MTI & IBL study:

‘Leverage brands in tough times’

UK’s Intangible Business, in collaboration with MTI Consulting, a fast growing international strategy consultancy, share their insights on leveraging brand equity during the recession. Brands are intangible assets to organizations, so how does the process of valuing a brand differ from the way one would value tangible assets?

Brand values are a reflection of a brand’s ability to generate future income. It is a forward looking study that uses historic performance and future trends to predict future activity. Strong brands are difficult to replicate and consequently are generally a company’s most valuable asset and the means through which income and profit is generated.

Identifying what drives this value enables management to increase a brand’s performance, resulting in increased revenue, larger market share and higher profits. Brand valuation helps analyse and plan for this, which is what makes it useful

Given the current aggressive levels of competition between brands in the market, how important is it for organizations to value their Brands?

All successful businesses create added value for both their owners and customers through exploitation of a competitive advantage. With open access to international markets, readily available information and fast passed innovation most sources of competitive advantage can be quickly eroded by competitors.

Especially in the current economic downturn, if you do not understand the value of a brand, you tend to set unrealistic targets that usually underestimate potential. This can have a knock-on effect on income, profit, supply chain management and staff morale.

What are the key measures that contribute to valuing a Brand?

The final value figure is the most visibly attractive element, but largely useless in itself. However, if one looks behind the headline number, the interest and usefulness soon becomes apparent and illustrates the health of the business. Think of it like a tiered iceberg or a pyramid.

The top tier contains only the final figure and is the most visibly attractive element, but largely useless in itself. Tier two contains performance measures such as a brand’s profitability, income, tax and discount rates. Tier three contains measures of brand strength and market conditions. There are then a series of similar tiered pyramids for each market, segment or territory the brand operates, all of which are connected to the main pyramid.

Many successful organizations are now focusing on Brand Management. Why is Brand Management more relevant today than Traditional Marketing Management?

The way in which brands drive revenue, create price premiums, instil loyalty and reduce costs extends way beyond the role of the traditional marketing function. Brand Management is no longer limited to the marketing department and traditional measures such as consumer awareness, loyalty and price premiums. Brands touch, influence and are influenced by every business function from staff recruitment and motivation to securing beneficial terms with suppliers. Brands are the glue that unite internal functions and links them to the outside world.

Many CEOs will wish to know how the financial measure of the brand’s value will play a role in explaining performance within a company. So how is Brand Valuation to be linked to measuring organization’s Financial Performance?

A comprehensive brand evaluation process attempts to link marketing levers to financial performance of both the brand and the business as a whole. Understanding these dynamic relationships allows management to enhance business value.

At a glance, you can see marketing’s impact on brand value in each sector or country, which means the brand valuation model can be used as a return on investment tool. By amending a marketing budget, you could see how it could impact the brand’s value and business profitability, so the brand valuation model can be used for forecasting and scenario planning.

Would an organization internally possess the necessary information to monitor the value of their Brand?

Most information required to build a brand value tracker, to monitor the value of a brand, is often already held internally by the brand owner, historical sales and profitability, sales forecasts, brand research, competitor research, market trends, future plans and strategies. The task is therefore neither daunting nor unmanageable. It simply requires the assimilation of all the information with an understanding of how the above-mentioned pyramid fits together.

To be continued