How do you explain the importance of the value a brand can carry?
Brand is not only a tactical aid to generate short-term sales. It is a strategic support to a business adding long-term value to an organization.
At the same time, many departments within a corporation want the need for accountability in marketing but few step forward to take ownership for how to account for brand value and equity. As a consequence, to most CFOs, marketing is an expense without a direct correlation to ROI.
Often investors leave brand value unaccounted for when it comes to investments and acquisitions, especially those involving family businesses. Brands are not connected to accounting standards. At the same time, brands can range in value from 10 percent for B2B brands to over 60 percent for brands like Jack Daniels and Coca-Cola.
Price competition is the only viable alternative to creating and leveraging brand value . . . and it can be calculated.
Brand Value Methods
While there is no single authoritative and valid approach to calculating brand value, there are some techniques and formulas to get something very tangible on the table.
Premium Price Method
1. For a premium or even a modestly higher-end price position, calculate the price difference between your offering and lesser-known or lesser-respected brands.
2. Then multiply the difference by the number units sold.
3. Obviously, the outcome will be greater for larger companies. Why not then divide the number (2 above) by total sales to produce a percent attributed to your brand.
If your brand is not commanding a higher-price, it many need some work.
Stock Price Method
This method is more straightforward with publically traded companies, but can be estimated for privately held companies. Like the method above, it assumes a premium for your branded product. If you are not going to market with even a higher-end price, your brand may need some tweaking.
Brand Value = [(premium: share price /sales per share) – (generic: share price/sales per share)] x sales
Example: Kellogg Brand Value = (1.78 – 1.32) x (13,846 ) = 6,396 Million
On a more qualitative side, if an enterprise was interested in using/franchising your brand, what would you charge? How much would they be willing to pay? The math gets hairy but the result of that negotiation is a measure of brand value.
Cost to Build Your Brand
In the interest of finding the quantitative value of your brand, assume you are starting from scratch to create your brand as it stands today. Just start by adding the costs of some of the activities below.
Licensing and registration
Multiple year media expenditures
Creating customer loyalty (customer service)
Just to name a few.
These are just a few ways to getting the thinking started. A Google search will identify many more. The point is that brands are not gray, nebulous or abstract. They are real and contribute substantially to the value of your company.
“If this business were to split up, I would give you the land, bricks and mortar and I would take the brands and trademarks, and I would fare better than you.” – CEO Quaker Oats