Brand Value: Definition, Importance & How Is It Measured
Updated: 4 days ago
Over the years, brands have grown from the increased reach in more widespread media through advertising and in doing so have become more influential and valuable in a monetary sense. This is where brand value comes in.
Table of contents:
What is brand value?
Brand value is a measure of the financial value of a brand's ability to generate revenue and even profit from only its brand name and identity like their logo or slogan. This is closely linked to brand awareness in being well known and influential, where the brand is seen in a positive light due to its brand equity.
So, think of brand value in terms of buying a brand, it would be the cost of purchasing that brand and using their brand assets such as the brand name. Alternatively, it would be the cost for a new brand to achieve the same level of success as an existing brand including the cost of utilising advertising, PR and media agencies to help the new brand reach that level.
Importance of brand value
The importance of brand value is not only the financial worth of the brand as mentioned above, but also likelihood of greater market share and serves to be a barrier to entry for potential new brands wanting to enter that market especially if brand value is high amongst existing brands.
Plus, another advantage of having good brand value is the ability for a brand to charge a premium price, where consumers are willing to pay that price as they trust the brand and view it to be superior to others such as Mercedes or BMW as opposed to Toyota or Ford.
This is all down to how effective the brand's message, identity and personality influences the behaviour of its target audience and its brand perceptions in the market place in general. In order words, the brand equity will influence the value of the brand.
If you are looking for examples of brands with the highest brand value currently then check out this Forbes list of the most valuable brands, which you can also filter by industry sector.
Brand value vs brand equity
As you can see above both brand value and brand equity are vital to a brand’s success but can often get mixed construed as being the same thing.
Brand value is basically how much would a brand cost if it was to be bought by another party. While brand equity is how the brand is viewed in either a positive or negative way to influence the target audience’s behaviour and the general perceptions they have of the brand whether they can trust the brand or view it to be superior to similar products in the market.
Therefore, brand equity has a huge bearing on brand value, which is why marketing teams go to great lengths to grow the equity of the brand. For example, using strategies like investing heavily in advertising campaigns to raise awareness and improve perceptions, improving customer experience (CX) or utilising social influencers to endorse the brand.
How to measure brand value?
There are various ways in calculating brand value, where they include both financial data and market research such as brand tracking. The following are some of the most common methods to measure brand value:
Market based valuation
The market-based valuation gives an estimation of the value of the brand based on the current situation in the market. In other words, the valuation can be assessed by looking at the stock market price, comparing the value of similar brands and asking key leading figures in the market, how much they would be willing to offer to buy the brand. You would use all this information to come up with an estimation of the brand value at a market level.
Income based valuation
This approach evaluates the income generated directly from the brand's reputation and awareness. It can be quite tricky to ascertain from the business's financial records, which revenue streams can be attributed from the brand assets (tangible and intangible) but it will give you a framework of how brand value is derived.
Cost based valuation
Cost based valuation is derived from the cost it took to build the brand including all marketing expenses from advertising or promotions to utilising media and PR agencies as well as employee salaries of those involved in creating the brand. Plus, franchising and licencing rights can be included in this valuation as well.
Although this approach does have its limitations as it does not reflect the true value of the brand in the market at that time with brand value going up or down based on the impact of the current marketing investment.
You can also try using this brand value calculator if you want to have a go at calculating your brand’s value to make things easier.
Brand value chain
The brand value chain is a model that assesses all marketing contributions for a brand in helping to understand where and how a brand’s value is formed and to help guide and determine which of these marketing activities can be improved to enhance the brand value.
The brand value chain model, developed by Keller and Lehmann in 2003 is made up of 4 value stages, where it monitors the investment in marketing from the first stage to the last stage in evaluating how their target audience responds to the marketing investment, whether it receives a positive reception and moves along the chain or a negative reaction and goes backwards. This all helps to support decision making of these marketing activities.
The effect of going to the next value stage is influenced by multipliers such as program quality, marketplace conditions or investor sentiment as illustrated in the diagram below. These so-called multipliers help to accelerate the process of moving along each stage of the brand value chain.
The 4 important stages of the brand value chain are the following:
Stage 1: Marketing program investment
The first stage is the marketing program investment and to ensure the marketing investment is applied correctly in terms of being relevant to your target audience, distinctive versus other campaigns, consistent in its application and the clarity of the message. This will all become irrelevant if the product or service offered does not meet and exceed customer expectations. Plus, you need support of all staff to make this happen.
Stage 2: Customer mindset
After the successful application of the marketing program investment with the support of the program quality multiplier (relevance, distinctiveness, consistency), the next step is the customer mindset. This next value stage will tackle raising brand awareness, develop brand associations and perceptions in a favourable manner, grow brand loyalty and call to action.
Stage 3: Market performance
After receiving support of the marketplace conditions multiplier (competitive reactions, channel support, customer size and profile), this moves onto the market performance value stage as customers are now positively engaged and sales have grown following the marketing campaigns. This is the stage where brands can charge a premium price without affecting the behaviour or perceptions of customers.
Stage 4: Shareholder value
The final step of the brand value chain is the shareholder value after the support of the investor sentiment multiplier (market dynamics, growth potential, risk profile, brand contribution) to get you to that stage. So, following the successful completion of the previous 3 stages along with the multipliers will now affect the shareholder value, which means the stock prices of the brand will increase. The shareholder value is based around 3 factors - market capitalisation, stock prices and the P/E ratio.
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