The value of brands a view from an advertising agency.

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The value of brands a view from an
advertising agency.

• Jan Binar
• McCann Worldgroup
• June 2005

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We gather all available research
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take a crystal ball
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lit up a joint
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NO! Brands are valuable assets which must be
invested in and expected to perform like any
other financial asset
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Strong brands are measured in billions of dollars
Market Capparent company
Brand Value
69.6 bn
51
64.1 bn
21
51.2 bn
39
41.3 bn
14
30.9 bn
22
30.0 bn
51
29.3 bn
68
26.4 bn
71
24.2 bn
20
21.0 bn
47
Source Business Week, August 2002
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Intangible assets account for a growing
proportion of shareholder value

• Intangible vs. tangible assets

Dot-Com bubble
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Businesses with strong brands command higher
share prices
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Commodity branding secures premium prices
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Brands shift the demand curve

Price
16,030
Stronger brand equity drives higher prices and
greater share
14,005
7,516
11,980
Quantity UK Sales
Source Financial Times, Report on Automotive
Branding
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Brands impact key business value drivers
Ensure levels and security of demand, premium
pricing, greater market share
Reduce capital cost of entry into new
categories Reduce tax rate through internal
licensing
Perfect competition leads to price parity Brands
provide greater CAP and lower WACC
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Brand value is a hot topic for accounting and
finance professionals
International accounting standards for brands
UEL refers to Useful Economic Life. Where
brands are not required to be amortized
impairment reviews must be conducted on an annual
basis.
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Brand valuation valuing brands as intangible
assets
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Different brand valuation approaches
1. Market Value
Few brand transactions, little reference for
comparison
2. Premium Price
Difficult to identify generic product for base
case comparison
In many cases historical records have not been
kept
3. Historic Cost
Ignores efficacy of marketing support
4. Replacement Cost
Can be useful consideration when acquiring a
brand b
ut
requires many assumptions
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Useful only as a cross-check in those cases where
there are a
5. Royalty Relief
number of publicly available, relevant
transactions
Most widely accepted
6. Economic Use
approach
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FutureBrands Brand Valuation modelConforms to
US, UK, and International Accounting Standards
Financial Analysis
Brand Driver Analysis
Brand Strength Analysis
Conjoint Brand Trade-Off Analysis
Brand Strength Factors Statistical Distribution
Economic Cash Flow Profitability Analysis
Financial Forecasts
Macro Drivers of Demand
Brand Equity Model
Micro Drivers of Demand
Economic Value
Brand Contribution Index
Brand Discount Rate
Current Brand Value
?2000 The FutureBrand Company
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Economic Value

• EVA Economic value added

NOPAT Net Operating Profit After Tax.
Economic Value Added
Cost of capital C x WACC
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FutureBrands Brand Valuation modelConforms to
US, UK, and International Accounting Standards
Financial Analysis
Brand Driver Analysis
Brand Strength Analysis
Conjoint Brand Trade-Off Analysis
Brand Strength Factors Statistical Distribution
Economic Cash Flow Profitability Analysis
Financial Forecasts
Macro Drivers of Demand
Brand Equity Model
Micro Drivers of Demand
Economic Value
Brand Contribution Index
Brand Discount Rate
Current Brand Value
?2000 The FutureBrand Company
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Brand Driver analysis
Brand Contribution Index 64
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Brand Contribution Index industry examples
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FutureBrands Brand Valuation modelConforms to
US, UK, and International Accounting Standards
Financial Analysis
Brand Driver Analysis
Brand Strength Analysis
Conjoint Brand Trade-Off Analysis
Brand Strength Factors Statistical Distribution
Economic Cash Flow Profitability Analysis
Financial Forecasts
Macro Drivers of Demand
Brand Equity Model
Micro Drivers of Demand
Economic Value
Brand Contribution Index
Brand Discount Rate
Current Brand Value
?2000 The FutureBrand Company
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Brand Strength analysisdetermines the discout
rate that is utilized to arrive at NPV of the
brand
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FutureBrands Brand Valuation modelConforms to
US, UK, and International Accounting Standards
Financial Analysis
Brand Driver Analysis
Brand Strength Analysis
Conjoint Brand Trade-Off Analysis
Brand Strength Factors Statistical Distribution
Economic Cash Flow Profitability Analysis
Financial Forecasts
Macro Drivers of Demand
Brand Equity Model
Micro Drivers of Demand
Economic Value
Brand Contribution Index
Brand Discount Rate
Current Brand Value
?2000 The FutureBrand Company
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The economic use approach is widely endorsed

• Academics
• Auditors
• Accounting boards
• Accountancy firms
• Analysts
• Advertising agencies
• Banks
• Government bodies
• High courts
• Management consultants
• Stock exchanges
• Tax authorities
• Bodies including FASB, IAS, AASA, CNMV, IRS and
  the UK, French, German, Australian, Canadian and
  Japanese Accounting Boards

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Whos doing it?
Consumer and retail
Telecom and High Tech
Financial and professional services
Pharmaceuticals and Manufacturing
Travel and Leisure
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Applications

• Financial
• Brand financial value
• MA
• Brand holding companies
• Brand royalty rates
• Brand financial reporting
• Brand litigation
• Investor communications
• Internal licensing

• Marketing
• Brand definition, positioning and messaging
• Brand architecture, rationalization
• Brand scorecard and ROI tracking
• Marketing investment justification and allocation
• Brand extension
• Licensing
• Co-branding and sponsorships

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Summary

• Brands create significant shareholder value
• Brand valuation is an important management tool
• Wide range of finance and management applications
• Brands should be managed like any other asset

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Thank you
The materials and concepts, including without
limitation, the designs and artwork, contained in
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FutureBrand and are for presentation and pitch
purposes only. Such materials and concepts may
not be used, reproduced, or otherwise
disseminated without the express written
permission of FutureBrand, unless FutureBrand has
been retained to render services for you and on
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