Most of us were surprised by the top brand list that was shown in the class. I know I was. It is interesting to know the methodology that Interbrand use to give us the outcome that it did. First, in order for a firm to be evaluated it should meet the following criteria:
- At least 30 percent of revenues must come from outside the brand’s home region
- It must have a presence in at least three major continents, as well as broad geographic coverage in emerging markets
- There must be sufficient publicly available data on the brand’s financial performance
- Economic profit must be expected to be positive over the longer term, delivering a return above the brand’s operating and financing costs
- The brand must have a public profile and awareness above and beyond its own marketplace.
Interbrand believes that the value of a brand is articulated from three main components are the financial performance of the branded products or services, the role the brand plays in the purchase decision, and analyses of the competitive strength of the brand.
Economic profit is the after-tax operating profit of the brand, minus a charge for the capital used to generate the brand’s revenues and margins. They build a set of financial forecasts over five years for the business, starting with revenues and ending with economic profit, which then forms the foundation of the brand valuation model. A terminal value is also created, based on the brand’s expected financial performance beyond the explicit forecast period. The capital charge rate is determined by reference to the industry weighted average cost of capital.
Role of Brand:
Role of Brand analysis is about understanding purchase behavior—the brand’s influence on the generation of demand through choice. It measures the portion of the decision to purchase that is attributable to the brand, relative to other factors like price, convenience, or product features. The Role of Brand Index (RBI) quantifies this as a percentage.
RBI determinations for this study derive, depending on the brand, from one of three methods: primary research, a review of historical roles of brand for companies in that industry, or expert panel assessment. RBI is multiplied by the economic profit of the branded products or services to determine the earnings attributable to the brand (brand earnings) that contribute to the valuation total.
Brand Strength measures the ability of the brand to create loyalty and, therefore, to keep generating demand and profit into the future. In doing this, it considers internal (management and employee) and external (customer) factors.
Brand Strength is scored on a 0–100 scale, based on an evaluation across 10 key factors that Interbrand believes make a strong brand. Performance on these factors is judged relative to other brands in the industry and relative to other world-class brands. The strength of the brand is inversely related to the level of risk associated with the brand’s financial forecasts.
A proprietary formula is used to connect the Brand Strength Score to a brand-specific discount rate. In turn, that rate is used to discount brand earnings back to a present value, reflecting the likelihood that the brand will be able to withstand challenges and generate sustainable returns into the future
They believe that brands in the ideal position to keep generating demand for the future are those performing strongly (i.e., “showing strength” versus the competition across a set of 10 factors that are outlined below). Four of these factors are more internally driven, and reflect the fact that great brands start from within. The remaining six factors are more visible externally, acknowledging the fact that great brands change their world. The higher the Brand Strength Score, the stronger the brand’s advantage.
Clarity in regards what the brand stands for and its values, positioning, and proposition. Clarity about target audiences, customer insights, and drivers. Because so much hinges on this, it is vital that these are articulated and shared across the organization.
Internal commitment to brand, and a belief internally in the importance of brand. The extent to which the brand receives support in terms of time, influence, and investment.
How secure the brand is across a number of dimensions: legal protection, proprietary ingredients or design, scale, or geographical spread.
The ability to respond to market changes, challenges, and opportunities. The brand should have a sense of leadership internally, and a desire and ability to constantly evolve and renew itself.
The brand is soundly based on an internal truth and capability. It has a deﬁned heritage and a well-grounded value set. It can deliver against the (high) expectations that customers have of it.
The ﬁt with customer/consumer needs, desires, and decision criteria across all relevant demographics and geographies.
The degree to which customers/ consumers perceive the brand to have a differentiated positioning distinctive from the competition.
The degree to which a brand is experienced without fail across all touchpoints or formats.
The degree to which a brand feels present everywhere and is talked about positively by consumers, customers, and opinion formers in both traditional and social media.
The brand is not only recognized by customers, but there is also an in-depth knowledge and understanding of its distinctive qualities and characteristics. Where relevant, this will extend to consumer understanding of the company that owns the brand.