The International Brand Valuation Manual

Transcription

1 The International Brand Valuation Manual A Complete Overview and Analysis of Brand Valuation Techniques, Methodologies and Applications Gabriela Salinas A John Wiley & Sons, Ltd., Publication

2

3 The International Brand Valuation Manual A Complete Overview and Analysis of Brand Valuation Techniques, Methodologies and Applications Gabriela Salinas A John Wiley & Sons, Ltd., Publication

4 2009 John Wiley & Sons, Ltd Registered office John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex, PO19 8SQ, United Kingdom For details of our global editorial offices, for customer services and for information about how to apply for permission to reuse the copyright material in this book please see our website at Revised and updated from the original Spanish edition Valoracion de Marcas: Revision de enfoques, metodologias y proveedores published in 2007 by Ediciones Duesto, Barcelona. The right of the author to be identified as the author of this work has been asserted in accordance with the Copyright, Designs and Patents Act All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, except as permitted by the UK Copyright, Designs and Patents Act 1988, without the prior permission of the publisher. Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. Designations used by companies to distinguish their products are often claimed as trademarks. All brand names and product names used in this book are trade names, service marks, trademarks or registered trademarks of their respective owners. The publisher is not associated with any product or vendor mentioned in this book. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold on the understanding that the publisher is not engaged in rendering professional services. If professional advice or other expert assistance is required, the services of a competent professional should be sought. EVA is a registered trademark of Stern Stewart & Co. and EVA Dimensions, and BRANDECONOMICS is a registered trademark of Stern Stewart & Co. Limit of Liability / Disclaimer of Warranty: While the publisher and the author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy completeness of the contents of the book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty might be created or extended by sales representatives or written sales materials. The advice contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor the author shall be liable for any loss of profit or any other commercial damages. The views and judgements expressed herein are those of the author individually and not necessarily those of Deloitte Touch Tohmatsu, its member firms or their affiliates. Library of Congress Cataloging-in-Publication Data Salinas, Gabriela. The international brand valuation manual : a complete overview and analysis of brand valuation techniques and methodologies and their application / by Gabriela Salinas. p. cm. Includes bibliographical references and index. ISBN (cloth) 1. Branding (Marketing) 2. Brand name products. 3. Valuation. I. Title. HF S dc A catalogue record for this book is available from the British Library. Set in 11 on 16 pt Trump Medieval by SNP Best-set Typesetter Ltd., Hong Kong Printed in Great Britain by TJ International Ltd, Padstow, Cornwall

5 To the memory of Ethan and all my loved ones...

6

7 Contents LIST OF FIGURES AND TABLES FOREWORD ACKNOWLEDGEMENTS INTRODUCTION xiii xix xxiv xxvi 1 THE CONCEPT AND RELEVANCE OF BRAND The concept of brand The accounting perspective The brand as an intangible asset Non-recognizable intangible assets: Internally generated brands Trademark, brand and branded business The economic perspective Economic vs. accounting criteria The management perspective Brand and corporate reputation Brand and visual identity Brand, intangible assets and intellectual capital Everyday vocabulary and conflated terms Brand equity and intangible assets Brand, intangible assets and intellectual capital 14

8 vi / CONTENTS 1.2 Brand value What is brand value? How do brands create value? The growing importance of the economic value of brand Business evidence Social evidence Economic evidence Normative and institutional evidence Academic evidence Conclusions 31 2 THE ORIGIN AND EVOLUTION OF VALUATION METHODS The Origin and evolution of valuation methods Origins: The series of acquisitions in the 1980s The first brand valuation: Rank Hovis McDougall The accounting conflict generated by brand capitalization Rapid development and applications Who values brands today? How do corporations use this tool? How do investment analysts use this information? How do other players use this information? Conclusions 45 3 BRAND VALUATION METHOD AND PROCESS Brand valuation process What is brand valuation? The current debate: Why bother with brand valuation? The purpose of brand valuation Brand management Accounting purposes Internal or external transaction purposes Defining the scope of valuation and the concept of brand 54

9 CONTENTS / vii Choosing an appropriate methodology Conclusions 56 4 GENERAL APPROACHES TO BRAND VALUATION Cost approach Market approach Income approach Price premium Royalty savings Demand drivers/brand strength analysis Comparison of gross margin with that of relevant competitors Comparison of operating profit with that of relevant competitors Comparison with theoretical profits of a generic product Cash flow or income differences with a benchmark company ( subtraction approach ) Present value of incremental cash flow (the company s value with and without brand) Free cash flow (FCF) less required return on other non-brand-related assets Excess earnings Company valuation less value of net tangible assets Real options BRAND VALUATION METHODS AND PROVIDERS AbsoluteBrand AUS Consultants BBDO Brand Equity Evaluation System (BEES) Brand Equity Evaluator Brand Equity Valuation for Accounting (BEVA) Brandient Brandient s model based on demand driver analysis Brandient s model based on royalty savings 131

