FAQs

The help clients, marketers and brand owners understand brand valuation, we have produce a series of short definitions and descriptions of key brand and financial related terms used throughout our website and research.

  • 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 behavioural metrics. The most common metrics on which brand performance can be judged that are usually seen to be a direct consequence of strong equity are listed below. 

    Penetration

    Market penetration is a measure of the number of consumers purchasing or using a particular brand as a proportion of the total number of consumers purchasing or using that brand in a defined time period. The plotting of the penetration level over time results in a curve known as the cumulative penetration and can be assessed on a monthly, quarterly or annual basis. 

    Frequency

    For each given buyer or group of buyers of a brand the number of times in a defined time period that the brand is purchased. Thus in a given time period: Penetration × average frequency × size of target universe = total volume of purchases.

    Repeat Purchase

    The proportion of those purchasing a brand in a given time period who purchase it again within the same time period (or in some analyses a subsequent time period). Repeat purchase is often used as a measure of customer loyalty to a brand and is usually seen as a key indicator of brand strength.

    Loyalty

    Customer loyalty can be thought of as both an attitudinal and behavioural tendency to favour one brand over all others, whether due to satisfaction with the product or service, its convenience or performance, or simply familiarity and comfort with the brand. 

    Customer loyalty encourages consumers to shop more consistently, spend a greater share of wallet, and feel positive about an experience with a brand, helping attract consumers to familiar brands in the face of a competitive environment. 

    Behavioural loyalty without attitudinal loyalty indicates a more vulnerable brand, attitudinal loyalty without behavioural loyalty indicates a brand whose equity has not been fully leveraged due to other weaknesses in the marketing mix.

    Price Premium

    One of the strongest and most important consequences of strong brand equity is the ability of that brand to command a price premium vs other brands in its sector. 

    Although there are several useful benchmarks by which a brand’s price can be compared, they all attempt to measure the ‘average price’ in the marketplace. The ability of people to identify this differs by sector with commodity markets like utilities being considerably simpler to identify than those industries where the delivered product or service is not homogenous.

    For more information on this, read our whitepaper on value-based brand management here.

  • 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.

  • How is brand strength calculated?

    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. 

    Analysing the three brand strength measures helps inform managers of a brand’s potential for future success.

  • How is brand value calculated?

    Brand Finance calculates the values of the brands in its league tables using the Royalty Relief approach – a brand valuation method compliant with the industry standards set in ISO 10668.

    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.

    The steps in this process are as follows:

    1. Calculate brand strength using a balanced scorecard of metrics assessing Marketing Investment, Stakeholder Equity, and Business Performance. Brand strength is expressed as a Brand Strength Index (BSI) score on a scale of 0 to 100.
    2. Determine royalty range for each industry, reflecting the importance of brand to purchasing decisions. In luxury, the maximum percentage is high, in extractive industry, where goods are often commoditised, it is lower. This is done by reviewing comparable licensing agreements sourced from Brand Finance’s extensive database.
    3. Calculate royalty rate. The BSI score is applied to the royalty range to arrive at a royalty rate. For example, if the royalty range in a sector is 0-5% and a brand has a BSI score of 80 out of 100, then an appropriate royalty rate for the use of this brand in the given sector will be 4%.
    4. Determine brand-specific revenues by estimating a proportion of parent company revenues attributable to a brand.
    5. Determine forecast revenues using a function of historic revenues, equity analyst forecasts, and economic growth rates.
    6. Apply the royalty rate to the forecast revenues to derive brand revenues.
    7. Brand revenues are discounted post-tax to a net present value which equals the brand value.
  • What actions impact brand equity and value?

    Given that the marketing definition of brand equity relates to the associations and perceptions that exist within a customer’s mind, there is a clear corollary – anything that affects those perceptions, whether consciously or subconsciously, can influence the Brand Equity.

    Generally, in order to build brand equity brand and marketing managers focus on the following activities (also known as “levers”)

    • Advertising
    • Sponsorship
    • Sales Promotion
    • Distribution
    • Pricing
    • Visual Identity & Packaging
    • Public Relations & Social Media
    • Product (Formulation/Design/Service)
    • Innovation

    For more information on this, read our whitepaper on value-based brand management here.

  • What are brand valuations useful for?

    There 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
  • What are the international standards on brand valuation?

    Brand Finance 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.

  • 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 and request one here.

  • 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.

  • What is the 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.

  • 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.

    Brand evaluation is also an input into brand valuation, which focusses on the monetary value of a brand and its commercial worth to a company as a transferable and income-generating asset. Evaluation takes into account nonfinancial considerations as well as obvious factors such as sales, profit, and ROI. 

    However, the two concepts are inherently linked – some kind of 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’.

  • 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.

  • 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 monobranded 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 behaviour.

    Band 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 optimise performance.

    Brand value is the value of the trade mark 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.

  • 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 favourable trade terms, attract superior quality partners and attract more capable employees at lower cost. 

    Furthermore, strong Brand Equity increases the probability of high revenues in future time periods, albeit again dependent upon the application of all other marketing mix factors or conditions

    For more information on this, read our whitepaper on value-based brand management here.