Brand Equity

By: EconomyWatch   Date: 30 June 2010

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EconomyWatch

The core Content Team our economy, industry, investing and personal finance reference articles.

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We all know that a brand is worth something, but exactly what is it worth?

There are a number of academic approaches being developed to this question.

There are also 2 well-known marketplace approaches:

Interbrand's Brand Valuation Model

Y&R Brand Asset Valuator

Note: If a company has recently been acquired, its Goodwill value (price paid above tangible assets), is a good measure of Brand Equity

Brand Equity (Product)

The Question

The premium attached to a brand vs a generic in the category

Approach

Look at how much a company can charge for its products

Commentary

A simple way of estimating brand equity at a product level, by looking at pricing premiums and multiplying that across a market. Effective for established high volume businesses such as Fast Moving Consumer Gods

The Formula

Brand Equity (Product, $) = (Price of Branded Product – Price of No-Name Product) * Total units sold

Metrics: Brand Equity Methodology (Moran)

Effective Market Share (%)

Sum of weighted market shares in each market segment you operate in

Effective Market Share (%) = weighted average (Share %, all segments)

Relative Price (I)

The price of your product, divided by average price of all products.

Relative Price (I) = Your Price ($) – Avg Price, All Products in Market ($)

Durability (Loyalty Index) (I)

Percentage of repeat customers, year over year

Durability (I) = Expected Repeat Customers (#)/ Total Customers (#)

Formula

Brand Equity (I) = Effective Market Share (%) * Relative Price * Durability (Loyalty Index) (I)

Interbrand's Brand Valuation Model

Probably the most well-known approach, partly because Interbrand publish an annual study with Business Week on the Most Valuable Brands.

The proprietary approach is to separate tangible product value from intangible brand value.

Brand Earnings = Total Earnings – Earnings from Tangible Assets.

Uses financial analysis or residual earnings forecasts, together with market analysis of the role brands played in those earnings.

Growth and discount rates are also used to calculate final brand value .

Best Global Brands 2008

Top 3 Gainers:

10. Google (43%)

24. Apple (24%)

58. Amazon (19%)

Top 3 Losers:

34. Merrill Lynch (-21%)

77. Gap (-20%)

19. Citi (-14%)

Sales & Marketing

Marketing for Dummies Guides

Measuring, Marketing, Metrics & KPIs

Online Marketing/ Digital Marketing


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