eBusiness Weekly
Leslie Mupeti
Apple is the most valuable brand in the world valued at more than US$355 billion followed by Amazon and Google. Amazon has a brand value of US$350,3 billion while Google has a brand value of US$263,4 billion.
The United States and China dominate the global brand rankings, claiming two thirds of brand value while India sees the fastest growth. Tik Tok is the world’s fastest growing brand with a brand value of US$59 billion and it claimed 18th spot on the world’s most valuable brands list.
Covid-19 restrictions and lockdowns across the globe fuelled the rise of entertainment streaming services which acted as a creative outlet for people during lockdown. We Chat is the world’s strongest brand for the second year with a top score of 99,3 out of 100 and an elite AAA+ rating.
Huawei managed to reclaim its position among the top 10 most valuable brands list with a 29 percent growth to $71,2 billion. Brand valuation is not for big companies or major corporations only.
It is very crucial for any brand whether it is a fly-by-night brand or a here-to-stay to be able to calculate it’s brand value. Let’s address the elephant in the room.
What is brand valuation? Brand valuation is the net value of all the business’ tangible as well as intangible assets.
It can also can be defined as the process used to calculate the value of a brand or the amount of money another party is willing to pay for it. It is similar to brand equity, but the difference is that brand equity is based on a consumer based perspective while brand value is based on a company based perspective.
Brand valuation is a technique to evaluate the brand value based on financial performance, brand equity, customer perception etc. Brands play a crucial role in generating and sustaining the financial performance of a business.
Strong brands help companies differentiate themselves in the market and communicate why their products and services are uniquely able to satisfy customer needs.
Businesses now operate in an environment where their overall quality of products are nearly the same and the only factor which can distinguish between brands with similar offers is effective branding.
Branding is the process of transforming essentially functional assets into relationship assets by providing the basis for a psychological connection between the brand and the customer.
Brand and relationship intangibles include: trademarks, trade names, trade symbols, domain names, design rights, trade dress, packaging, copyrights over associated colours, smells, sounds, descriptors, logo types, advertising visuals and written copy.
Why is brand valuation important?
1. Mergers and Acquisitions
When acquiring a company or an organisation, the buyers do not pay the book value. There is something called Goodwill, which is the difference between the paid acquisition price and the book value.
Goodwill is defined as the price premium another company is willing to pay over the market value for intangible assets such as a solid customer base, brand identity, recognition, a talented work force and proprietary technology.
These are valuable assets of the company. Estimating the financial value of these using brand valuation of a brand helps to determine the premium over book value that a buyer should be paying.
2. Licensing
A licence is an official permission or permit to do, use or own something. A licence is granted by a party to another party as an element of an agreement between these parties. Brand value benefits both the licensor and the licensee. The licensee benefits from the higher brand value, reach and publicity of the licensor while the licensor benefits form the income paid to him by the licensee.
3. Financing
Organisations or companies with solid brands find it easier to attract funding from investors or loans from banks. The higher the estimation of the brand through brand valuation, the better the financing terms.
4. Brand reviews
Brand valuations help companies to gauge their return on brand investment and to develop strategies to increase that value. It helps give intangible measures such as reputation and awareness a financial value which can be measured and assessed.
5. Budgetary allocations
Advertisers are able to make decisions and choices about which funds to allocate to which marketing channels and brand assets. Organisations and companies can now precisely gauge the blend of promoting vehicles required to expand both spending proficiency and advertising viability.
How to calculate your brand value
There are 3 approaches to carrying out a brand valuation.
1. Market approach
This is valuation on the basis of similar brands which exist in the market. It deals with the amount at which a brand is sold and is related to the highest value that a willing buyer and seller are prepared to pay for an asset. The downside of this method is that each brand has its own USP (Unique Selling Proposition). The logic is that the value of your brand must be similar to the value of another brand in the market.
2. Income approach
This is based on the economic benefits you are anticipating to derive from that brand. This is the most important approach.
An example of the income approach calculation can be a simple difference in value between a branded product and an unbranded product. That difference will be the value of the brand. To calculate the total brand value you’ll then need to multiply the difference with the total quantity of units sold.
3. Cost approach
This is based on the anticipated cost to recreate, replace or replicate the asset. It can further be divided into the following methods:
a)Accumulated cost/Historical cost method
This method aggregates all the historical marketing costs as the value. it involves historical cost of creating the brand as the actual brand value.
b) Replacement cost method
This values the brand considering the expenditures and investments necessary to replace the brand with a new one that has an equivalent utility to the new company.
c. Use of conversion model
One estimates the amount of awareness that needs to be generated in order to achieve the current level of sales.
d. Customer preference model
The value of a brand can be calculated by observing the increase in awareness comparing it to the corresponding increase in the market share.
Leslie Mupeti is a graphic designer and brand strategy expert. He can be contacted on +263 785 324 230 and [email protected] for feedback.
