FEATURE14 September 2015

What insight managers need to know about brand valuation

Features

Companies no longer underestimate the power and importance of their intangible assets, including their brands, and brand strength has become a boardroom issue. Millward Brown’s Amanda Phillips offers her guide to brand valuation.

Companies no longer underestimate the power and importance of their intangible assets, including their brands, and brand strength has become a boardroom issue. Millward Brown’s Amanda Phillips offers her guide to brand valuation.

A comprehensive measure or valuation of a brand plays an important role in giving insight teams and marketers a firm financial figure to take to CFOs, CEOs and the board. But there are many ways to measure the real value of ‘brand’. It’s a subjective exercise, and there are a number of different approaches developed and carried out by different specialist consultancies.

These guidelines will help insight managers understand what’s important when selecting the right methodology for their business.

Brands need to be valued

Millward Brown analysis shows that more than 30% of a business’ shareholder value is driven by brand, while the additional value realised by brands is as much as 50% of intangible capital. Year after year, the stock prices of companies that own the world’s strongest brands outperform the markets. Over the past 10 years, the share price of a ‘stock portfolio’ made up of brands from the BrandZ Top 100 has risen over three times more than the MSCI World Index, and two thirds more than the S&P500.

This is why more investment banks, financial analysts and private equity investors want to take brand into account when they’re reviewing the financial and market data on the companies and sectors they cover.

Impact on competitive advantage

As well as having a direct impact on revenues and profit margins, brands increase competitive advantage through a number of value drivers with which all finance and business managers are familiar – such as the ability to carve out a leadership position and command a price premium.

Many boardrooms continue to rely on the Net Promoter Score (NPS) as a leading indicator of consumers’ affinity towards a brand and, in turn, its performance.

To position a brand for future growth, however, more sophisticated measures are needed. A valuation that equips leadership teams with one score which combines how well a brand meets category needs versus competitors, whether it comes to mind quickly and easily when it counts, and whether it feels different and sets trends in its category will be more valuable in determining future business performance. 

Guide to growth

Brand valuation gives the business a broader understanding of how much its brands contribute to revenues and growth. This can be compared against other brands, and used to make faster, better-informed decisions about how to manage the brand for business success. It provides marketers with a tool they can use to benchmark their activities, and plan and deliver campaigns that leverage and build the brand in ways that will add value.

Methodologies are similar – but different

Just like valuations placed on company shares by different investors, or on a house by different estate agents, one consultancy’s brand valuation will differ from the next.

Most use financial research and mathematical formulae to calculate current and future earnings that can be attributed directly to a brand rather than the corporation. Others are based on opinions gathered through peer reviews. There may also be variations in the way brands are treated: some valuations measure the entire portfolio of a company (its ‘corporate’ brand) while others assess each brand within a portfolio individually.

Consumer opinion must be heard

Analysis of corporate financial data and projections, alongside market data, is an essential ingredient of identifying what a brand is worth.

The picture will be incomplete, however, without the views of the people who buy brands. Ongoing, in-depth quantitative research that assesses consumers’ attitudes, perceptions and relationships with brands is a vital part of an accurate valuation methodology. This will reveal the power of the brand in the mind of the consumer – which is where, after all, brands live. That power is what predisposes people to buy, and is an indicator of their likely ultimate purchasing behaviour.

Instead of estimating the strength of consumer desire for a brand, surveys objectively measure this predisposition to buy and – based on the strength of that predisposition relative to the brand’s competitive set – estimate the likelihood that the brand will grow or decline over time. This is more accurate than using comparables or ‘expert opinion’ to determine future demand and sales performance.

By selecting the right approach to brand valuation, insight managers give marketers – as well as their own function – a voice in the boardroom, making it possible to demonstrate the benefits that brand brings to their business, and its potential for growth. This will go a long way to ensuring that marketing is better understood and accounted for by the business as a key driver, alongside more direct sales activities and business partnerships, of financial success.

Amanda Phillips is head of UK marketing at Millward Brown

 

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