Brand equity

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The term brand equity (also brand equity or brand value ) describes the monetary value of a brand .

definition

In simple terms, the value of a company consists not only of sales, company real estate, employee potential and patents, but also of the non-material value of its brand or brands. Simply through the marking and the positive associations associated with the trademark with the consumer, it is possible for a company to get more money for its own product than, for example, generic brands . Therefore the trademark has its own intangible value.

In various countries (such as Great Britain), accounting for a company's brands is already possible today . This is also one of the reasons why many companies have higher market values ​​than assets.

There are a number of models for determining brand value, which have in common that they each have to base their own evaluation scheme, so there is no objective definition of the concept of brand value. The approaches are complex and can have different goals. On the one hand, the brand value calculation can be used to help when buying and selling brands or companies in order to determine a realistic purchase price. A brand value analysis is also useful when licensing brands to determine license rates in order to have a basis for price negotiations. The analysis of a brand value and its fluctuations can also be important for strategic brand management .

Brand value calculation

At the moment, the problem of calculating brand value is that there are over 500 different models for calculation in practice, which show great differences in the results. Many models are very complex, but do not meet the necessary requirements for objectivity , reliability and validity ( quality criteria of psychodiagnostic methods ). This proliferation means that, for example, the brand value of Coca-Cola is between 0.2 and 64 billion US dollars, depending on the valuation model.

The most widely used brand valuation models are briefly presented below. The order in which they are displayed is selected in the same way as the models build on one another.

Finance-oriented approaches

Above all, the authors of the older valuation models see the brand value as an intangible asset that can be precisely determined and expressed as a monetary value.

Cost-oriented brand valuation

The cost-oriented methods are based on the consideration of what the reconstruction of a brand would cost; the so-called net asset value method. Depending on the point in time at which the costs are considered, one subdivides into valuation methods according to historical costs and current replacement costs .

With historical cost valuation, all costs that were expended in the past to build up the brand are added up to the current point in time. The brand value thus represents the capital of past payments. The replacement costs, on the other hand, indicate what it would theoretically cost to establish the same brand as a new launch in the market today.

Overall, the cost-oriented models should be viewed very critically. Both models are not future-oriented as they only work with historical data. There is also the danger that the models automatically declare brands that have been heavily invested in to be strong brands. The reality contradicts this. In 2001, the energy supplier E.ON invested 22.5 million euros in advertising for its “Mix-Power” power brand. Despite the high level of effort, the company only gained 1,100 customers, and there can hardly be any talk of a significant strengthening of the brand. 

Earned value-oriented brand valuation

As early as 1962, Wolfgang Kern defined the value of a brand as “the sum of the additional profits discounted to the current point in time .” At Kern, the brand value is determined using the expected future sales of a brand. These are discounted with a customary interest rate as well as a so-called license rate that depends on criteria such as traffic validity or legal security between one and two percent over the years of estimated future use.

The consulting firm Consors modified Kern's model. Consors no longer determines the license rate arbitrarily, but on the basis of a database with collected license information on more than 2000 real license transactions. The license set is transferred from a similar, already licensed product to the one to be evaluated. However, it is fundamentally questionable to infer the value of a brand from a license fee. Rather, it should logically be inferred from the brand value to the corresponding license fees. In addition, even if the variables are optimally selected, the model does not cover the actual brand value, since the brand's own use is not recorded.

Price premium-oriented brand evaluation

Price premium models for determining brand value are based on the assumption that consumers are willing to pay a certain, quantifiable surcharge for the additional benefit associated with a label. Brand value can then be determined simply by examining what a customer is willing to pay for both a labeled product and an equivalent but unlabeled product. The difference multiplied by the sales volume of the marked product in a period then results in the monetary brand value. To determine this willingness to pay, Herp proposed a conjoint analysis in 1982 , while Crimmins tested consumers' willingness to pay by direct questioning ten years later.

