Having studied managerial finance, I have always been curious to learn more about brand valuation and how this approach provides value for marketers and executive teams.
I believe in the power of brands and that a brand can be a company’s most valuable asset. Brands are enduring and evoke deeply held feelings about a product or service. They are powerful drivers of choice and influence the decisions we make as consumers, employees, business decision makers, and investors.
Strong brands create loyalty, help companies attract and retain talent, drive competitive advantage, and even reduce business risk. Brand valuation is a way to quantify all of these benefits. According to P. Kotler and K. Keller in their book Marketing Management, brand valuation is “an estimate of the total financial value of the brand.”
Bridging the Gap
Today, most brand owners report their performance in terms of awareness and brand equity, which is difficult to translate into a meaningful number that the rest of the executive team can understand. Brand valuation provides a globally recognized alternative. While it still takes a combination of art and science to measure any intangible asset, brand valuation quantifies a brand’s contribution to the company’s enterprise value using an approach that has received ISO (International Organization for Standardization) certification. This globally accepted standard sets minimum requirements in order to determine the value of a brand. It ensures consistency and a level of commonality.
How Brand Valuation Works
Brand valuation evaluates a brand based on the following criteria:
1.) Financial Forecast – forecasted earnings
2.) The Role of the Brand – the percentage of a company’s earnings attributed to brand
3.) Brand Strength – a brand’s risk
While league tables produced by Millward Brown, Forbes, Interbrand, and others have elevated and popularized the conversation around brand valuation, running an individual project for your brand delivers many potential benefits to your organization beyond a simple number including:
- Tying investment decisions to brand valuation outcomes
- Understanding the relative contribution of different business units, geographies, or customer segments to total brand value
- Improving communication with the CFO and other C-suite executives
- Turning existing research data into useful information
- Using it as a key performance metric to monitor over time
- Elevating the importance of the brand internally as a strategic asset
- Filtering strategic partnerships by understanding your strengths and weaknesses and what you want/need in a partner
- Negotiating sponsorship and other partnership opportunities
Overall, brand valuation is a tool that can help marketers make more strategic decisions and have a stronger voice in the boardroom. In a data-driven world, executives demand to know how brand investments contribute to their bottom line and this evaluation allows marketers to demonstrate their accountability and showcase the importance of their work. It seems like a win-win to me!
Amy Geisert is a Marketing intern at Monigle, a former reporter, and a future branding all-star.