(The Interbrand brand valuation methodology)
The Interbrand brand valuation methodology is one of the widest endorsed and used valuation approaches around the world. Interbrand publishes an annual ranking of the Best Global Brands (BGB) by brand value, in co-operation with BusinessWeek magazine. This study has become a leading reference to successful brand management.
Brand value is defined as the dollar value of a brand, calculated as the NPV of the earnings the brand is expected to generate in the future. The valuations of brands appearing in BGB are calculated in their current use to their current owner.
The Interbrand method examines brands through the lens of financial strength, importance in driving consumer selection and the likelihood of ongoing branded revenue. Brands are evaluated much like analysts would value any other asset: on the basis of how much they’re likely to earn in the future. To qualify for the list, each brand must derive about a third of its earnings outside its home country, be recognizable outside of its base of customers, and have publicly available marketing and financial data. One or more of those criteria eliminate such heavyweights as Visa, Wal-Mart, Mars, and CNN. Parent companies are not ranked, which explains why Procter & Gamble doesn't show up. And airlines are not ranked because it's too hard to separate their brands' impact on sales from factors such as routes and schedules.
The first step is figuring out what percentage of a company's revenues can be credited to a brand. Based on reports from analysts at J.P. Morgan Chase, Citigroup, and Morgan Stanley, Interbrand projects five years of earnings and sales for the brand. It then deducts operating costs, taxes, and a charge for the capital employed to arrive at the intangible earnings. Then, the company strips out intangibles such as patents and management strength to assess what portion of those earnings can be attributed to the brand, namely brand earnings. Finally, the Brand’s strength is assessed to determine the risk profile of those earnings forecasts. Considerations include market leadership, stability, and global reach—or the ability to cross both geographic and cultural borders. That generates a discount rate, which is applied to brand earnings to get a net present value. This figure closely relates to the brand's true economic worth.
Please follow the link to the BGB 2007 ranking:
http://www.ourfishbowl.com/images/fishbowl_story/2672007/bestglobalbrands_2007ranking.pdf
The purpose of these valuations is to demonstrate to the business community that brands are very important business assets and in many cases the single most valuable company asset. It also shows that branding and marketing are key business issues that have direct shareholder value impact.
Understanding the drivers of brand value can inform management action, from overall business strategy to specific marketing tactics. It’s an easy-to-understand metric to help brand owners determine where they are, where they’re going and how to get there. It helps to make branding a more important aspect of global business management. It tells you whether you are investing adequately in your brand; It tells you whether you have a marketing strategy that positions your brand around the right messages; It tells you whether you have the right short-term tactics to drive value.
The core message is clear: brands are important assets requiring proactive and consistent investment, management, and measurement.
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