Value-based brand measurement and management
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Keywords: brand equity, brand valuation, performance monitoring, BrandAsset Valuator, Economic Value Added, intangibles
Value-based brand measurement and management Jonathan Knowles Received (in revised form): 13 April 2003
Abstract This paper details a recent breakthrough in how to measure the intrinsic equity in brands and how to relate brand equity to financial value creation. The methodology integrates brand health measures from the BrandAsset1 Valuator (BAV) database maintained by Young & Rubicam (Y&R) with measures of financial performance from Stern Stewart’s Economic Value Added (EVA1 ) database to deliver the first wholly objective approach to brand valuation. The result is a robust econometric framework for measuring the relationship between brand health and value creation that is based on observable, repeatable data. By eliminating the need for ‘expert opinion’, the approach delivers results that enjoy high levels of credibility at boardroom level. Perhaps most importantly, the creation of a framework that explicitly integrates inputs from marketing and financial sources creates the basis for enhanced collaboration between the marketing and finance functions. Input from both functions is vital for the development of value-based brand strategies that harness the full contribution of brand strategy to the overall success and value of a business.
Introduction
Jonathan Knowles BrandEconomics 135 East 57th Street 22nd Floor New York, NY 10022 USA Tel: +1 212 261 0650 Fax: +1 212 581 6420 E-mail: [email protected]
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There is widespread recognition of the important role that brands play in generating and sustaining the financial performance of companies. With excess capacity in virtually every industry, strong brands are vital for getting prospective customers to notice a company’s products or services. Without a strong brand to give it traction in the marketplace, a company risks being unable to realise the full value of its other intangible assets — great technology, superior products, world-class production processes and talented employees. As yet there is no methodology for measuring the financial contribution of brands that enjoys credibility in the boardroom. The brand health metrics traditionally favoured by marketers (such as awareness and customer satisfaction) have no proven relationship to shareholder value, in large part because they focus on the present health of the brand rather than its future potential. At the same time, attempts to use discounted cash flow techniques to value the earnings attributable to brands lack credibility because they ultimately rely on a subjective estimate of the importance of the brand’s role in the purchase decision. What senior management want to know is how significant an economic
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Value-based brand measurement and management asset their brand represents and what causes the value of their brand a
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