Brand Valuation --Companies now-a-days have realized the importance of a brand and have started investing amounts in promotional

activities in an attempt to get their brand noticed by the customers. --Companies across the globe have invested billions of dollars in building brands. --Valuating a brand is not a one time task. Its a continuous process. --Companies initially have to invest huge amount of money to build brand equity and then requirement is to maintain it. --Marketers have identified the importance of brand being treated as a key asset to any company because of the following advantages: Brand names can charge a higher price for the same products leading to higher profit margins and generate higher value to the firm. The other driving motive behind brand valuation is to leverage the brand value in terms of buying and selling, scrutinizing, unlocking shareholder value or improving the look of the balance sheet. --The First-ever brand valuation services were done by Interbrand in the middle of 1980s for Rank Hovis McDougall Company. (Interbrand published a list of most valuable companies of the world.) It is a challenging task Measuring brand value is a challenging task. It must deal with three main factors: a) Factual information, b) Qualitative information, c) Skilled professional judgment. Type of Valuation Models There are many brand valuation models, which can be divided into three main parameters business financeoriented models, behaviourally-oriented models and composite models. a) Business Finance-oriented Models 1) The Market value-oriented brand valuation The Market value-oriented brand valuation approach is the method in which the value of a brand is established by referring to the fair market prices of comparable brands. 2) Capital market-oriented brand valuation model --It was pioneered by Simon and Sullivan. --They defined brand equity as the present value of all future earnings attributable solely to branding. --Thus, from a financial markets perspective, brand value can be calculated from a companys stock market capitalization or market value. But, this valuation method can he useful only for stock exchange-listed companies as the model is based on the idea that the stock price of a company will perform to reflect the future potential its brands provide. --Brand value of a company can be calculated by using simple formula: --Brand Value = (stock price x number of shares) - (tangible assets + all remaining intangible assets) --If a company has more than one brand, the calculation is done pro rata for each brands share of total revenues or profits. 3) Cost-oriented brand valuation / In net asset value approach --Depending on the time chosen, the assets may be valued either at their historic cost or at replacement cost. 4) Replacement Cost Method --Brand valuation with the replacement cost method is done on the principle - what it would cost today to build up an equivalent brand from scratch. --However, historic cost assumes that brand is an asset based on resources that have been invested in it. Under this, not only net asset value but enterprise value is also seen as a base to value brand equity. --It also involves the aggregation of marketing and R&D expenditure relating to a brand. This method is used by Cadbury Schweppes for brand valuation.

5) Sander, Crimmins and Herp have proposed models based on price premium. --In price-premium-oriented approaches, the brand is seen as generating an additional benefit for the customer, for which they are willing to pay a little more. --Sander proposed Hedonic brand valuation method, which is based on hedonic price theory. It explains product prices in terms of various product characteristics, or rather the extent to which they are present. --Crimmins points out three dimensions of brand value: actual amount, brand breadth, and content of brand value. --Herp builds upon the brand valuation model on conjoint measurement. In this model, brand value is defined as the sum of all incremental revenues earned as a result of branding a company. --It is seen that advertising support varies hugely from industry to industry. 6) BBDO brand valuation model It considers the advertising also in brand valuation which most of the other models do not consider and present a distorted picture. 7) The Brand Equity Evaluation System (BEES) It is a multi-phase factor model of brand valuation, which takes account of differences between industries and solves the basic problem of the advertising support. This model also takes forward-looking variables to establish brands development potential. The model identifies eight determinants of brand equity. There are few other methods to calculate brand value like: 8) Customer-oriented brand valuation model it is based on customer contribution margins. 9) Kerns x-times-model It is based on earning capacity establishes the monetary value of a brand by capitalizing the value of potential earnings. 10) License- based brand valuation It is proposed by Consor in which values a brand on the basis of the license rates typical of the industry and earned by comparable brands. It focuses on brand licensing, and the value calculated is the sum of money another company would be willing to pay either to purchase the brand outright or to obtain a license for it. b) Behaviourally-oriented Brand Valuation Models Financial models were failing to do complete justice to the essential qualities of strong brands, since they concentrated on quantities such as stock market capitalization, earning-capacity value, license revenues, acquisition costs, price premiums or the customer contribution margin, when brand is not the only calculation of value in quantitative terms. Aaker defines brand equity as a set of assets and liabilities linked to a brand, its name and symbol that add to, or subtract from, the value provided by a product or service to a firm and/or to the firms customers. Aaker identifies five determinants of brand equity: o o o o o Brand Loyalty, Brand Awareness, Perceived Quality, Brand Associations and Other Brand Assets.

