What is Brand Value?
I’m asked this question frequently. There are a number of different ways to calculate brand value, but one way to look at brand value is as a measure of the strength of your innovation and intellectual property. How much are those things worth? If another company wanted to acquire yours tomorrow, what would they need to pay to own your brand (or brands)?
There is certainly no doubt that a brand can become extremely valuable. Just look at the many billion-dollar IPOs and acquisitions of social media and technology companies that have occurred over the past few years. Yahoo! purchased Tumblr for $1.1 billion in 2013, and Facebook acquired 5-year old WhatsApp in a deal worth over $19 billion in 2014—a significant jump from Facebook’s $1 billion acquisition of Instagram in 2012.
At the core level, brand value can be derived from the analysis of the three pillars driven by intellectual property and innovation: financial, operational, and consumer.
Financial analysis determines not only whether a brand is profitable but also the brand’s role in enabling the company to drive a profit. The key thing to remember is that a brand is a “profit enabler.”
Some of the factors to evaluate as you analyze the financial aspects of brand value include:
- The brand’s market share and whether or not the market is already saturated or close to saturation.
- The growth rate of the brand, which includes where the brand and related products and services are positioned on the product lifecycle.
- The marketing investments made to grow and sustain the brand (including the costs to acquire new customers and retain existing customers).
- The price sensitivity in the industries and markets where the brand lives (e.g., does the brand command a premium price?).
- The licensing potential of the brand.
- The investments made to research and develop brand enhancements, new products, and so on.
- The merger and acquisition potential of the brand (both to acquire and to be acquired).
- The revenues and profits driven by the brand.
Intellectual property plays a pivotal role in brand valuation at the financial level. For example, your trademarks give your company the ability to charge specific prices that the market might not be willing to bear for another brand. Similarly, your patents give your company a limited monopoly that drives direct revenue, and copyrights ensure that only your company can profit from your creative work.
Operational analysis determines the brand’s contribution across the supply chain and the workforce. There are many stops along the supply chain that could put brand value at risk, so the operational analysis could be a place where your brand loses value unnecessarily.
Some of the factors to evaluate as you analyze the operational aspects of brand value include:
- The brand’s distribution channels and accessibility to consumers.
- The strength of the brand’s human capital, including knowledge and innovation.
- The processes used to create and move products and services bearing the brand name through the supply chain and into consumers’ hands.
- The policies, processes, and training in place to educate and hold employees, vendors, and all parties across the supply chain accountable for protecting the brand.
- The brand’s role in enabling the company to attract and retain the best talent.
Intellectual property is at risk across the supply chain, so it’s critical that you protect your brand at all times. For example, your company’s trade secrets, such as your manufacturing processes, your customer lists, and your vendor contracts, give your company a competitive advantage in the market place. If they’re leaked at any point along the supply chain, your company could lose its competitive advantage. These trade secrets are an integral part of your brand’s value.
A brand valuation would be incomplete without a consumer component because consumers build brands, not companies. That means you need to conduct market research to fully understand how consumers perceive your brand or your valuation will be inaccurate.
Some of the key factors to evaluate as you analyze the consumer aspects of brand value include:
- Consumer perceptions of your brand.
- Consumer awareness of your brand.
- Consumers’ emotional involvement with your brand.
- Your brand’s position in the marketplace in consumers’ minds.
- Online and offline content, comments, and conversations related to your brand.
- Indirect influencers that could affect how consumers perceive your brand such as competitor reviews, news stories, competitor marketing campaigns, and so on.
- Micro- and macro-environmental factors that affect your brand such as an economic downturn, social unrest, natural disasters, medical reports, and the like.
Intellectual property gives your company the ability to directly affect how consumers feel about your brand, which influences their purchase decisions. For example, trademarks give your company the ability to create and protect its reputation in the marketplace. As a result, only your company can profit from your trademarked brand.
Brand value depends on intellectual property development and protection, innovation, and commitment. Over time, a brand can grow to be incredibly valuable, but if you don’t prioritize innovation and effectively protect your intellectual property, your brand’s growth and related value will be limited.