Brand valuation - Marketing Strategy

There has been a trend in recent years for companies to try to turn the general concept of brand equity into a specific financial valuation for these organizational assets and to account for them on their company balance sheets separately from goodwill. Accountants have largely been at the forefront of this approach and have developed a range of factors seen as indicators of a brand’s value. All are linked to the ability of the brand to sustain higher returns than competitors. These factors include:

  • Market type :Brands operating in high margin, high volume and stable markets will carry a higher valuation than brands in less profitable or stable sectors. The confectionery or beer market shave traditionally been seen as less liable to changes in technology or fashion. Deciding on the potential of a market type, however, is full of difficulties.Even the drinks industry now shows signs of more regular changes in consumers’behavior. It should also be borne in mind that one of the aims of developing astron brand is to allow a company to compete on other factors than price in order to make strong margins even in what could be seen as commodity markets.The And rex brand of toilet roll has consistently made strong margins in the UK market. More importantly, it has gained higher margins than any of its competitors over the last thirty years from what is essentially commodity product.
  • Market share :Brands that are market leaders are deemed to command a premium because competitors will find it difficult to overcome consumers’ tendency to buy the dominant brand. In effect,holding the market leadership position is seen as a barrier to entry for other brands.
  • Global presence :Brands that either are, or carry the potential to be, exploited internationally obviously carry more value than brands within a purely domestic market. Developments in e-commerce may lower barriers to establishing a global brand name and therefore set a potential challenge to the high values placed on current global brands. There is also,obviously, the potential for the current global brands to end up as the dominant players in the e-commerce market thereby reinforcing their position and value.
  • Durability :Some brands manage to maintain a contemporary appeal and retain their relevance to customers over along period of time. These brands have created strong customer loyalty and become an established player in the market. A study by Blackest found that brands such as Cadbury in the chocolate market, Gillette in razors, Kodak in film and Colgate in toothpaste, were all the brand leaders in their market areas over the period 1931 to 1991 (Murphy, 1992). Such long-term brand leaderships are therefore likely to generate high valuations.
  • Extend ability :Brands that have the ability to be extended into related markets or stretched in new markets offer greater value than brands with more limited options. The Bc brand, for example, has been successfully extended from disposable pens into a number of other disposable markets such as cigarette lighters and razors. And rex in 1987 had 39 per cent of the toilet paper market; by 1994 this share had dropped to 28 per cent due to increased competition from discounters (Caperers, 1997). However, the potential to extend the brand allowed the company to enter related markets for products such as kitchen paper, paper tissues etc.
  • Protection :Brands that have some protection from being copied though patents or registered trademarks or designs, potentially offer greater value. However, this protection has in reality been limited. In particular, retailers have launched own label products with similar packaging to market leading brands. The factors considered so far have generally been developments from an accountancy perspective. However,there is a range of other significant factors marketers perceive to be crucial interns of judging the brand’s potential value.
  • Superior products and services :Brands that offer the consumer products and/or services that are superior to those of competitorscreate greater value. Brands that are perceived to deliver clear benefits to the consumer, such as quality,style, or cheapness, present the company with a clear asset in the market.
  • Country of origin :The identity of the country of origin, as already mentioned earlier in the chapter (page 184), can either attach or deduct value from a brand. Association with Scotland is seen as attaching value to fresh food products in countries such as France. Association with Britain, however, has been deemed to have a negative image by consumers in certain market sectors such as telecommunications. This resulted in British Telecom for example, re-branding itself as BT as a way of distancing itself from its country of origin and appearing more international. Conversely, in the clothing market in the USA, association with Britain is seen as positive, much to the benefit of brands such as Barb our (jackets etc.) and Church’s shoes.
  • Market domination :The brand’s ability to gain extensive coverage in the market, dominant position in the distribution channels, and the ability to command good shelf positions are all assets of considerable value. Most of these attributes accompany brand leadership and merely add to the potential that market position gives a brand. There is some limited evidence, however, that affluent customers are now moving away from the major brands as a way of standing out from the crowd. In Japan there has even been the development of a retail clothing store,Sebum, successfully selling high quality clothing that carry no branded labels.

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