1: INTRODUCTION
The valuation of brands for the purpose of balance sheet values is an important matter.
This paper provides a methodology.
2: PERCEPTIONS
Successful brands are satisfiers of the needs/wants and/or the decision criteria of consumers, users. The life-cycle of a brand is dependent upon its ability to continue to satisfy in the quantity that makes it viable to continue its production, supply.
The life-cycle of an industrial brand is often dependent upon the life-cycle of another brand to which it is related or is dependent upon the perceptions of satisfaction among consumers of a retail brand going forward.
Needs/wants, decision criteria can be quantified and ranked as unsatisfied priorities with specific quantifiable desired standards of behaviour. Perceptions are feelings, beliefs, mental pictures, gut feel, driven largely by group (herd) behaviour, fashion. These too can be quantified.
Herd behaviour is not solely the prerogative of fashion driven teenage consumers but also the behaviour of supposedly mature individuals as found in the stock market, in the corporate spending fashions of management flavours of the month, or that of corporate bankers in mergers, acquisitions, etc.
The value of a brand therefore lies in its ability to satisfy in the future in a competitive market, and has little to do with its past, its history.
3: LOOKING BACKWARDS
Based on the fact that a brand's value is dependent upon its perceived ability to continue to satisfy a perceived need or want of a particular group of consumers, users going forward - there is little purpose in looking backwards into history to establish the value of the brand.
Having said that, it is evident that there is an element of what might be called "momentum". Older, longer living brands develop a certain momentum of their own that propel them forward into the future, much like a fast bowler after he has delivered the ball.
The factor of "momentum" should therefore be taken into account when endeavouring to place a value on a brand. But there are also the factors of quantity and quality of the resources allocated to support (or not support) the brand in the market place.
In South Africa who remembers Chevrolet, Lion beer, Trust Bank or the UBS? In the future who will remember NBS, Saambou or BOE? What value these brands?
To have placed a value on these brands based on their histories would have been a big mistake. To attempt to value a brand based on history and assumptions will produce numbers. But what kind of numbers?
4: THE VALUATION FACTORS
There are seven factors that impact on the value of a brand at any particular point in time:
1) The suppliers real and actual ability to continue to supply the product or service at a competitive price, ie the availability of real resources, including channels of distribution.
2) The supplier's attitude/desire to support the brand, ie the allocation of real resources.
3) The continuing existence of consumers/users in sufficient real numbers.
4) The perceptual changes of pertinent consumers regarding the brand's ability to satisfy their needs/wants relative to their alternative options.
5) The influence of the economy on disposable income.
6) The momentum of the brand.
7) Competition.
5: QUANTIFYING THE FACTORS OF BRAND VALUATION
The seven factors are:
1) ability to supply
2) attitude to supply/support
3) consumer volumes
4) consumer perceptions
5) economy
6) momentum
7) competition
1) ABILITY to SUPPLY:
Check physical resources in raw materials, suppliers, processes, age of equipment, plant, personnel, skills, channels of distribution, methods of distribution, etc. for inhibitors to supply, and costs of supply, production.
These factors must identify inhibitors, risks, cost influences, etc, that will influence the ability to supply at a competitive price.
2) ATTITUDE to SUPPLY/SUPPORT:
The reasons for the demise of almost all of the brands mentioned earlier in this paper are to be found in the decisions of people, and had little to do with any of the other six valuation factors.
It is therefore necessary to question, quantify and project the effect of the attitudes of individuals along the supply chain regarding the brand and its future in their minds - their perceptions.
3) CONSUMER VOLUMES:
Target markets need to be quantified and projected in terms of volumes. (eg the effect of AIDS on beer consumption in Africa.)
4) CONSUMER PERCEPTIONS:
As we've said perceptions are mental pictures, gut feel, feelings, regarding all things and are influenced by the herd instinct. They change, and can change, slowly or quickly. But change they do - mostly for no rational reason. People are not often driven by rationality. Perceptions need to be measured, quantified in a special way. Given the clearance of the other factors perception measurement, properly undertaken on a fairly regular basis, will provide the quantification input for the valuation of a brand.
5) ECONOMY:
The target market's ability to purchase or use the brand needs to be projected - mostly in terms of disposable income, inflation, and other economic influences.
6) MOMENTUM:
The older the brand the greater the weight that should be given to this factor.
7) COMPETITION:
Competition needs to be measured and projected based on trends and knowledge.
