Brand Equity

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Brand Equity in brief

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BRAND EQUITY

Cornell University
Brand Equity
 Brand Equity is a set of brand assets and liabilities
linked to a brand, its name and symbol, that add to the
value provided by a product or service to a firm and/or
to that firm’s customers.

 Assets and liabilities underlying brand equity must be
linked to the name and/or symbol of the brand.
Brand Equity
Brand Equity: Why it matters
 Outcomes of brand equity
 Greater loyalty
 Less vulnerability to competitive marketing actions
 Less vulnerability to marketing crises
 More inelastic consumer response to price increases
 Possible licensing opportunities
 Additional brand extension opportunities
 Larger margins: on average, prices of strongest brands are 19%
higher than weakest brands in category

Benefits of Brands to Consumers

Simplifies choice process
Enhances confidence in choice
Reduces perceived risk – recognition of consistency of
quality
Provides emotional benefits – signal of status, taste, or
affiliation
Brand Equity
Research Objectives
 Identify the effectiveness of individual brand assets
 Identify the barriers to achieving a brands full potential
 Identify consumer relationships with the brand
 Identify the status of the brand in a competitive context
BrandZ Top 100 Most Valuable Global Brands 2011
# Brand Brand Value % Brand Value
2011 ($M) Change 2011
vs. 2010
# Brand Brand Value % Brand Value
2011 ($M) Change 2011
vs. 2010
1 153,285 84%
2 111,498 -2%
3 100,849 17%
4 81,016 23%
5

78,243 2%
6
*
73,752 8%
7 69,916 N/A
8 67,522 18%
9 57,326 9%
10 50,318 12%
11 44,440 1%
12 43,647 -2%
13 42,828 N/A
14 37,628 37%
15 37,277 -5%
16 36,876 97%
17 35,737 35%
18 35,404 -11%
19

**
29,774 N/A
20 28,553 15%
21 27,249 N/A
22 26,948 9%
23 26,078 7%
24 25,524 22%
25 24,623 -20%
26 24,312 23%
27 24,198 11%
28 22,587 -4%
29 22,555 141%
30 22,425 3%
31 21,834 -15%
32 19,782 -4%
33 19,542 N/A
34 19,350 11%
35 19,102 246%
36 17,597 N/A
37

17,530 -20%
38 17,290 15%
39 17,182 3%
40 17,115 23%
41 16,973 10%
42 16,931 19%
43 16,909 N/A
44 16,314 -2%
45

***

15,952 0%
46 15,719 11%
47 15,674 17%
48 15,449 19%
49 15,427 5%
50 15,344 12%

# Brand Brand Value % Brand Value
2011 ($M) Change 2011
vs. 2010
51 15,168 0%
52 15,131 N/A
53 14,900 3%
54 14,306 19%
55 14,258 0%
56 14,182 -1%
57 13,917 10%
58
®
13,904 -2%
59 13,754 -8%
60 13,543 16%
61 13,421 39%
62 13,006 7%
63
****
12,931 1%
64 12,542 -27%
65 12,471 3%
66 12,413 3%
67 12,160 7%
68 12,083 -3%
69 12,033 45%
70 11,998 29%
71 11,917 41%
72 11,901 40%
73 11,759 25%
74 11,694 N/A
75 11,609 N/A
# Brand Brand Value % Brand Value
2011 ($M) Change 2011
vs. 2010
76 11,558 7%
77 11,363 -37%
78 11,291 -19%
79