Sander's model is based on hedonic price theory , according to which product prices are to be explained by the characteristics of individual product features and these are functionally dependent on one another. Sander sees the marking as one of these product features; by considering the difference, he calculates the price of a product with and without marking. This results in the revenue per product unit generated exclusively by the brand. According to Sander, the brand-specific expenses still have to be deducted from the brand revenue of a period in order to be able to report the correct brand profit.

The good thing about the price premium-oriented brand evaluation is that it can be carried out very objectively and is understandable. The main criticism, however, is that the models only derive brand value from the price difference. Strong brands such as Swatch with their aggressive pricing policy are therefore rated worse than providers of very high-priced items with low sales (e.g. Louis Vuitton ).

Behavioral science-oriented models

Balance sheet and financial policy indicators only imperfectly reflect the market and competitive situation of a brand from a marketing point of view, they are mostly limited to a company-centered approach to easily quantifiable information. You evaluate a brand's success without being able to state why the brand management was successful.

From a marketing perspective, according to Prof. Esch, the brand associations in the minds of consumers must form the basis of brand value measurement. Suitable models of brand evaluation should therefore be based on behavioral science and take consumer judgments into account, show possibilities for diagnosis and give advice on improving brands.

Brand value according to Keller

Kevin Lane Keller assumes that consumer-oriented brand equity depends on the consumer's personal brand knowledge. To do this, he examines the representation of the brand in the consumer's mind. In his opinion, the stored brand knowledge consists of numerous cognitive and emotional brand assessments by the consumer.

Keller divides “brand knowledge” into two components: brand image and brand knowledge. Brand knowledge indicates whether a consumer can remember the brand. Brand recognition stands for the ability to recognize the brand in direct presentation or to associate certain memories with it. Brand recall reflects a very strong position of the brand, in which the consumer already remembers it when describing the product group or essential characteristics of the brand. The brand image, as the second important component of brand knowledge, is broken down into numerous brand associations by Keller. He evaluates the characteristics of the associations through the dimensions uniqueness, strength and advantageousness. He sees the origin of brand associations in the properties, the benefits and the overall impression of the brand.

Keller's model has not yet been empirically proven, but his basic considerations have been incorporated into many other evaluation models.

Aaker's brand value model

David A. Aaker describes brand value as the sum of advantages and disadvantages that are related to a brand and that increase or decrease the value of the product or service for customers and the company. According to Aaker, the main effects of the marking for customers are easier information processing when shopping and greater satisfaction. The latter is increased primarily through trust in the quality of the product, but also through brand associations. The BOSS label on a suit, for example, can have a positive effect on the feelings of the wearer, as it promises him good quality and signals to those around him that he can afford high-quality clothing.

According to Aaker, brand equity is made up of five categories, which are briefly described below.

Brand loyalty

For Aaker, brand loyalty describes the attachment of consumers to a brand. Brand loyalty strengthens the brand against price campaigns from the competition and has a positive effect on sales figures.

Awareness of the brand name and the brand symbol

When comparing similar products, brand awareness can be decisive for a purchase because the familiar is perceived as beneficial. With well-known brands, consumers also conclude that they are reliable and of good quality. The value of a brand can not least be measured by its anchoring in everyday language, for which linguistic methods are particularly suitable. Here, it is equally important that the user is familiar with the brand and his associations, which do not always have to match the intentions of the manufacturer.

Perceived quality

Aaker describes the subjective customer assessment of the quality of a product or service as "perceived quality". Even if the consumer has no detailed knowledge of a product, it often leads to the decision to buy or not to buy a product.

Group of associations

Everything that is linked to a brand in the consumer's memory represents brand associations. At Mercedes-Benz this could be “quality” and “reputation” as well as “overpriced” or “ostentatious”. The brand image is the sum of the associations.

Other brand benefits

This includes Aaker patents, trademarks and sales channels. They represent institutional and legal advantages because they make it difficult or impossible for competitors to infiltrate customer loyalty.

Aaker's model is a successful attempt to depict the factors involved in building brand value. Although there is no validation and the criteria are not independent of each other, Aaker's behavioral considerations have spurred the brand value discussion and are often cited in the literature.

