International Brand Valuation Manual

Author Information Gabriela Salinas has a very uncommon professional profile, with deep understanding of strategic, accounting, financial and marketing issues, that has earned her a reputation as one of the world leading experts in the field of brand valuation. As Global Brand Manager of Deloitte Touche Tohmatsu, Gabriela advises internal and external clients on brand valuation and evaluation related issues. She has a broad international experience, having worked in New York, Buenos Aires, Singapore, London and Madrid for clients such as the Bank of America, Repsol YPF, Telefónica, Terra Networks, Bausch & Lomb, Johnson & Johnson, Roca, GM and Great Eastern Life and other international companies on projects involving brand evaluation, brand architecture, brand positioning and brand valuation projects. Early in her career Gabriela specialized in corporate valuation, receiving a Master in Corporate Finance and lecturing on 'Valuation of Financial Assets'. Later on, she focused on the valuation of intangible assets, developing a sound professional career in the field. As she enjoys the academic work, she led several research projects on the field and is now teaching 'Brand Valuation' at the Institute of Intangible Assets in Spain. Gabriela is now a member of the international initiative for the standardization of brand valuation methodologies, ISO/PC 231 International Committee and of the Brand and Valuation Committees of the Institute of Analysis of Intangible Assets.

• List of Figures and Tables xiiiForeword xixAcknowledgements xxivIntroduction xxvi1 The Concept and Relevance of Brand 11.1 The concept of brand 11.1.1 The accounting perspective 21.1.1.1 The brand as an intangible asset 21.1.1.2 Non-recognizable intangible assets: Internally generated brands 41.1.1.3 Trademark, brand and branded business 51.1.2 The economic perspective 71.1.2.1 Economic vs. accounting criteria 71.1.3 The management perspective 81.1.3.1 Brand and corporate reputation 81.1.3.2 Brand and visual identity 111.1.4 Brand, intangible assets and intellectual capital – Everyday vocabulary and conflated terms 121.1.4.1 Brand equity and intangible assets 121.1.4.2 Brand, intangible assets and intellectual capital 141.2 Brand value 181.2.1 What is brand value? 181.2.2 How do brands create value? 191.3 The growing importance of the economic value of brand 201.3.1 Business evidence 201.3.2 Social evidence 221.3.3 Economic evidence 221.3.4 Normative and institutional evidence 241.3.5 Academic evidence 301.4 Conclusions 312 The Origin and Evolution of Valuation Methods 332.1 The Origin and evolution of valuation methods 332.1.1 Origins: The series of acquisitions in the 1980s 332.1.2 The fi rst brand valuation: Rank Hovis McDougall 352.1.3 The accounting confl ict generated by brand capitalization 362.1.4 Rapid development and applications 372.1.5 Who values brands today? 382.1.6 How do corporations use this tool? 402.1.7 How do investment analysts use this information? 412.1.8 How do other players use this information? 432.2 Conclusions 453 Brand Valuation Method and Process 473.1 Brand valuation process 473.1.1 What is brand valuation? 483.1.2 The current debate: Why bother with brand valuation? 483.1.3 The purpose of brand valuation 503.1.3.1 Brand management 513.1.3.2 Accounting purposes 523.1.3.3 Internal or external transaction purposes 523.1.4 Defining the scope of valuation and the concept of brand 543.1.5 Choosing an appropriate methodology 543.2 Conclusions 564 General Approaches To Brand Valuation 574.1 Cost approach 584.2 Market approach 614.3 Income approach 634.3.1 Price premium 654.3.2 Royalty savings 704.3.3 Demand drivers/brand strength analysis 824.3.4 Comparison of gross margin with that of relevant competitors 894.3.5 Comparison of operating profit with that of relevant competitors 914.3.6 Comparison with theoretical profits of a generic product 924.3.7 Cash flow or income differences with a benchmark company (“subtraction approach”) 944.3.8 Present value of incremental cash flow (the company’s value “with” and “without” brand) 954.3.9 Free cash flow (FCF) less required return on other non-brand-related assets 964.3.10 Excess earnings 964.3.11 Company valuation less value of net tangible assets 1024.3.12 Real options 1035 Brand Valuation Methods and Providers 1095.1 AbsoluteBrand 1105.2 AUS Consultants 1125.3 BBDO 1175.3.1 Brand Equity Evaluation System (BEES) 1185.3.2 Brand Equity Evaluator® 1215.3.3 “Brand Equity Valuation for Accounting” (BEVA) 1265.4 Brandient 1295.4.1 Brandient´s model based on demand driver analysis 1295.4.2 Brandient’s model based on royalty savings 1315.5 BrandEconomics 1325.6 Brand Finance 1445.6.1 Royalty savings 1455.6.2 Earnings split 1475.7 BrandMetrics 1515.8 Brand Rating 1585.9 Consor 1645.9.1 Royalty savings model based on Valmatrix® analysis 1655.9.2 ValCALC® model (excess earnings) 1675.9.3 BVEQ TM model (core brand value plus the value of incremental efficiencies) 1685.9.4 Residual approach (market cap less the value of tangible assets) 1705.10 Damodaran’s valuation model 1715.11 