FAQs
Frequently Asked Questions about brands and brand valuation
Frequently Asked Questions about brand valuation, Brand Finance, our methodology and research. Find out how to define brand value, what's the difference between brand valuation and brand evaluation, how strong brands impact business performance do and why is brand equity so important.
For more information, see our Brand Valuation Methodology.
1. How does brand equity impact business performance and value?
When a brand has strong Brand Equity, this typically translates into superior performance on a number of key behavioral metrics. These are the most common metrics on which brand performance and thus brand equity can be judged:
2. How does branding add value to a business?
A strong brand is a valuable asset for any business. A strong brand can drive higher customer acquisition, satisfaction, loyalty, and advocacy. Furthermore, strong brands contribute to business growth and profitability.
3. How is brand strength calculated?
Brand Strength is the efficacy of a brand’s performance on intangible measures, relative to its competitors.
B&B quantifies Brand Strength using a 'Brand Strength Index (BSI)' - which is a competitive benchmarking tool that identifies the strength of each brand in question.
This can be done as a standalone exercise in a brand evaluation, or as part of the brand valuation methodology when placing a monetary value on the brand. The Brand Strength Index in this use case forms part of the Royalty Relief methodology. For more information check out the methodology page here
The Brand Strength Index is a framework that aims to consider the position of a potential licensee or acquirer of the brand. As such we split the Index into three sections:
Brands may score very highly on the Brand Strength Index while not necessarily being the largest brands by monetary value.
4. How is brand value calculated?
B&B calculates the values of the brands in its league tables using the Royalty Relief approach –
This involves estimating the likely future revenues that are attributable to a brand by calculating a royalty rate that would be charged for its use, to arrive at a ‘brand value’ understood as a net economic benefit that a licensor would achieve by licensing the brand in the open market.
5. What actions impact brand equity and value?
Generally, in order to build brand equity Brand and Marketing Managers focus on the following activities (also known as levers):
6. What are brand valuations useful for?
Here are a multitude of reasons one might complete a brand valuation: purchase price allocation, damages litigation, capital gains tax planning, brand positioning and marketing budget allocation to name a few. Some of the most important ones include:
· Purchase Price and Investment Allocation
· Brand Tracking
· Brand Identity and Brand Experience Decisions
· Brand Positioning Decisions
· Brand Architecture and Brand Transition Decisions
· Transfer Pricing & Licensing
7. What are the advantages of Royalty Relief
The attraction of this method is that it is based on commercial practice in the real world. It involves estimating likely future sales, applying an appropriate royalty rate to them and then discounting estimated future, post-tax royalties, to arrive at a NPV.
B&B uses the 'Royalty Relief' method for the following reasons:
8. What are the different types of intangible assets?
There are three types of intangible asset:
Rights:
Leases; distribution agreements; employment contracts; covenants; financing arrangements; supply contracts; licenses; certifications; franchises.
Relationships:
Trained and assembled workforce; customer and distribution relationships.
Intellectual Property:
Trademarks; patents; copyrights; proprietary technology (e.g. formulas; recipes; specifications; formulations; training programs; marketing strategies; artistic techniques; customer lists; demographic studies; product test results; business knowledge - processes; lead times; cost and pricing data; trade secrets and know-how).
Internally generated intangible assets
Most intangible assets that appear on balance sheets have been acquired, however some internally generated intangible assets can be capitalised provided they can be reliably valued and the costs in creating them be distinguished from maintenance costs or general expenses. This means the most frequently seen are software and patents or other forms of technological IP.
This results in what is sometimes described as 'internally generated goodwill'. This is the difference between the fair market value of a business and the value of its identifiable balance sheet net assets. The treatment of this goodwill only changes if the company is acquired, converting the goodwill from internally-generated to acquired.
Acquired Intangible Assets
As specified in IFRS 3: Business Combinations, intangible assets of the three types above should be identified, valued and then grouped into the following classifications upon acquisition:
There is then a balancing figure which is referred to as Goodwill. Prior to 2008, all intangible assets were referred to as Goodwill.
9. What are the international standards on brand valuation?
· B&B helped craft the internationally recognised standard on Brand Valuation – ISO 10668, and the recently approved standard on Brand Evaluation – ISO 20671.
· Brand Valuation – ISO 10668 – specifies a framework for brand valuation, including objectives, bases of valuation, approaches to valuation, methods of valuation and sourcing of quality data and assumptions. It also specifies methods for reporting the results of such valuation.
· Brand Evaluation – ISO 20671 - this standard sets out a rigorous framework and set of principles for conducting brand evaluation from an input/output point of view. As such it is intended to serve as the standard for the development and implementation of other standards for brand evaluation - and in addition aligning to international standard of brand valuation – i.e. ISO 10668.
10. What is a brand audit for?
A brand audit will help you to:
11. What is a brand value report?
· A Brand Value Report provides a complete breakdown of the assumptions, data sources, and calculations used to arrive at your brand’s value.
· Each report includes expert recommendations for growing brand value to drive business performance and offers a cost-effective way to gaining a better understanding of your position against competitors.