Financial-behavior-oriented combination models

Brand value measurement according to Interbrand

With the help of the brand valuation method developed by Interbrand in 1988, more than 2000 brands were valued worldwide by 1999. This method, which is widespread in corporate practice, is based on a point evaluation or scoring approach. The brand to be evaluated is given points based on seven factors, divided into 80 to 100 criteria. Interbrand regards the exact weighting of the criteria as a trade secret and does not publish it. The brand strength determined is then converted into an S-shaped multiplier. According to Interbrand, the course of the multiplier reflects the fact that the brand value initially increases exponentially, later linearly and ultimately only marginally as the brand becomes stronger.

The excess profit (EVA) of the next five years is multiplied by this multiplier value, which can assume a value between one and twenty depending on the brand strength. This then results in the monetary brand value according to Interbrand.

The Interbrand model is based on a solid foundation and captures the complex nature of the brand more than other models. However, the multitude of criteria harbors the risk of correlations. In addition, the weighting and selection of the criteria can be viewed critically in some cases. The “marketing support” criterion, for example, is an input factor and implies that high brand value can be achieved through high investments alone.

Some scholars deny that the Interbrand brand value is an exact statement and describe it as an estimate or trend value. Nevertheless, this method has established itself in the media and is now the most widespread and therefore currently the most important method of calculating brand value. The values ​​of the world's most valuable brands, determined annually by Interbrand, are regularly published in leading publications such as the Financial Times or the Wall Street Journal .

The Nielsen valuation models

Nielsen brand balance

The Nielsen brand balance sheet is structured similarly to the Interbrand model and is based on a scoring approach. However, the brand balance is based on only nineteen criteria, divided into six groups. In doing so, she emphasizes the consumer perspective more than Interbrand's model, which is strongly oriented towards financial indicators. The brand balance sheet was developed into a brand performer after a few years.

The scaled, differently weighted characteristics of the criteria in the brand balance result in a maximum value of 500 points. The weighting, like the selection of the indicators, is based on the subjective judgment of the developer of the model. It will not be published. The transformation of brand strength into a monetary value was only added to the model of the brand balance sheet afterwards. For this purpose, future earnings are estimated and discounted using both the market interest rate and a factor resulting from the established brand strength. The greater the brand strength, the lower the discount factor. The resulting earnings value is understood as an expression of the brand value.

The possibilities of manipulation in the weighting of the criteria and the subjectively determined assessment of the relevant market as well as the need for a certain degree of publicity for the brand so that its value can be measured validly are to be criticized. Franzen, Trommsdorff and Riedel, however, consider the model to be less manipulable and more objective than that of Interbrand, as much of the data that comes in comes from Nielsen panels.

The Nielsen brand performer

Based on the brand balance sheet, Nielsen developed the brand performer. It has a modular structure and consists of the four components of a brand monitor, a brand value system, a brand steering system and a brand control system. In addition to determining a brand value using the first two components, great importance is attached to controlling marketing measures. The brand monitor as the first component determines the brand strength with the help of the criteria marked in blue in Table 5. The criteria weighting was validated by causal analysis. Within the brand value system, a brand value is then calculated from the determined relative brand strength, the market volume and the market's return on sales, regardless of the provider's capital and cost structure. This procedure differs significantly from the brand value determination in the brand balance sheet, where the actual income of the company under investigation is used.

This model analyzes the brand value in a consumer as well as company-oriented way and eliminates measurement weaknesses of the older brand balance sheet. In addition to the brand to be assessed, the competitor brands are also assessed. Secondary data can be used for this, so that the model is suitable for evaluating historical brands. The causal analysis to validate the brand valuation model has so far only been carried out for personal care products.

Brand value measurement according to Sattler

Henrik Sattler's model for measuring brand value is based on an extensive survey of 28 executives from German companies entrusted with brand management. The aim of this expert survey was to identify indicators for long-term brand value determination. This resulted in key figures relating to the past, present and future.

In further interviews, six indicators were rated as particularly important. With the help of these six main indicators, taking into account the brand profit contribution from the previous year and a discount rate, Sattler calculates the monetary brand value.