Financial World 1745.12 FutureBrand 1795.13 GfK-PwC-Sattler: Advanced Brand Valuation model 1845.14 Herp’s model 1925.15 Hirose model 1935.16 Houlihan Advisors 2075.17 Intangible Business 2095.18 Interbrand 2155.18.1 Interbrand’s multiplier model (“Annuity” model) 2165.18.2 Interbrand’s discounted cash flow model 2225.19 Kern’s x-times model 2325.20 Lev’s Intangibles Scoreboard 2345.21 Millward Brown Optimor 2365.22 Motameni and Shahrokhi’s Global Brand Equity Valuation model 2505.23 Prophet 2575.24 Repenn’s brand valuation model (System Repenn) 2605.25 Sander’s Hedonic brand valuation method 2625.26 Sattler’s model 2655.27 Semion 2675.28 Simon and Sullivan’s stock price movements model 2705.29 The Nielsen Company: Brand Balance Sheet and Brand Performance 2745.29.1 The Nielsen Company: Brand Balance Sheet 2755.29.2 The Nielsen Company’s Brand Performance 2775.30 Trout & Partners 2815.31 Villafañe & Associates’ Competitive Equilibrium model 2845.32 Other brand valuation providers and models 2895.33 Conclusions 2936 A Taxonomy of Brand Valuation Methods 2956.1 By use of financial or non-financial indicators 2956.2 By application or possible objectives 2966.3 Classification proposed by BBDO 2976.4 Classifications based on mixed criteria 2996.5 By intended universality of the calculated value 3006.6 By its nature or origin (academic vs. commercial) 3016.7 By approach employed (cost, market and income) 3036.8 By method of determining the proportion of income or revenues attributable to brand 3076.8.1 Demand driver analysis 3096.8.2 Ratio of loyal consumers to total consumers 3096.8.3 Price premium 3096.8.4 Excess earnings 3096.8.5 Royalty rates 3126.8.6 Operating profits comparison 3126.8.7 Comparison with theoretical earnings yielded by a generic product 3166.8.8 Comparison of the cash flows of branded and unbranded companies 3166.8.9 Difference in price to sales ratios 3166.8.10 Economies of scale 3166.8.11 Differences in cash flow with a benchmark company 3166.8.12 CVH (Conjoint Value Hierarchy) 3186.8.13 Free cash flow less required return on assets other than brand 3196.8.14 Arbitrary constant coefficients 3196.8.15 Competitive equilibrium analysis 3196.8.16 Equations based on accounting data 3216.9 By method of “representing brand risk” 3216.9.1 Comparison of models by representation of brand risk 3216.9.2 Classification by representation of brand risk 3226.10 By method of “representing the brand’s growth and useful life” 3276.10.1 Classification by representation of the brand’s useful life and long-term growth 3307 The Current Situation 3317.1 General trends in brand valuation 3317.1.1 Proliferation of proprietary methods and brand valuation firms 3337.1.2 Lack of understanding and credibility among brand valuation users 3357.1.3 Commercial and academic concentration in Anglo-Saxon countries 3377.1.4 Increasing professionalism in the sector and sophistication of brand valuation techniques 3387.1.5 Growing convergence between marketing specialists and corporate finance experts 3387.1.6 Widespread use of certain models among practitioners 3397.1.7 Financial validity vs. widespread usage of models among practitioners 3417.1.8 Worlds apart: the academic and practitioners’ realms 3437.1.9 The third world: “black box” methods 3437.1.10 Vast inconsistency in the application of various brand valuation techniques 3447.1.11 Differences in implementation 3457.1.12 Diversity and divergence of results yielded by different methods 3467.1.13 Determining useful life 3477.1.14 Determining discount rates 3487.2 Common errors and misconceptions in brand and intangible asset valuation 3507.2.1 Conceptual errors 3507.2.2 Errors in management 3567.2.3 Errors in interpretation 3587.3 Conclusions 3598 Is Corporate Brand Valuation Possible? 3638.1 What is “corporate brand,” and is it the same as “corporate reputation?” 3648.2 Why value corporate brands? 3658.3 Methodological options proposed for corporate brand valuation 3668.4 Models based on the concept that “corporate brand or reputation” adds value to product brands 3698.4.1 Association-Affinity Model 3698.4.2 Critique 3728.4.3 Model based on demand analysis 3738.4.4 Critique 3748.5 Model based on the company value’s sensitivity to variations in “corporate brand or reputation” value 3768.5.1 Assumptions 3768.5.2 Empirical development 3798.5.3 Theoretical model 3818.5.4 Critique 3868.6 CoreBrand’s model for measuring the percentage of market capitalization attributable to corporate brand 3888.6.1 Brand PowerTM Analysis 3898.6.2 ROI Analysis 3908.6.3 Brand Equity Valuation Model 3908.6.4 Stock performance forecast 3918.6.5 Critique 3928.7 Conclusions 3959 The Future of Brand Valuation 3979.1 The prospect of methodological consensus: Standardization vs. affinity of applications and methods 3979.2 Future trends in the supply and demand of brand valuation services 3999.3 Accounting users: financial officers’ discomfort 4029.4 Marketing specialists: using valuation prudently and founding a new language compatible with finance 4039.5 Regulators: behind the scenes, but with great confidence 404References 406Index 414