Brand Value Measurement – How to Measure Brand Value

Highlights

  • David Ogilvy, the Father of Advertising, defined brand as "the intangible sum of a product's attributes." Sounds reasonable, but not so easy to measure.
  • Your brand is the customers perception of your company or its products. Perception can be a tricky thing to measure.
  • Fortunately, there are three brand value measurement methods to calculate an objective figure. Each has its purpose and different advantages or disadvantages depending on your goal.
Johnny Grow Revenue Growth Consulting

Brand Value Measurement

When I worked at IBM a marketing leader told me the IBM brand was worth $72B (that's a B for billion). I asked how much revenue or earnings were attributed to the brand last year, and just got a loosey goosey answer that was divorced from any real measurement.

I asked if a buyer would pay $72B for the brand, but that question was dismissed as silly. But if an asset isn't measured by its impact to revenues or cannot be sold to an informed buyer, is it really worth an artificially stated value? I don't think so.

For branding investments to be sustained, they have to make a connection to revenues or earnings, and show a financial impact greater than the investment.

Brand Value Measurement

But many companies struggle because they fail to measure both the return on the brand investment and the brand value. Most are just unsure unsure how to measure brand value.

Even for companies that view their brands as important, unless and until marketing leaders can demonstrate the brand value in hard financial figures, the investment will wane and the benefits such as price premiums, increased customer acquisitions and reduced competition will underperform.

How to Measure Brand Value

There are three brand value measurement methods that show how to measure brand value.

  1. Cost based valuation. These methods measure the costs in acquiring or developing the brand. They can be helpful for amortization or determining replacement cost. However, they are really limited to financial reporting.
  2. Income based valuation. This approach considers how the brand impacts future earnings. This is the method we normally use when working with clients to determine how investments drive revenue growth. With this method, we identify the most important brand metrics that correlate to revenue, we measure them and we make them actionable in a brand dashboard. The intent of this method is not to account for value but to create value.
  3. Market based valuation. Sometimes these are as simple as the P/E (price to earnings) calculations attributable to brand assets. However, despite being relatively simple, this brand value measurement method is typically not much more than a barometer reading.

If you want to know how to measure brand value and go a step further to understand how to manipulate the brand to change company performance, consider the following additional models.

A

Prophet's Relevant Brands

The Prophet Brand Relevance Index (BRI) measures brand relevance and its impact to company growth. The relevance is measured using four dimensions of customer centricity, pragmatic execution, unique inspiration and continuous innovation.

And the findings are compelling. The most recent study found that revenue growth of the most relevant brands outperformed the S&P 500 average revenue growth by 230 percent and EBIT growth by 1,040 percent over the prior 10 years. Those are some eye-popping results.

B

Brand Asset Valuator (BAV)

In their report titled, How Brand Attributes Drive Financial Performance, and published by the Marketing Science Institute, professors Mizik and Jacobson developed a model that linked brand building outcomes to current and future financial results.

Among their findings, they discovered that a one-unit change in Brand Asset Value correlated with a 4 percent change in the company's market value. They also found that about one-third of brand value drives current earnings while the remaining two-thirds drives future period earnings.

Digging down further, they identified that brand relevance and vitality deliver the biggest financial impact.

C

Forrester High Energy Brands

Forrester research found that brand energy highly correlated to financial outcomes. From a study of over 4,400 consumers in the retail and financial services industries, the research found that brand energy increased customer engagement and financial outcomes such as price premiums and online advocacy. Financial results across the buy cycle are shown below.

How to measure brand value
D

ISO 10668

The ISO 10668 standard is a globally recognized brand value measurement method. It calculates value using the six dimensions of transparency, validity, reliability, sufficiency, objectivity; and financial and legal parameters. It's a well-constructed model but tends to be a lagging indicator designed for financial statement disclosures or brand purchases.

I tend to believe that value is less about what you paid for it and more about the future financial revenues it drives. This ISO metric tends to get used by accounting firms and brand valuation companies but in my opinion is based too much on sunk cost and can be overly conservative.

So which brand value measurement method is the best?

It depends on your purpose for the valuation. But irrespective we generally recommend comparing a few methods and then synthesizing the results to arrive at a consensus conclusion.

If you want to know how to measure brand value, read this post to learn the top brand value measurement methods.

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