The International. Brand Valuation. Manual. A Complete Overview and Analysis
of. Brand Valuation Techniques,. Methodologies and Applications. Gabriela ...
The International Brand Valuation Manual A Complete Overview and Analysis of Brand Valuation Techniques, Methodologies and Applications Gabriela Salinas
)WILEY A John Wiley &. Sons, Ltd., Publication
Contents
LIST OF FIGURES AND TABLES FOREWORD ACKNOWLEDGEMENTS INTRODUCTION 1 THE CONCEPT AND RELEVANCE OF BRAND 1.1
THE CONCEPT OF BRAND
1.1.1
1.1.2 1.1.3 1.1.4
xiii xix xxiv xxvi 1 1
The accounting perspective 2 1.1.1.1 The biqnd as an intangible asset 2 1.1.1.2 Non-recogniza ble intangible assets: Internally generated brands 4 1.1.1.3 Trademark, brand and branded business 5 The economic perspective 7 1.1.2.1 Economic vs. accounting criteria 7 The management perspective 8 1.1.3.1 Brand and corporate reputation 8 1.1.3.2 Brand and visual identity 11 Brand, intangible assets and intellectual capital - Everyday vocabulary and conflated terms 12 1.1.4.1 Brand equity and intangible assets 12 1.1.4.2 Brand, intangible assets and intellectual capital 14
vi / CONTENTS
1.2
BRAND VALUE
1.2.1 1.2.2 1.3
1.4
18
What is brand value! How do brands create value!
THE GROWING IMPORTANCE OF THE ECONOMIC VALUE OF BRAND
20
1.3.1 1.3.2 1.3.3 1.3.4 1.3.5
20 22 22 24 30
Business evidence Social evidence Economic evidence Normative and institutional evidence Academic evidence
Origins: The series of acquisitions in the 1980s The first brand valuation: Rank Hovis McDougall The accounting conflict generated by brand capitalization Rapid development and applications Who values brands today! How do corporations use this tool! How do investment analysts use this information! How do other players use this information!
CONCLUSIONS
33 33
33 35 36 37 38 40 41 43 45
BRAND VALUATION METHOD AND PROCESS 3.1
18 19
47
BRAND VALUATION PROCESS
47
3.1.1 3.1.2
48
3.1.3
What is brand valuation! The current debate: Why bother with brand valuation! The purpose of brand valuation 3.1.3.1 3.1.3.2 3.1.3.3
3.1.4
Brand management Accounting purposes . Internal or external transaction purposes
Defining the scope of valuation and the concept of brand
48 50 51 52 52
54
CONTENTS / vii
3.1.5 3.2
Choosing an appropriate methodology
CONCLUSIONS
4 GENERAL APPROACHES TO BRAND VALUATION 4.1 4.2 4.3
COST APPROACH MARKET APPROACH INCOME APPROACH
54 56
57 58 61 63
4.3.1 4.3.2 4.3.3 4.3.4
Price premium 65 Royalty savings 70 Demand drivers/brand strength analysis 82 Comparison of gross margin with that of relevant competitors 89 4.3.5 Comparison of operating profit with that of relevant competitors 91 4.3.6 Comparison with theoretical profits of a generic product 92 4.3.7 Cash flow or income differences with a benchmark company ("subtraction approach") 94 4.3.8 Present value of incremental cash flow (the company's value "with" and "without" brand) 95 4.3.9 Free cash flow (FCF) less required return on other non-brand-related assets 96 4.3.10 Excess earnings 96 4.3.11 Company valuation less value of net 102 tangible assets > 4.3.12 Real options 103 5 BRAND VALUATION METHODS AND PROVIDERS 5.1 ABSOLUTEBRAND 5.2 AUS CONSULTANTS 5.3 BBDO 5.3.1 Brand Equity Evaluation System (BEES) 5.3.2 Brand Equity Evaluator® 5.3.3 "Brand Equity Valuation for Accounting" (BEVA) 5.4 BRANDIENT 5.4.1 Brandient's model based on demand driver analysis 5.4.2 Brandient's model based on royalty savings
Royalty savings model based on Valmatrix® analysis . ValCALC® model (excess earnings) BVEQ™ model (core brand value plus the value of incremental efficiencies) Residual approach (market cap less the value of tangible assets)
DAMODARAN'S VALUATION MODEL FINANCIAL WORLD FUTUREBRAND GFK-PWC-SATTLER: ADVANCED BRAND VALUATION MODEL HERP'S MODEL HIROSE MODEL HOULIHAN ADVISORS INTANGIBLE BUSINESS INTERBRAND
KERN'S X-TIMES MODEL LEV'S INTANGIBLES SCOREBOARD MILLWARD BROWN OPTIMOR MOTAMENI AND SHAHROKHI'S GLOBAL BRAND EQUITY VALUATION MODEL PROPHET REPENN'S BRAND VALUATION MODEL (SYSTEM REPENN) SANDER'S HEDONIC BRAND VALUATION METHOD SATTLER'S MODEL SEMION ' SIMON AND SULLIVAN'S STOCK PRICE MOVEMENTS MODEL THE NIELSEN COMPANY: BRAND BALANCE SHEET AND BRAND PERFORMANCE
5.29.1 The Nielsen Company: Brand Balance Sheet 5.29.2 The Nielsen Company's Brand Performance 5.30 5.31
275 277
TROUT & PARTNERS VLLLAFANE & ASSOCIATES' COMPETITIVE EQUILIBRIUM MODEL OTHER BRAND VALUATION PROVIDERS AND MODELS CONCLUSIONS .