It is seen not only as determinants but also as outcomes of brand equity. These parameters with help of few other important factors give a new concept of incorporating brand strength as a demand oriented component. They endeavour to explain what goes on in customers hearts and minds and what determines the value of brands from their point of view. Almost on the same lines, Keller defines brand value as the differential effect of brand knowledge on consumer response to the marketing of the brand. That is, customer-based brand equity involves consumers response to an element of the marketing mix for the brand in comparison with their reactions to the same marketing mix element attributed to a fictitiously named or unnamed version of the product or service.

1) Price Premium Method --This method compares the revenues of an unbranded competing product with the brand. --Revenues of an unbranded competing product are deducted from the revenues of a comparable branded product to establish the excess or premium revenue of the brand. --This excess or premium gives the value of brand. --BPL, Nike, United Colors of Benetton, Lotto and Bata, for example, are able to command a higher price even when the product is outsourced. The suppliers to these companies cannot charge the same price if they sell their products directly to the consumers. 2) Conversion Model --This model is designed to measure the psychological commitment between brand and consumer. --The model segments users of a brand into four groups: Entrenched, Average, Shallow, and Convertible.

--This model also predicts brands future fortunes. --Walker and Chip in their paper How strong is your brand explains, In measuring the carbonated soft-drink category in the summer of 1991, Market Facts detected weaknesses in consumer commitment to Coke and Diet Coke. At the same time, growth potential was found for several non- cola soft dinks. By the first quarter of 1992, 7Ups shipment volume climbed 8%, and other brands showed directional strengths and weaknesses as predicted. 3) Young & Rubicam (Y&R) model --It is based on the principles of behavioural science. --Can be used as diagnostic tools. 4) Brand Asset Valuator (BAV) --The BAV model is the result of a large-scale study Y&R conducted in 1993-94, encompassing 30,000 consumers and 6,000 brands in 19 countries. --Marketer can assess the health of the brand through this model. --It is an attempt to value brand by breaking consumer connection with brands into its two parts brand stature and brand strength. Brand strength is a measure of: Brand distinctiveness & Brand Relevance - Brand distinctiveness measures how distinctive the brand is in the marketplace and brand relevance measures whether a brand has personal relevance for the respondent. Brand esteem, which measures whether the brand is held in high regard and considered the best in its class. Knowledge is a measure of brand understanding which measures as to what a brand stands for.

Brand stature is a combination of

BV = f{[Strength (differentiation, relevance)] and [stature (esteem, knowledge)]} 5) McKinsey --McKinsey defines the three Ps of the brand and gives a function Quantitative brand strength elements = f (the 3 Ps of a brand), where three Ps stand for performance, personality, and presence. McKinseys method for determining brand value operates on the assumption that brand strength is definitively quantifiable. --However, the system does not determine aggregate brand value, but rather quantifies as target values for individual benefit components of brands from a brand management perspective and can be viewed as a model based on behavioural science only in terms of the drivers of the three Ps of the brand. c) Composite Models A third group of brand value measurement indicators has established itself parallel to the focus on psychographics values.