· You can find out more about our Brand Value Reports or request one
12. What is an ISO 10668 compliant brand valuation?
Intangible assets are recognised as highly valued properties. Arguably the most valuable but least understood intangible assets are brands. The International Standard ISO 10668 provides a consistent, reliable approach to brand valuation including financial, behavioral and legal aspects.
ISO 10668 specifies 3 types of analysis must be done during a brand valuation:
The standard also sets forth 3 objectives of the valuer
There are 3 approaches approved in the ISO 10668 standard: cost approach, market approach and income approach.
13. What is brand value?
Brand Value is the monetary value of a brand as an asset, including the associated name, logo, trademarks, marketing intangibles and associated IP. However, Brand Value usually includes more than these easily transferrable assets, as it incorporates the potential future cash flows attributable to the brand due to increased stakeholder sentiment and perceptions.
14. What is the best way to license a brand?
Creating a system of central ownership and management for the purposes of managing and licensing brands and IP either internally or externally usually involves forethought and intelligent structuring of the model. The general steps for ensuring that this is done correctly are as follows:
15. What is the definition of a brand?
There are many definitions of brand, often narrow in scope. To allow us to consider all the touchpoints of the asset, Brand Finance defines a brand as:
A bundle of trademarks and associated IP(1) which can be used to take advantage of the perceptions(2) of all stakeholders(3) to provide a variety of economic benefits(4) to the entity(5).
This is our preferred definition because it appreciates the breadth of the effects a brand can bring, rather than just affecting the price premium of a product. Identifying each element:
· This is the accounting definition of a brand when conducting a monetary brand valuation.
· The effects brands have are not always directly aligned to the fact but instead to what people believe to be the case.
· Brands affect more than customers or consumers. Staff, financiers or external stakeholders are some of the most obvious examples that are also affected by the brand.
· Higher staff retention or lower recruitment costs are two benefits beyond simply a price or volume premium that a brand can provide.
· Brands apply to more than just companies. Not-for-profits, sports teams and locations are all examples of brands assisting other types of entities.
16. What is the difference between brand valuation and brand evaluation?
· Brand Evaluation is the measurement of the non-monetary value of a brand based on a number of relevant indicators that relate to the impact of the brand on its consumers. This type of evaluation relies on both monetary and non-monetary factors.
· Whereas, Brand Valuation focuses on the monetary value of a brand and its commercial worth to a company as a transferable and income-generating asset.
· The two concepts are inherently linked – Brand Evaluation is required as part of a Brand Valuation exercise. In turn, Brand Evaluation should track brand performance on dimensions which link directly or indirectly to commercial performance and are not ‘vanity metrics’.
· Brand Finance helped craft the internationally recognised standard on Brand Valuation – ISO 10668, and the recently approved standard on Brand Evaluation – ISO 20671
17. What is the difference between brand value and brand equity?
· Brand Value is the net present value of the estimated future cash flows attributable to the Brand.
· Brand Equity is a part of Brand Strength and refers to the current esteem of a brand among relevant stakeholders.
18. What is the difference between brand value and brand strength?
· Brand Strength is the efficacy of a brand’s performance on intangible measures, relative to its competitors.
· In order to determine the strength of a brand, we look at Marketing Investment, Stakeholder Equity, and the impact of those on Business Performance. Each brand is assigned a Brand Strength Index (BSI) score out of 100, which feeds into the brand value calculation. Based on the score, each brand is assigned a corresponding rating up to AAA+ in a format similar to a credit rating.
· A brand’s BSI score is taken into consideration when calculating the overall brand value.
· Brand value represents the net present value of the estimated future cash flows attributable to a brand. It develops and grows as a result of the strengthening of the relationship between the brand and the consumer
19. What is the difference between enterprise value, branded business value, brand contribution and brand value?
· Enterprise value is the value of the entire enterprise, made up of multiple branded businesses. Where a company has a purely mono branded architecture, the ‘enterprise value’ is the same as ‘branded business value’.
· Branded business value is the value of a single branded business operating under the subject brand. A brand should be viewed in the context of the business in which it operates. Brand Finance always conducts a branded business valuation as part of any brand valuation. We evaluate the full brand value chain in order to understand the links between marketing investment, brand tracking data, and stakeholder behavior.
· Brand contribution is the overall uplift in shareholder value that the business derives from owning the brand rather than operating a generic brand. The brand values contained in our league tables are those of the potentially transferable brand assets only, making ‘brand contribution’ a wider concept. An assessment of overall ‘brand contribution’ to a business provides additional insights to help optimize performance.
· Brand value is the value of the trademark and associated marketing IP within the branded business. Brand Finance helped to craft the internationally recognised standard on Brand Valuation – ISO 10668. It defines brand as a marketing-related intangible asset including, but not limited to, names, terms, signs, symbols, logos, and designs, intended to identify goods, services or entities, creating distinctive images and associations in the minds of stakeholders, thereby generating economic benefits.
20. Why is having a strong brand equity important?
· Brands derive their value from their reputation, otherwise known as ‘Brand Equity’. The term Brand Equity is widely used in the marketing and branding world to describe the relative stature of different brands and to facilitate dialogue around how a brand asset may be measured.
· Brands that have strong brand equity typically command a greater price premium, achieve higher market shares, find it easier to gain distribution on favorable trade terms, attract superior quality partners and attract more capable employees at lower cost.