*****
11,147 -37%
80
S
10,883 12%
81 10,735 -28%
82 10,731 15%
83 10,540 N/A
84 10,525 26%
85

******
10,443 19%
86 10,335 15%
87 10,076 N/A
88 10,072 17%
89 9,877 10%
90 9,600 29%
91 9,587 N/A
92 9,358 -43%
93

*******
9,263 4%
94 9,251 6%
95 8,838 21%
96 8,760 4%
97

8,668 5%
98 8,600 15%
99 8,535 N/A
100 8,439 -9%
*The Brand Value of Coca-Cola includes Lites, Diets and Zer o
**Deutsche Telekom is in the pr ocess of re-branding its business to ‘T’, which incorporates T -Mobile, T-Home and T-Systems
***The Brand Value of Budweiser includes Bud Light
****The Brand Value of Pepsi includes Lites, Diets and Zer o
*****The Brand Value of Nintendo includes Wii and Nintendo DS
******The Brand Value of Sony includes Playstation 2 and 3, as well as PSP
*******The Brand Value of Red Bull includes sugar -free and Cola
Source: Millward Brown Optimor (including data fr om BrandZ, Kantar Worldpanel and Bloomberg)
BrandZ Top 100 2011: INTRODUCTION 14 13 BrandZ Top 100 2011: INTRODUCTION
BrandZ Top 100 Brands 2011
Interbrand 2011
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PRESS & MEDIA
Karen Burke
2011 Ranking of the Top 100 Brands
Print

Rank
Previous
Rank
Brand Region/Country Sector Brand Value ($m)
Change in
Brand Value
1 1 United States Beverages 71,861 2%
2 2 United States Business Services 69,905 8%
3 3 United States Computer Software 59,087 -3%
4 4 United States Internet Services 55,317 27%
5 5 United States Diversified 42,808 0%
6 6 United States Restaurants 35,593 6%
7 7 United States Electronics 35,217 10%
8 17 United States Electronics 33,492 58%
9 9 United States Media 29,018 1%
10 10 United States Electronics 28,479 6%
11 11 Japan Automotive 27,764 6%
12 12 Germany Automotive 27,445 9%
13 14 United States Business Services 25,309 9%
14 8 Finland Electronics 25,071 -15%
15 15 Germany Automotive 24,554 10%
16 13 United States FMCG 23,997 3%
17 19 South Korea Electronics 23,430 20%
18 16 France Luxury 23,172 6%
19 20 Japan Automotive 19,431 5%
20 22 United States Business Services 17,262 16%
21 21 Sweden Apparel 16,459 2%
22 23 United States Beverages 14,590 4%
23 24 United States Financial Services 14,572 5%
24 26 Germany Business Services 14,542 14%
ABOUT US OUR WORK KNOWLEDGE BEST GLOBAL BRANDS NEWS ROOM CAREERS OFFICES
Interbrand - Best Global Brands 2011 - Top 100 brands http://interbrand.com/en/best-global-brands/best-global-brands-...
1 of 4 3/4/12 8:24 PM
 A systematic approach to brand valuation was jointly
developed by Interbrand and the London Business School in
1988. The method was partially revised in 1993.

 Since then, Interbrand has evaluated some 3500 brands for
nearly 400 companies.
One approach to Brand valuation
calculation
 The purpose of evaluations of brand equity:

1. Evaluations for financial transactions in connection
with mergers & acquisitions, internal licensing and
fiscal issues.

2. Evaluations to optimize brand investments, advertising
expenditures, monitor an manage future changes in
brand value.
One approach to Brand valuation
calculation
 Brand value is defined as the NPV of future earnings
generated by the brand alone. One approach (Interbrand) is
based on the following three economic functions:

1. the brands function to create cost synergies,
2. the brands function to generate demand for the products and
services, and
3. the brands function to secure future demand and thus
reduce operative and financial risks.
Brand Equity/Value
 The method employed to evaluate brands comprises five
steps:
1. Segmentation,
2. Financial analysis,
3. Demand analysis,
4. Brand strength analysis,
5. Calculation of the net present value of brand earnings.

Calculating Brand Equity
 Consumers purchasing behavior and attitudes towards
brands differ from one market sector to another.

 The value of a brand can only be determined precisely
through the separate assessment of individual segments
that represent a homogenous customer group.
Segmentation
 Start with an assessment of the company's value and then
determine the value contributed by the brand.
 Isolate brand earnings from other forms of income is to
determine the Economic Value Added (EVA)
 which tells whether a company is able to generate returns that
exceed the costs of capital employed.

