Approaches to Brand Valuation
Don E. Schultz and Heidi F. Schultz
excerpted and adapted from an upcoming book titled Kellogg
on Branding, John Wiley.
the years we've come to the conclusion that there are three
primary approaches to measuring, tracking, and evaluating brands
over time. Each approach has distinct goals and management
information objectives. The challenge is to determine which one
to use and for what purpose.
#1: Customer-Based Brand Metrics
first approach consists of quantitative and qualitative
measurement approaches to understanding the consumer’s
or brand user’s awareness, understanding, and relationship with
the brand. The most common approach is to measure current
brand perceptions, knowledge and understanding, then track changes
over time. These changes are then related to the marketing communication
programs conducted on behalf of the brand.
measurement approaches used stem from the marketing philosophy
that attitudes, opinions, and beliefs drive consumer brand
behaviors. Thus, if the consumer or prospect holds certain
marketer-generated “right” attitudes and beliefs about the brand,
they will most likely behave in the “right way” toward the brand.
Likewise, if the consumer’s attitudes, opinions, and beliefs about
the brand are not positive, they will likely purchase or use a
the principal question is whether or not the marketing
organization has successfully created, reinforced, or changed
the attitudes, opinions and beliefs of its consumers and prospects.
#2: Incremental Brand Sales
The second approach consists of measuring short-term incremental
sales or cash flows generated by the brand. These measures
are primarily behavioral, consisting of known past consumer behavior
or likely future actions. In addition, the measures used are financially
oriented, seeking to identify the incremental financial returns
the brand generates as a result of marketing activities and investments.
approach is focused on identifying the short-term incremental
financial value, generally increased sales volume, premium
pricing, or other outcomes that can be attributed to brand
activities. The measurable impacts are commonly related to
how those activities influenced the brand’s demand. Obviously,
this approach is heavily focused on the economic and financial
aspects of brand management and measurement, as opposed to the
attitudinal orientation of the customer-based approach.
incremental brands sales approach uses two basic methodologies,
both focused on determining the financial impact of branding investments:
Mix Modeling is used to determine historical brand return
on investment (ROI). These measures help a firm determine the
extent to which different activities (advertising, promotion,
special events, etc.) impact sales volume, revenues, and profits
Modeling forecasts potential returns on future branding
activities (return-on-customer-investment - ROCI). These tools
project the likely impact branding activities may have in the
near term, usually the current fiscal year. Typically, predictive
methods rely on forecasts of what specific customers or groups
of customers might do in the future.
primary difference between determining historic brand investment
returns (Marketing Mix Modeling) and predicting future
returns (Predictive Modeling) is this: in historic analysis,
understanding the customers who created the returns is not a critical
issue — it is the aggregated marketing activities that are relevant.
By contrast, in predictive modeling, the primary concern is more
often about which customers are the most valuable or the most
likely to respond which can be used to forecast future returns.
#3: Branded Business Value
third approach measures the financial value of the brand to
the firm over the longer-term. These approach generally treats
the brand as an organizational asset in which investments can
be made and returns achieved. Typically these measures provide
a valuation or appraisal of brand assets for use in mergers
and acquisitions, taxation, and licensing. Brand valuation
is often conducted at the request of senior management to provide
guidance on the strategic use of corporate resources
goal here is to understand the brand as a separable, organizational
asset — that is, to understand the economic worth of the brand
to its owner. This calculation is not a defined statistical process,
such as Marketing Mix and Predictive modeling. Instead, it is
a process based on combining hard financial data, market research,
industry benchmarks, and generally accepted accounting principles
to arrive at an estimated valuation for a brand under a given
set of assumptions.
There are essentially three levels of valuation:
valuation: focuses on appraising the value of a specific
trademark, name, logo, or other identifying element. This is
the most basic definition of a brand and the narrowest view
of valuation. For example, such a valuation might look at the
value of the trademark for purposes such as tax planning, licensing,
or entering in to a joint venture where the trademark will be
used by a strategic partner.
valuation. This valuation expands the work to encompass
broader range of intellectual property rights and identifying
elements of the brand, such as design rights, domain names,
trade dress, packaging, copyrights, and secondary elements such
as colors, smells, sounds, advertising materials, and so on.
business valuation. This valuation is a corporate or organizational
brand and includes not just the trademarks, names, logos and
so on, but also the culture, people and programs that combine
to create the brand experience for customers. Typically, this
level of valuation is more reflective of the totality of the
brand than an analysis conducted only on the outward identifying
the financial value of the brand allows management to compare
it against other tangible and intangible assets and consider how
to best apply finite resources to create additional value. Typically,
the brand is one of the most valuable assets the firm owns, so
it only seems prudent for management have a clear idea of the
brands financial worth.
that's another subject; we'll look at the benefits of brand
valuation in a separate column.
Schultz is professor of Integrated Marketing Communications
at the Medill School of Journalism, Northwestern University. He
is also president of the consulting firm, Agora, Inc. Don is the
author of thirteen books, including his latest “Brand Babble:
Sense and Nonsense about Brands and Branding.” Early in his career
Don worked at Tracy-Locke Advertising and Public Relations. He
received his B.A. from the University of Oklahoma and a Ph.D.
from Michigan State University. 28
Schultz is Executive Vice-President of Agora, Inc., a marketing
and branding consulting firm based in Evanston, IL, and a lecturer
in Northwestern University's Department of Integrated Marketing
Communications. Heidi received her Bachelors’ Degree fro m University
of Southern California School of Journalism and her Master’s Degree
from Northwestern University’s Kellogg School of Management. She
joined Agora in June 1995 after almost 10 years at Chicago, the
nation’s largest monthly city magazine. Schultz is the co-author,
along with her husband Don Schultz, of several articles and columns
on IMC, brands and branding. In 2003 the couple completed two
books, “IMC: The Next Generation” published by McGraw-Hill, and
“Brand Babble: Sense and Nonsense About Brands and Branding.”
published by South-Western/Thomson Publishing.