A Brand can be a company’s most valuable asset.  While brand equity refers to the importance of the brand to a customer of the company, brand valuation is the method of calculating the financial value of a brand. It is an important strategic tool that provides valuable data about how the brand assets are contributing to the overall financial value of the company.  The Brandberries interviewed David Haigh, Global CEO of Brand Finance, to get more insights on the art and science of Brand Valuation

David Haigh

BB: Brand valuation is the function of estimating the total financial value of a brand. In a nutshell, can you give us an insight on the main highlights of the process of valuing brands ? What are the main requirements brands need to fulfill to be appropriately valued ?

DH: Brand Value is based on the income which can be attributed to a brand now and into the future.  The most widely accepted way of determining brand income is to identify the royalty rate which would be paid for the use of the brand in an arm’s length transaction. Brand Value is expressed as the Net Present Value of all future royalties expected to be earned by the brand owner.

BB:Brand equity is a key element in brand management that rationalizes for the idea that brands are assets that drive business performance. What is the difference between brand value and brand equity ?

DH:Brand Equity is the favourable associations and perceptions about the brand in the minds of stakeholders, particularly customers but also staff, business partners, suppliers and finance providers.  Strong Brand Equity changes stakeholder behaviour in ways which add value to the Branded Business.  For example brands with strong brand equity command higher prices, market shares, wider distribution and lower cost of capital.

BB: Some global leading brand consultancy firms unveil on an annual basis a report on the best global brands in terms of brand value. Can you mention some of the effective methodologies being used in such big reports in determining a brand’s value ?

DH: Brand Finance plc is the world’s leading independent brand valuation firm, publishing 5,000 public brand valuations each year. It uses one of the methods recommended by ISO 10668 for valuing brands.  It is known as the Royalty Relief method, and bases brand value on the Net Present Value of all future royalties to be earned by the brand. This is the method most widely accepted by financial authorities worldwide.

BB:How can intangible brand elements such as brand reputation be taken into consideration when valuing brands ?

DH:Brand Reputation is what determines Brand Equity with each stakeholder group.  Where Brand Reputation is high, Brand Equity increases and drives stakeholder behaviour to create additional value in the Branded Business.

BB:Brands bring value to businesses. In the light of brand valuation, should spending on branding be considered as an investment or a cost ?

DH: Brands are long term corporate assets and expenditure on Brands should be regarded as a long term investment.  Many organisations take a short rather than a long term view which needs to change to build strong and valuable brands.  Returns from brand investment cannot be recovered in year one.’

BB:Brand Finance valuation model defines brand valuation as the financial value of a transferable brand asset. Can you give us a deeper insight on the highlights of Brand Finance valuation model ? How does your model determine the value of intangible brand assets such as the brand’s ability to influence customer choices and brand attachment ?

DH: Brand Finance firstly identifies the value of the Branded Business.  One of the assets of the Branded Business is the trademarks or ‘brand’ which drives higher value in the Branded Business.  This uplift in Branded Business value is known as the total Brand Contribution.  Only part of the total Brand Contribution to the Branded Business is transferrable. The portion which is transferrable is the amount the branded business would be willing to pay as a royalty. The transferrable rights are the portion which, under accounting rules can be defined as an accounting asset.

BB:Does brand valuation differ depending on context, in other words are there different criteria depending on region? Do you see any “valuable” brands in the Middle East and Africa?

DH: The mechanism for creating brand value is identical in all geographies worldwide.  Some brands have managed to create a global footprint while others are only strong in specific regions or countries.  There are many strong brands in the Middle East and Africa…Emirates, Jumeira, ALJ, QNB and MTN to name just a few.’

BB: In an era known for thinking big and acting small, investors are on the look for those small yet promising brands, Is there a way to valuate start up brands?

DH: As the value of a brand is determined by estimating the future income to be earned from the brand it is necessary to be able to confidently forecast likely brand income to produce a reliable valuation.  If the brand has begun operations and a brand income forecast can be determined with reasonable confidence it is possible to value that brand. There are many new, start up brands which have high values because investors believe they can reliably predict future performance and income. For example Twitter or Snapchat.