(2.4) Measuring brand equity Flashcards
Brand as asset of firms
Most valuable! Driver for company success. Think of companies like Mercedes. Brands are standing on the balance sheet since recently! Brands should be payed off in case of mergers.
» Recent tendency: customer relations are becoming even more important
Why should brand equity be measured?
- Mergers and acquisitions
- Internal reporting
- Brand licensing
- Budget allocation
- Brand management and controlling
» So much needed that some companies have measuring brands as core businesS.
Explain the difference between non-monetary and monetary brand equity
Non-monetary = customer based –> analyzing brand awareness, brand image and brand value drivers
Monetary = more brand value –> measuring future earnings that are attributable to the brand and discounting them to het a net present value
Explain the measuring of brand equity step-by-step
1) Analyze brand awareness, brand image, brand value drivers
2) Determine the brand earnings, attributable to the brand (isolated)
3) Determining future brand earnings, by forecasting
» Consider the state of the brand today, consider all brand strategic options
» Become brand equity by summing all future brand earnings discounted to get a net present value
Give examples on how to analyze brand awareness and brand image as first step of measuring brand equity
- Look for recall of football sponsorships (+)
- Look for recall of corporate layoffs (-)
Empirical: - Young and Rubicam Brand Asset Valuator
- Always use open questions, but definitly add 3 item attitude scales to optimize findings
Explain mathematically how to determine brand earnings
BE = EXPSUC(br) - EXPSUC(nbr)
> BE = brand equity
> EXPSUC = expected success - based on branded or not and on PC which are product characteristics
> br = branded
> nbr = not branded - based on a hypothetic identical product
Give in short the 3 approaches to determine brand earnings
- Heuristics
- Analogies like royalty approach
- Direct estimation of the added value
Explain the approach of heuristics to determine brand earnings
Quick solutions for complicated problems, based on thumb rules.»_space; Saves time and money
Based on brand relevance and brand strength
Give 3 possible heuristics to determine brand earnings
- BRIC close to 100%, brand is the only purchase criterium –> no isolation needed, earnings = brand earnings
- Brand earnings = BRIC % x revenue x average profit margin in category
- Weigthing with relative brand strength (most used)
Explain the approach of the analogies in determining brand earnings
Brand owners sometimes license the brand to other companies who then have to pay royalty rates for using the brand.
» Brand value is then reflected in discounted future royalty stream
» Also called “royalty relief” as the firm is luckily to not have to pay this royalty, as they own the brand
» Brand earnings = revenue x royalty rate
» Use the royalty rate out of the range in the industry
How to direct estimate the added value of a brand to determine brand earnings?
- Price premium approach
- Unit sales premium approach
- Revenue premium approach
Give the approaches to forecast future brand earnings
- Indirect estimation
> Historic costs
> Market value-based approaches - Direct estimation: NPV based
Explain the historic costs model to forecast future brand earnings, and add advantages and disadvantages
Brand is worth all the investments in the brand in the past
(+) Good reference point
(-) Conceptual: the costs of creating don’t represent the current value
Explain the idea of the market value based approach to forecast future brand earnings
Starting point = market value of company
Then: brand value = residual after substracting tangible and intangible non-brand assets from the market value
» Based on Simon Sullivan model where brand equity is part of the financial market value of a firm:
tangibles + intangible brand equity + other intangibles like skills, people, …
Draw the scheme of firm value of Simon Sullivan
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