10 viii / CONTENTS 5.5 BrandEconomics Brand Finance Royalty savings Earnings split BrandMetrics Brand Rating Consor Royalty savings model based on Valmatrix analysis ValCALC model (excess earnings) BVE TM Q model (core brand value plus the value of incremental efficiencies) Residual approach (market cap less the value of tangible assets) Damodaran s valuation model Financial World FutureBrand GfK-PwC-Sattler: Advanced Brand Valuation model Herp s model Hirose model Houlihan Advisors Intangible Business Interbrand Interbrand s multiplier model ( Annuity model) Interbrand s discounted cash flow model Kern s x-times model Lev s Intangibles Scoreboard Millward Brown Optimor Motameni and Shahrokhi s Global Brand Equity Valuation model Prophet Repenn s brand valuation model (System Repenn) Sander s Hedonic brand valuation method Sattler s model Semion Simon and Sullivan s stock price movements model The Nielsen Company: Brand Balance Sheet and Brand Performance 274

11 CONTENTS / ix The Nielsen Company: Brand Balance Sheet The Nielsen Company s Brand Performance Trout & Partners Villafañe & Associates Competitive Equilibrium model Other brand valuation providers and models Conclusions A TAXONOMY OF BRAND VALUATION METHODS By use of financial or non-financial indicators By application or possible objectives Classification proposed by BBDO Classifications based on mixed criteria By intended universality of the calculated value By its nature or origin (academic vs. commercial) By approach employed (cost, market and income) By method of determining the proportion of income or revenues attributable to brand Demand driver analysis Ratio of loyal consumers to total consumers Price premium Excess earnings Royalty rates Operating profits comparison Comparison with theoretical earnings yielded by a generic product Comparison of the cash flows of branded and unbranded companies Difference in price to sales ratios Economies of scale Differences in cash flow with a benchmark company CVH (Conjoint Value Hierarchy) Free cash flow less required return on assets other than brand Arbitrary constant coefficients 319

12 x / CONTENTS Competitive equilibrium analysis Equations based on accounting data By method of representing brand risk Comparison of models by representation of brand risk Classification by representation of brand risk By method of representing the brand s growth and useful life Classification by representation of the brand s useful life and long-term growth THE CURRENT SITUATION General trends in brand valuation Proliferation of proprietary methods and brand valuation firms Lack of understanding and credibility among brand valuation users Commercial and academic concentration in Anglo-Saxon countries Increasing professionalism in the sector and sophistication of brand valuation techniques Growing convergence between marketing specialists and corporate finance experts Widespread use of certain models among practitioners Financial validity vs. widespread usage of models among practitioners Worlds apart: the academic and practitioners realms The third world: black box methods Vast inconsistency in the application of various brand valuation techniques Differences in implementation Diversity and divergence of results yielded by different methods Determining useful life Determining discount rates Common errors and misconceptions in brand and intangible asset valuation Conceptual errors 350

13 CONTENTS / xi Errors in management Errors in interpretation Conclusions IS CORPORATE BRAND VALUATION POSSIBLE? What is corporate brand, and is it the same as corporate reputation? Why value corporate brands? Methodological options proposed for corporate brand valuation Models based on the concept that corporate brand or reputation adds value to product brands Association-Affinity Model Critique Model based on demand analysis Critique Model based on the company value s sensitivity to variations in corporate brand or reputation value Assumptions Empirical development Theoretical model Critique CoreBrand s model for measuring the percentage of market capitalization attributable to corporate brand Brand Power TM Analysis ROI Analysis Brand Equity Valuation Model Stock performance forecast Critique Conclusions THE FUTURE OF BRAND VALUATION The prospect of methodological consensus: Standardization vs. affinity of applications and methods Future trends in the supply and demand of brand valuation services Accounting users: financial officers discomfort 402

14 xii / CONTENTS 9.4 Marketing specialists: using valuation prudently and founding a new language compatible with finance Regulators: behind the scenes, but with great confidence 404 REFERENCES 406 INDEX 414

15 List of Figures and Tables Figures Figure 1.1 Corporate brand as reputation 9 Figure 1.2 Different perspectives on the meaning of brand equity 14 Figure 1.3 Intellectual capital model for Skandia 17 Figure 1.4 Relationship between intellectual capital and brand 17 Figure 1.5 Evidence of the growing importance of intangible assets and brands 20 Figure 1.6 Which institution is the most trusted? 22 Figure 1.7 Market value breakdown for selected indices 23 Figure 1.8 S & P 500 book - to - market ratio, 1982 to Figure 1.9 Rise in investments in intangible assets in the US as percentage of GDP 25 Figure 2.1 Goodwill as percentage of the acquisition price in M & A transactions in the 1980s 34 Figure 2.2 Number of valuation methods developed annually from Figure 2.3 Elements of intellectual property, according to capital market players 44 Figure 3.1 Evolution of the number of brand league tables published since Figure 3.2 Transactional purposes: internal and external transactions 52 Figure 4.1 Bundle of Brand Rights theory 77