1) Interbrand consulting firms brand value system --It considers an earnings-based approach. --This model seeks to estimate the risk and inflation-adjusted benefits - the current and future earnings or cash flows flowing from brand ownership. --Under this model, the value of a brand is a function of two factors: Its earnings and its strength. --While the brands earning are a measure of potential profitability, the brands strength is the measure of its, reliability of its future earnings. --The greater the brands strength, the greater is the reliability of its future earnings and the lesser is the risk. Since it is difficult to attribute all the earnings to the brand, adjustments need to be made to the earnings estimates. --In this model first of all, the unbranded profits, i.e., earnings that would have accrued on a basic unbranded version of the product, are eliminated and the historical profit at present day value is restated and adjusted for taxes. --To calculate the actual brand earnings the profit attributable to other intangibles associated with the business of the brand are deducted. --The model calculates the brand value by multiplying brand earnings with the brand earning with the brand strength multiple. This brand strength multiple is a function of multiple of factors like leadership, stability, market, internationality, trend, support and protection. These factors have been evaluated on a scale of 1 to 100 to calculate the brand multiplier. Some of the IT companies like Infosys, Rolta and Satyam are following a similar practice of valuation for their brands. The seven determinants of the brand value are: Brand leadership - which stands for the ability of the brand to influence the market; Brand stability - the characteristic that has made the brand the inherent fabric of the market; Market - the structural attractiveness of the market, its projected growth, et al,; International presence of the brand - the brands attractiveness and appeal in a multiplicity of markets with a view to distinguish between regional, national and international brands; Brand trend - the brands ability to remain contemporary and relevant to the consumers; Marketing support - the quantity and quality of the investments made to support the brand; and Legal protection enjoyed by the brand - refers to the protection received from the legal system, patents, trademarks, etc.

--Based on these parameters, Interbrand consulting determines the value of brand. Interbrand has given weighting to all these seven parameters brand leadership has 25% weighting; brand stability enjoys 15%; market 10%; international presence of the brand 25%; brand trend 10%; marketing support 10%; and legal protection enjoyed by the brand has 5% weighting. --Measurement of the seven variables, based on a detailed audit would determine brands strength. This provides the discount rate that needs to be applied to the adjusted estimates of the brands earnings for determining its present value, BV = Brand profit x Brand multiplier --The Interbrand approach while being valuable, especially in an acquisition and merger context, suffers from an accounting focus. This stems from the desire to ensure that the value arrived at is subject to audit. Further, from a marketers perspective, the Interbrand approach does not explicitly measure consumers perception of the brand, which is critical for marketing decision-making, especially on brand extension. 2) Scoring Model or The AC Nielsen brand balance sheet

--Schulz and Brandmeyer of AC Nielsen have used this model to develop a brand valuation model called The AC Nielsen brand balance sheet. --The brand balance sheet relies on six criteria groups containing a total of 19 individual criteria that are deemed good indicators of brand value. --The fundamental idea of the brand balance sheet is to relate a correlation between complex market environments, the significance of long-term brand cultivation and successful brand management. --AC Nielsen felt that the brand balance sheet is not the absolute model for brand valuation and in search of better brand valuation model, it has developed an advanced model based on Brand Performance. 3) The Brand Performance --The Brand Performance attempts to deliver an integrative consumer and company oriented brand valuation system. It provides tailor-made data to the decision-makers for any specific information needed. --The modular structure makes it possible to supplement gauges of brand value with analyses for the purpose of brand steering, financial brand valuation and tracking of brand leadership. --The four modules are brand steering system, brand value system, brand control system, and the central element brand monitor. --BV= [Annual sales of respective brands x Net operating margin x Relative brand strength x Perpetual annuity NPV discount factor] --One approach, which relies strongly on behavioural and image data in addition to financial values, is the Semion brand value approach. He defines four brand values: Financial value of the company, which is determined by earning before taxes and earning trends; Brand strength that is determined by market share, market influence marketing activities, distribution rate degree of familiarity, identity and potential; Brand protection determined by product classification, brand environment and intern protection; Brand image determined by consumer association, image position on market among consumer and vis--vis product.

--BV= financial value x [Financial value factor + brand protection factor + brand strength factor + brand image factor]

4) The market-oriented system of brand valuation, which combines a consumer based perspective with a companybased perspective, is proposed by Bekrneier Feuerhahn model that operates on the assumption that brand value is derived from brand strength and brand earnings, both assessed on the basis of market prices. It is a comprehensive,

integrative approach to build brand valuation that takes into account the special requirements of brand appraisal and yields a tangible monetary value.