Sattler himself doubts the direct transferability of the model to any product groups that differ greatly from those examined, since he assumes an almost constant market volume and a similar objective product quality. In addition, he considers the transformation of utility values ​​into a monetary value within his model to be imprecise. Despite this criticism, Sattler's catalog of indicators was taken up by numerous later models.

The GfK model

The brand value model developed by the Gesellschaft für Konsumforschung (GfK) in collaboration with Sattler is based on the components customer survey, expert judgment and analysis of the brand's cost structure. The financial brand value is understood as the net present value of discounted future brand-specific payment surpluses. This means that the specific brand-related revenues of a product are offset against the brand investments. The use of a price premium is expressly rejected as this cannot be sensibly determined in many industries. The most important determinants of the GfK model are psychological brand strength, brand-specific risk, costs and revenues, the brand's potential for expansion and legal protection.

The valuation process is divided into modules. First, in the brand isolation model, total brand sales are broken down into brand-specific and non-brand sales using conjoint analysis or panel data. At the same time, the brand-specific costs are determined in-house by experts from the management consultancy Pricewaterhouse Coopers . In the brand forecast model, sales over the next five years are estimated by experts in various scenarios. The basis for this is both the historical development and the psychological brand strength in the GfK Brand Potential Index (BPI). This index is a GfK measuring instrument that has already been introduced and can also be used alone to determine a brand value based on behavioral science. For this purpose, the indicators brand loyalty, purchase intention, brand awareness, uniqueness, additional price acceptance, brand sympathy, brand trust, brand identification and willingness to recommend are used. The interest rate for discounting future income is then determined in the brand risk model. The basis for this are the indicators repurchase rate, historical development, market share in terms of value, weighted distribution, supported awareness and a psychological brand strength derived from the BPI. The weighting of the individual indicators was derived from the previously described model by Sattler. Finally, as part of the strategic marketing option model, future earnings potentials of the brand through brand expansion and in new markets, for example abroad, are analyzed.

By linking the partial results from the various analysis models using a non-published formula, the monetary brand value is then obtained according to GfK. The criticism of this draft corresponds to that of Sattler's indicator model.

Brand value according to brand rating

The brand rating model, developed by the company of the same name, consists of three components. The first component is purely behavioral, the so-called branded iceberg. The model is based on the SOR paradigm and divides the value of a brand into brand image and brand credit. The brand image visible to the consumer consists of the current brand identity and is presented as the tip of the iceberg; it is designed through the use of the marketing mix. The brand credit corresponds to the large, invisible base of an iceberg. It reflects positive or negative experiences with a brand that have been conveyed and learned through communication.

The brand credit cannot be influenced directly, it slowly develops in the minds of consumers from the design of the brand image. Andresen compares the brand value factors determined with empirically determined reference values ​​for the product group concerned. This is how he gets the strengths / weaknesses profile of a brand.

The results of the brand iceberg are highly relevant for marketing purposes, but the measurement of brand value in the classic, monetary sense is not possible with this model.

The second component of the brand rating model is the determination of a monetary brand value. This is calculated as the discounted price difference to the cheapest competitor, minus the maintenance expenses customary in the industry for the brand. The discount factor is determined by the industry risk, which is made up of the degree of concentration of buyers, the legal framework, threats from replacement products and services, quantities and price developments, future brand relevance, barriers to market entry for new competitors, degree of concentration of providers and the threat of backward integration of buyers. The quantity factor results from the sales figures of the previous year.

The third component should represent the development perspective of a brand. For this purpose, statements are made about the development trend of the brand, its expansion potential and the existing brand protection from numerous studies such as database research, expert assessments, market and competition analyzes. Brand Rating uses the results of these three components to calculate a monetary brand value. The underlying calculation formula is disclosed.

Since the process is rather young, no scientific judgments can yet be found in the literature. It is definitely interesting to combine a purely behavioral model with a classic monetary approach. The integration of the Brand Future Score also makes sense.

