum.

1. Aswath Damodaran
The value of a brand name:
Thoughts on “luxury” marketing
It is not rocket science…
Aswath Damodaran
http://www.damodaran.com

2. Aswath Damodaran
Is the price difference here for brand name?
Dell 15” Laptop
$ 800
Apple 15” Mac Book Pro
$ 1200

3. Aswath Damodaran
How about in this case?
Honda Acura
$ 50,000
Ferrari
$ 250,000

4. Aswath Damodaran
And this?
Rolex Oyster
$ 10,000
Fake Rolex Oyster
$125

5. Aswath Damodaran
I know you are getting tired… but one final test…
CVS Aspirin
$1.50/100
Bayer Aspirin
$ 6.79/100

6. Aswath Damodaran
The power of a brand name
One of the benefits of having a well-known and respected brand name
is that firms can charge higher prices for the same products, leading to
higher profit margins. The larger the price premium that a firm can
charge, the greater is the value of the brand name.
In practice, people attribute to brand name value what should really be
attributed to product quality, styling, service and reliability.
Brand name value is easiest to compute for products and services
where the only or primary reason for price differences is brand name
(and not quality or service or other product characteristics).

7. Aswath Damodaran
Here is my example…
Coca Cola
$ 4.00/ 6 pack
Generic Cola
$ 2.00/ 6 pack

8. Aswath Damodaran
The Value of a Brand Name
Coca Cola With Cott
Margins
Current Revenues = $21,962.00 $21,962.00
Operating Margin (after-tax) 15.57% 5.28%
Sales/Capital (Turnover ratio) 1.34 1.34
Return on capital 20.84% 7.06%
Growth rate during period (g) = 10.42% 3.53%
Cost of Capital during period = 7.65% 7.65%
Value of Firm = $79,611.25 $15,371.24
Value of brand name = $79,611 -$15,371 = $64,240 million

9. Aswath Damodaran
Propositions about brand name value
Proposition 1: Brand name value is one of the most sustainable competitive
advantages in business.
Proposition 2: Creating a significant brand name is as much a function of luck
and serendipity as it is of advertising.
Proposition 3: The value of a brand name rests on illusion. Preserve the
illusion.
• The Coca Cola Corollary: Taste does not matter
• The Tiger Woods Corollary: As a general rule, tying your brand name value to a
brand name spokesperson can be a dangerous proposition. While there may synergy
involved, damage to the spokesperson can damage the brand name.
Proposition 4: Even valuable brand names can lose value, if they are not
nurtured and treated as significant assets.
• The Diffusion factor: Brand name value does not always travel well across products
and regions.
• Measurement factor: Letting accountants put a value for brand name will lead to
management by accounting value, a recipe for disaster.

10. Aswath Damodaran
Propositions about brand name value
Proposition 1: Brand name value is one of the most sustainable competitive
advantages in business.
Proposition 2: Creating a significant brand name is as much a function of luck
and serendipity as it is of advertising.
Proposition 3: The value of a brand name rests on illusion. Preserve the
illusion.
• The Coca Cola Corollary: Taste does not matter
• The Tiger Woods Corollary: As a general rule, tying your brand name value to a
brand name spokesperson can be a dangerous proposition. While there may synergy
involved, damage to the spokesperson can damage the brand name.
Proposition 4: Even valuable brand names can lose value, if they are not
nurtured and treated as significant assets.
• The Diffusion factor: Brand name value does not always travel well across products
and regions.
• Measurement factor: Letting accountants put a value for brand name will lead to
management by accounting value, a recipe for disaster.