You know how important your brand is for the success and value of your business. But, do you know how to calculate that value and turn it into profit?
Follow me throughout this article as I explain the calculations of brand valuation and how you can identify and quantify your brand assets to enhance and your business worth.
The purpose of brand equity metrics is to measure the value of a brand through considering brand features and trademarks such as know-how, IP assets, name, logo and other associated visual or sensory elements such as sound (Harley Davison), scent (Chanel No.5) and movement (Toyota).
There are three approaches to consider when you start analysing and advising on brand valuation:
Firm Level: A firm level approach measures the brand as a financial asset, using calculations to determine the worth of the brand as an intangible asset.
Product Level: The classic example of product level brand measurement is comparing the price of a no-name or private label product to an “equivalent” branded product. The price difference, assuming all factors are equal, is the result of the brand.
Consumer Level: This approach seeks to map the mind of the consumer to discover brand associations by measuring awareness (recall and recognition) and brand image (the overall associations with the brand). Brands with high levels of awareness and strong, favorable reputations have high brand equity.
Quantitative or qualitative?
To calculate brand value, we must also understand the essentials of qualitative and quantitative measures.
Brands are fiendishly complicated, elusive, slippery, half-real/ half-virtual things. So there is a natural difficulty of reconciling disconnect between and recognising both quantitative and qualitative equity values.
Quantitative brand equity: Includes numerical values such as profit margins and market share, but fails to capture qualitative elements.
Qualitative brand equity: Includes aspects such as prestige, recognition, desires, tastes, associations of interest and influence, are equally critical because brands that do not keep promises lose the trust of their devotees.
When applying this theory to your business, remember that Brand Value is a quantitative measure and includes the brand’s financial situation from an objective viewpoint; while Brand Strength is a qualitative measure and looks at the reputation and consumer perception of the brand.
You should value your IP like you would a physical asset – Protect and manage it.
A worked example
Your branding is a lynchpin for your overall company strategy. It defines your identity, both to your internal employees and your external customers.
Your identity as a company is composed of several interactive components, including:
- Your company name and tagline
- Your logo, signature graphics, and company colours
- Sounds and styles that characterize your company
- Your voice and tone of messaging
A brand audit is a good start. The following are some examples of brand collateral which you could include into your recognition and valuation process:
- Online engagement: blogs, social media, video content, e-newsletter, apps etc.
- Sales collateral
- Advertising and promotion materials
- Vehicle livery
- Direct marketing
- Press kits
- Press releases
- Business cards, letterheads
- Flagship locations: premises, offices, stores, etc.
The next step is to compute valuation.
There are three main types of brand valuation methods:
The cost approach: This is a good starting point, by collecting data as to the historical costs involved in creating your brand assets. However, this approach does not recognise creativity or future value.
The market approach: An alternative would be to collate costs from quotes to build an equivalent brand from scratch today.
The income approach: Here you would capitalise (compute the present value of) the historical costs.
This approach measures the value by reference to the present value of the economic benefits received and ongoing brand development and advertising costs to maintain brand status over the rest of the useful life of the brand.
A considered valuation may include all of the above elements.
When calculating brand value: intangible assets are typically worth much more than a basic equation of hours multiplied by charge-out rates.
Like brand image, consumers know that value-for-money is a calculation they make as individuals, often intuitively, and that price is just one part of that calculation.
That’s why brand valuation incorporates a holistic vision. It reflects a complete “experience” which transcends the cost, visual and other sensory elements.
Strong brands are more profitable and increase company value.
Although placing a value on an intangible asset is not easy, and incredibly subjective, learning the basics will help you to identify and price your brand assets, to enhance your business worth and future profits, by enabling you to command a premium, ensure customer preference in buying decisions, and building customer loyalty.
To learn more visit http://www.kathrynsmint.com.au/services/financial-books/