 The analysis is based on a five-year forecast of future
revenues.
Financial Analysis
 Analyze the brands value chain and identify the position of the
brand in the minds of customers.
 To determine the brands share of EVA:

 Evaluate the factors that influence demand and motivate
customers to purchase.
 These factors are weighted in terms of their bearing on
demand

 The sum of these brand contributions on the demand drivers
is expressed as the Role of Brand Index (RBI)

 RBI multiplied with the EVA, yields the brand earnings.
Demand Analysis
Demand Analysis
 The stronger a brand, the lower is its risk, and thus the
more certain are future brand earnings.
 Assess the competitive position and infer the risk by
analyzing the strength of a brand compared with its
competitors on the basis of seven factors
 market,
 stability,
 brand leadership,
 trend,
 brand support,
 diversification,
 protection
 This step results in the Brand Strength Score (BSS).


Brand Strength Analysis
Brand Strength Score
 The economic value of future brand earnings is inversely
correlated with the brands estimated risk

 This risk is directly linked to brand strength.

 The procedure reflects the dynamism of the market:
extreme ends of the scale brands react differently from
brands in the middle range.
Net Present Value Calculation

 Strongest brands are discounted with the risk-free rate of
the total market while average-strength brands are
discounted with the industry WACC (cost of equity in the
financial service industry).

 Discounting the forecast period (present value) and the
calculation of an annuity (terminal value) results in the
total value of the brand.

 The transformation of brand strength into brand risk (or
into discount rate) is completed using an S-curve.
Net Present Value Calculation
Net Present Value Calculation
 Since this procedure focuses on value creation, it is
independent of potential and probable changes in
organizational structure.

 The total value of the brand is calculated as the sum of
its segment values (sum-of-the-parts).
Total Brand Equity
 Lets Calculate Brand equity of DELL INC.

 This will be just a rough approximation since we will
be making some assumptions along the way

Example
 Critical assumptions:
 Assume that we are T-5 years from the latest available
financial statement. E.g. If the latest financial statement
is in 2008 assume we are in year 2003.
 Normal analysis requires forecasting 5 years in advance.
 We will assume that the actual financial performance
for the years 2004, 2005, 2006, 2007, and 2008
(obtained from financial statements) is the forecast as
of 2003.
Example
 Assume that Brand Strength analysis revealed that the
appropriate discount rate is 9%
 Just above WACC = 10%

 Role of Brand Index (RBI) = 40%

 Get the financial data from:
 Go to Mann library website
 Click on Find->Databases
 Social Sciences->Business and Management
 Mergent ONLINE
 Click on “COMPANY FINANCIALS”





Example
 Click on “COMPANY FINANCIALS”

 ANNUALS + BALANCE SHEET will be default

 From here you need to take TOTAL CURRENT ASSETS (in this
case it is line 13) of data for 5 years.
 Can be different line for other companies.

 Next, switch to ANNUALS + INCOME STATEMENT

 From here you need to take NET INCOME (LOSS) (in this case
it is line 13 from the bottom) of data for 5 years

 These 2 sets of numbers should be enough to calculate brand
equity.
(choose only if net income>0)





Mergent Online STEPS:
2005 2006 2007 2008 2009
Total assets $16,897,000 $17,794,000 $19,939,000 $19,880,000 $20,151,000
WACC 10% $1,689,700 $1,779,400 $1,993,900 $1,988,000 $2,015,100
Net income $3,043,000 $3,602,000 $2,583,000 $2,947,000 $2,478,000
Economic Value Added EVA) $1,353,300 $1,822,600 $589,100 $959,000 $462,900
RBI (Brand Earnings) = 40% of EVA $541,320 $729,040 $235,640 $383,600 $185,160
Discount rate 9%
Discount factor 1.09 1.1881 1.295029 1.41158161 1.538623955
Discounted Earnings $496,624 $613,618 $181,957 $271,752 $120,341
Value until the year 2009 $1,684,293
Net present value of the Brand $3,403,454
Value of the DELL brand: ~ 3.4 billion dollars
DELL FINANCIALS (in '000 of $)
Terminal value (growth rate=2%) = (Discounted
earnings in 2009)/(discount rate - growth rate) $1,719,161
DELL

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