281
6 A TAXONOMY OF BRAND VALUATION METHODS
295
5.32 5.33
6.1 6.2
6.3 6.4 6.5 6.6 6.7 6.8
BY USE OF FINANCIAL OR NON-FINANCIAL INDICATORS BY APPLICATION OR POSSIBLE OBJECTIVES CLASSIFICATION PROPOSED BY BBDO CLASSIFICATIONS BASED ON MIXED CRITERIA BY INTENDED UNIVERSALITY OF THE CALCULATED VALUE BY ITS NATURE OR ORIGIN (ACADEMIC VS. COMMERCIAL) BY APPROACH EMPLOYED (COST, MARKET AND INCOME) BY METHOD OF DETERMINING THE PROPORTION OF INCOME OR REVENUES ATTRIBUTABLE TO BRAND
Demand driver analysis Ratio of loyal consumers to total consumers , Price premium Excess earnings Royalty rates Operating profits comparison Comparison with theoretical earnings yielded by a generic product Comparison of the cash flows of branded and unbranded companies Difference in price to sales ratios Economies of scale Differences in cash flow with a benchmark company CVH (Conjoint Value Hierarchy) Free cash flow less required return on assets other than brand Arbitrary constant coefficients
Proliferation of proprietary methods and brand valuation firms Lack of understanding and credibility among brand valuation users Commercial and academic concentration in Anglo-Saxon countries Increasing professionalism in the sector and sophistication of brand valuation techniques Growing convergence between marketing specialists and corporate finance experts Widespread use of certain models among practitioners Financial validity vs. widespread usage of models among practitioners • Worlds apart: the academic and practitioners' realms The third world: "black box" methods Vast inconsistency in the application of various brand valuation techniques Differences in implementation Diversity and divergence of results yielded by different methods Determining useful life 4 Determining discount rates
COMMON ERRORS AND MISCONCEPTIONS IN BRAND AND INTANGIBLE ASSET VALUATION
350
7.2.1
350
Conceptual errors
CONTENTS / xi
7.2.2 7.2.3 7.3
Errors in management Errors in interpretation
CONCLUSIONS
IS CORPORATE BRAND VALUATION POSSIBLE? 8.1 8.2 8.3 8.4
WHAT IS "CORPORATE BRAND/' AND IS IT THE SAME AS "CORPORATE REPUTATION?" WHY VALUE CORPORATE BRANDS? METHODOLOGICAL OPTIONS PROPOSED FOR CORPORATE BRAND VALUATION MODELS BASED ON THE CONCEPT THAT "CORPORATE BRAND OR REPUTATION" ADDS VALUE TO PRODUCT BRANDS
8.4.1 8.4.2 8.4.3 8.4.4 8.5
MODEL BASED ON THE COMPANY VALUE'S SENSITIVITY TO VARIATIONS IN "CORPORATE BRAND OR REPUTATION" VALUE
8.5.1 8.5.2 8.5.3 8.5.4 8.6
Assumptions Empirical development Theoretical model Critique
COREBRAND'S MODEL FOR MEASURING THE PERCENTAGE OF MARKET CAPITALIZATION ATTRIBUTABLE TO CORPORATE BRAND
8.6.1 8.6.2 8.6.3 8.6.4 8.6.5 8.7
Association-Affinity Model Critique Model based on demand analysis Critique
Brand Power™ Analysis ROI Analysis Brand Equity Valuation Model Stock performance forecast Critique
CONCLUSIONS
THE FUTURE OF BRAND VALUATION 9.1
9.2 9.3
THE PROSPECT OF METHODOLOGICAL CONSENSUS: STANDARDIZATION VS. AFFINITY OF APPLICATIONS AND METHODS FUTURE TRENDS IN THE SUPPLY AND DEMAND OF BRAND VALUATION SERVICES ACCOUNTING USERS: FINANCIAL OFFICERS' DISCOMFORT
356 358 359
363 364 365 366
369
369 372 373 374
376
376 379 381 386
388 389 390 390 391
392 395 397
397 399 402
x i i / CONTENTS
9.4
9.5
MARKETING SPECIALISTS: USING VALUATION PRUDENTLY AND FOUNDING A NEW LANGUAGE COMPATIBLE WITH FINANCE REGULATORS: BEHIND THE SCENES, BUT WITH GREAT CONFIDENCE
