BRAND VALUATION
Strategic applications
BY Alex Haigh
Your brand exists to differentiate and elevate your business. Measuring and valuing its performance should be done with the intention of understanding how you can leverage one of your most important assets to further your business goals in the short and long term.
In this article, we explore six of the most common brand valuation applications for brand strategy.
Brand Tracking It is essential for brand managers to identify the period to period performance of their brands. The identification of changes in brand equity and value allows for quick action that can correct or improve performance.
Most companies will track the performance of their brands in one way or another. One of the most commonly tracked metrics is net promoter score (NPS). On top of this, brand managers will often monitor a host of other brand equity measures (awareness, familiarity, consideration, recommendations and so on) and bottom line performance.
Effectively tracking all of a brand’s attributes requires expertise in market research, communications, finance, HR, insights and analytics. Brand valuation combines data on all these areas, prioritises them and provides financial numbers that are intelligible across the business.
Indeed, this principle is how we arrived at our strapline of ‘Bridging the Gap between Marketing and Finance.’
Period to period tracking helps expose brand attributes that are under or over-performing. Using brand valuation, you can start to expose the real financial impact of changes to key brand attributes.
For example, between tracking periods, a company may invest in an advertising campaign to address shortcomings in brand awareness. When the brand is assessed and valued again, awareness as well as the brand value would have improved. By measuring the difference in brand value, we are able to put a dollar figure on the return on marketing investment (ROMI) from the awareness campaign.
Brand trackers then become a strong tool for communicating the development of the brand and its attributes to other internal stakeholders – especially in marketing efficacy and budget discussions.
Marketing Budget and ROMI When you’re able to demonstrate how much value you are generating through your current branding initiatives, you can determine if you’re either over or under-allocating investment in a brand.
Valuations can be used to identify how much of an investment is likely to be necessary to keep value topped up. After analysing the importance of brands versus other assets (by comparing their relative values), management teams can allocate the appropriate proportion of investment to brand building activities.
Brands are built not only through promotion but also product development, availability, price, customer service and many other factors.
Therefore, a strong brand valuation approach is one that identifies the relative importance of these activities, allowing for appropriate segmentation of spend between these different levers as well as the various marketing channels available for promotion.
Brand valuations are the natural extension to the more short-term marketing mix models and can (read: should) be used concurrently if data allows it.
Conducting a scenario analysis based on assumptions made in a valuation can be used as a dynamic tool to identify the return on investment (ROI) of specific activities such as improving the customer journey experience, updating a visual identity or improving brand management processes.
This is merely a snapshot of how to set marketing budgets effectively.
Brand Architecture and Transition Strategy Brand valuation also helps identify and inform whether you should increase or decrease the number of brands you use – often referred to as a ‘brand portfolio.’
When valuing a brand portfolio, you’re testing each available brand through the impact of its strength on business performance. This enables you to review and track the impact of individual brands on the wider portfolio.
In addition to the effects of brand equity, the analysis enables you to understand what brand building activities are driving awareness to and brand perceptions of the overall group.
When working with Vodafone in the mid-2000s, as it forged its place as a preeminent global telecoms brand, we developed a structured approach for each stage of the brand architecture strategy process and have continued to develop the process.
This process identified how strong the benefit of rebranding to Vodafone could be for the local brands, which enabled a prioritisation process to take place over which local brands to transition first.
Following this came brand transition planning. Brand transition and brand architecture strategies are close cousins. Indeed, more often than not, one follows the other. For instance, there may be a push from upper management to follow a ‘master brand’ strategy, which entails any dud or acquired brands needing to be transferred.
With any brand transition strategy, you will need to weigh the brand tactics, marketing tools, investment and time planning that will create the biggest uplift in value.
A successful brand transition strategy is one that ensures the transfer of the existing brand equity to the new brand while minimising the risk of customer value loss. A brand valuation lens can help you model the financial impact of the various transition strategies.
The cost of a slow transition for the benefit of maintaining customer value is a consideration that is often misunderstood or overlooked in favour of quick action. And indeed, the opposite is also true – sometimes a quick transition will improve business performance.
So do you proceed with an overnight transition? Do you adopt interim brand endorsements? How much additional investment will be required to effectively transfer brand equity?
A brand valuation framework enables teams to weigh costs, time and activities (such as endorsements) to complete the most successful transition possible.
Sponsorship Analysis Sponsorship evaluation is one activity that is specifically suited to this type of analysis. Typically an area that has focussed on size of coverage rather than effect, there has been a general misunderstanding about how its benefit should be identified.
The key question to ask when evaluating sponsorship is not ‘how much would it cost as advertising?’ but rather, ‘what is its benefit to our bottom line?’
The answer to the first question is effectively useless for determining ROI of the activity while the second gets straight to the point.
A valuation-based approach to sponsorship evaluation provides a practical, logical and commercially driven basis for assessment.
By following an approach that establishes links between changes in brand equity, stakeholder behaviour and ultimately, business and brand value, we gain a solid platform of insight to decide whether to enter into or continue with sponsorship activities and how much to spend to activate them.
The ultimate benefit of this understanding is that it provides true firepower at the negotiation table with existing and potential sponsors, leading to better results for less investment.
Sponsorship is one of the key meeting grounds for brands. It’s crucial that brand managers understand the true value of sponsorship.
Brand Positioning Decisions Faced with a decision on a change in positioning, many businesses consider the effects only through management hypotheses or market research.
Management hypotheses on the effects of a change in positioning are high level and untested; but due to hierarchies of power and experience, most brand managers accept them at face value.
A brand valuation framework enables teams to weigh the marketing cost, time and activities, and model the returns in real financial terms.
Market research is useful but can be risky if you stop there. Strong market research programmes will often include a ‘demand drivers analysis.’ This enables you to identify what aspects or ‘attributes’ a brand needs in order to drive brand preference in a category.
The idea goes that the brand positioning that maximises performance on the most important attributes should be the option selected. Conducting a demand drivers analysis is a fantastic start but it’s an exercise that needs to be performed at a segment level.
If you take a large multi-service bank for example, the factors that drive individual consumers to buy a credit card will not be the same as those for a mortgage or a corporate customer trying to find a provider for a new loan.
So if the positioning changes perceptions in different ways in different segments, how do you decide which segment to prioritise?
Ultimately, this must be done by weighing the overall financial implications to the business.
Most importantly and fundamental to the discipline, brand valuation enables you to identify what you should be willing to spend on the change, knowing that you should never spend more than you predict to gain in value.
Franchising AND LicenCing Strategy Brands are frequently licenced both internally and to other companies through franchise or brand licencing agreements.
In the late 1990s, we were approached by the United States Internal Revenue Service (IRS) to provide a new approach to setting brand royalties that was grounded in the identified commercial effects of brands rather than simply what had been paid for them in the past.
Using research analysis techniques, we identify the uplift in yearly revenue and profitability caused by brand equity. The outputs of this analysis are always compelling and provide a strong defence in negotiations.
Establishing the commercial reality of a brand’s impact on a business rather than relying on often conservative perceptions or non-comparable agreements is a technique that is – and should more often be – used in licencing.
We regularly find that brand valuation, by establishing exactly what should be charged, can lead to huge increases in licencing revenue from the same deals, sometimes enabling clients to increase their royalty rates by a factor of five or more.
This enables businesses to capture millions or even billions more in value from the use of their strong brand, all thanks to robust brand valuation techniques.