Batten & Company's brand equity valuation for accounting model

The "Brand-Equity-Valuation-for-Accounting-Model" (abbreviated: BEVA-Modell) was developed by Batten & Company (formerly BBDO Consulting) together with auditors. The basic idea of ​​the BEVA model is the future-oriented determination of the monetary brand value on the basis of the relief-from-royalty method , the so-called license price analogy method . In doing so, the economic advantage of the trademark owner is determined compared to the theoretical case in which he would not be in possession of the trademark rights and would therefore have to license a comparably strong trademark externally. These saved license fees (called “Royalty Savings”) accumulate over the assumed usage period of the brand to form the monetary value of the brand.

The BEVA approach has a modular structure that combines the behavioral and the finance-oriented perspective. In a first step, the brand strength is determined from the customer's point of view using a 5-stage brand value driver model. This results in a brand strength value, which is then converted into a license fee that is individually tailored to the brand. The transformation takes place using a transformation curve that shows the relationship between brand strength and the license revenues that can already be achieved in real terms on the market.

The merging of behavioral and financial perspectives takes place in the next step by multiplying the brand-specific license rate (“Brand Profit Rate”) with the brand-related sales per year. This results in the annual brand-related profits (“gross royalty savings”), which represent the price and volume premiums generated by the brand in comparison to a white label product. After adjusting these income streams for tax influences, the monetary value of the brand on the valuation date is calculated using the discounted cash flow method.

The Brand Census from Konzept & Markt

In addition to the Nielsen brand performance system, Konzept & Markt has developed the “Brand Census”, a brand evaluation model based on empirical brand sales funnel queries. This allows brands to be rated using only survey data and not e.g. B. panel data are used. In order to take into account the circumstances of different markets, the brand purchase funnel queries are formulated individually and the funnel levels are empirically weighted with the help of combined factor and regression analyzes.

In addition to a brand evaluation from the perspective of potential customers, the model can include the perspective of all stakeholders of the brand so that corporate brands can also be validly evaluated. In order to determine the importance of the various stakeholders for the brand, causal and deposit analyzes are used.

The further analysis steps in the Brand Census correspond to the usual procedure of discounted cash flow processes and conform to the “Ten Principles of Monetary Brand Valuation” of the Brand Valuation Forum.

ISO standard for brand valuation

With issue date 2010-09, the International Organization for Standardization ISO (www.iso.org) published the ISO 10668 standard "Brand valuation - Requirements for monetary brand valuation" (Brand valuation - Requirements for monetary brand valuation). This standard specifies basic requirements for procedures and methods for determining the monetary value of a brand and includes financial, behavioral and legal aspects. Based on ISO 10668, a certification program was created under the auspices of Austrian Standards plus Certification. Interbrand (CH), the European Brand Institute (AT), Brand Finance (UK), Brandlead (CH) and BV4 (CH) have undergone the conformity assessment according to this program.

Brand policy

When a company and its brands are taken over by another company, it is important to assess whether the brands should continue to exist or the products will be sold under an umbrella brand in the future . When the product range changes, brand names that have been introduced in the market are occasionally replaced by new ones. For this, not only must the advertising costs for different brands be related to the advertising costs of the umbrella brand or new brand, but also the brand value or added value that can be achieved by better-known brands.

Examples:

  • "Agip becomes Eni - but the fire-breathing dog stays."
  • "Raider is now called Twix, ... nothing else will change.", Global standardization of the brand name, see Twix
  • "Calgonite is now finish." Has been changed to the confusion with Calgon to prevent

literature

Web links

Examples of brand value models

swell

  1. ↑ Bekmeier-Feuerhahn: Market-oriented brand evaluation . 1998, ISBN 3-8244-6697-X , p. 62.
  2. ↑ The equivalent of around 18,000 euros was spent per customer , Spiegel No. 8 of February 18, 2002, p. 65.
  3. ^ Inga Ellen Kastens: Linguistic brand management. The language of brands - structure, implementation and impact potential of an action-oriented brand management approach. LIT, Münster 2008, ISBN 978-3-8258-1844-9 .
  4. ^ Company information , accessed on November 25, 2011.