measuring brand equity - interbrand

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1 MEASURING BRAND EQUITY INTERBRAND DAVIDE DI FAZIO

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This presentation deals with the different methods of measuring brand equity, focusing on the method adopted by Interbrand, one of the most famous business agencies in the world.

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MEASURING BRAND EQUITY INTERBRAND

DAVIDE DI FAZIO

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STRUCTURE

• INTRODUCTION

• MEASURING BRAND EQUITY

• INTERBRAND

• 2008 BEST GLOBAL BRANDS

• CONCLUSION

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INTRODUCTIONBRAND – Trademark (name and / or logo)

through which a company identifies its product and, at the same time, distinguishes it by those made by its competitors.

Are these shoes the same?

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INTRODUCTION“Customer-based brand equity is the differential

effect of brand knowledge on consumer response to the marketing of the brand.” Keller (1993)

• BRAND EQUITY – refers to the marketing effects or outcomes that accrue to a product with its brand name compared with those that would accrue if the same product did not have the brand name.

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INTRODUCTION

Which one would YOU buy?

2,50 € 2,50 €

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INTRODUCTION• BRAND EQUITY economic / financial value

of the brand.

Measuring brand equity. Why?

• To know the strength, the qualities of the brand.

• To know the position of the brand (or company) in the market.

• Take over of the brand (or company) by another company.

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MEASURING BRAND EQUITYTwo different sets of approaches

1 – Comparative approachesExperiments of comparison between the target

brand and a competitive / fictional brand consumer’s attitudes and behaviour toward a brand.

2 – Holistic approachesEvaluation of some elements regarding the target

brand itself an overall value of the brand.

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MEASURING BRAND EQUITYCOMPARATIVE APPROACHES

A) Brand-based methodGroup A responds to a marketing activity when it’s

attributed to the target brand.Group B responds to the same activity when it’s not

attributed to the target brand.Blind testing.

PROs – isolation of the value of the target brandCONs – experimental realism isolating the effects of

brand knowledge.

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MEASURING BRAND EQUITYB) Marketing-based method

Holding the brand fixed and verifying consumer response based on changes in the marketing program.

PROs – ease of implementation; choice of an appropriate advertising campaign.

CONs – different results may be due to product knowledge, instead of brand knowledge.

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MEASURING BRAND EQUITYHOLISTIC APPROACHES

A) Residual methods

Subtracting out consumers’ preferences for the brand based on physical products attributes alone from their overall brand preferences value of the brand.

PROs – useful benchmark to interpret brand equity.

CONs – unable to distinguish between different types of non-product related attribute associations.

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MEASURING BRAND EQUITYB) Evaluative methodsMathematic procedures economic and financial value of the

brand.

1. Cost-basedThe amount of money that would be required to rebuild the brand

(including all of the costs for product development, test marketing, advertising, etc.);- historical cost: keeping accountability and summing all of the costs sustained for that brand;- current prices cost: the amount of money that would be required today at current prices to replicate the same activities done for that brand in the past;- prospective cost: the amount of money that would be required today at current prices to execute activities with the same impact, to reach the same level of brand awareness.

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MEASURING BRAND EQUITY2. Market-based

The amount of money which would be required for the property to be exchanged between a willing buyer and seller, with equity to both.

3. Income-based

The amount of money that will be earned by the company owner of the brand because of the qualities of that brand.

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INTERBRANDHISTORYInterbrand started in 1974, when the world still thought of

brands as just another word for logo. It has changed the world’s view of branding and brand

management by creating and managing brands as valuable business assets.

Today:40 offices the world’s largest brand consultancy. Both analytical and creative work.

Interbrand creates and manages brand value by making the brand central to the business’s strategic aims.

www.interbrand.com

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INTERBRANDInterbrand’s method for measuring

brand equity is holistic, evaluative and income-based.

The main idea is that brands create value by generating demand and securing future earnings for the business.

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INTERBRANDPhases of the Interbrand-method:

• Monitoring companies’ incomes of last 3 years;

• Correction of the incomes;

• Forecasting future incomes;

• Bringing up-to-date future incomes by the use of a charge (different for each company): forecast future incomes are divided by this charge.

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INTERBRANDHow does Interbrand obtain this charge?The charge is inversely proportional to the Brand

Strength Score.

How does Interbrand obtain the Brand Strength Score?

The BSS is an assessment about the brand's ability to secure ongoing customer demand (loyalty, repurchase and retention) and thus sustain future earnings, translating branded earnings into net present value.

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INTERBRANDThe Brand Strenght Score is determined by the evaluation of 7

key-factors, with different specific weight:

1 – LEADERSHIP (25%)• Market share• Awareness• Positioning• Competitors concentration

2 – STABILITY (15%)• Longevity• Coherence• Cohesion• Brand identity• Risks

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INTERBRAND3 – MARKET (10%)• Market definition• Market nature• Market dimension• Market dynamics• Barriers to entry

4 – INTERNATIONALITY (25%)• Geographical distribution• International positioning• International market share• Prestige• Ambition

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INTERBRAND5 – TREND (10%)• Performances in the long-term• Prospective performances

6 – SUPPORT (10%)• Message coherence• Expenses coherence

7 – PROTECTION (5%)• Registration• Legal Protection (common law)• Disputes / Contentious procedures

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INTERBRAND

10%

10%5%

25%

15%

10%25%

Leadership

Stability

Market

Internationality

Trend

Support

Protection

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INTERBRANDBrand Strength Score (BSS) the result of

the weighted average of these 7 key-factors.

The higher is the BSS, the lower is the charge applied to update future incomes the higher will be the updated value of future incomes.

And viceversa.

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2008 BEST GLOBAL BRANDS

Each year Interbrand draws up a ranking of the Top 100 brands.

There are several criteria that a brand must satisfy in order to appear as a global brand in the Interbrand ranking.

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2008 BEST GLOBAL BRANDSINTERBRAND’S CRITERIA FOR VALUING THE BEST GLOBAL

BRANDS

1. There must be substantial publicly available financial data.2. The brand must have at least one-third of revenues outside of

its country-of-origin.3. The brand must be a market-facing brand.4. The Economic Value Added (EVA) must be positive.5. The brand must not have a purely B2B single audience with

no wider public profile and awareness.

These criteria exclude brands such as Mars, which is privately held, or Walmart, which is not sufficiently global (it does business in some international markets but not under the Walmart brand).

www.interbrand.com

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2008 BEST GLOBAL BRANDS

2008

RANK

2007

RANK

BRAND

COUNTRY

SECTOR

2008 BRAND VALUE

($m)

CHANGE IN BRAND VALUE

(2008 2009)

1

1

USA

Beverages

66,667

+ 2%

2

3

USA

Computer services

59,031

+ 3%

3

2

USA

Computer software

59,007

+ 1%

4

4

USA

Diversified

53,086

+ 3%

5

5

Finland

Consumer electronics

35,942

+ 7%

6

6

Japan

Automotive

34,050

+ 6%

7

7

USA

Computer hardware

31,261

+ 1%

8

8

USA

Restaurants

31,049

+ 6%

9

9

USA

Media

29,251

+ 0%

10

20

USA

Internet services

25,590

+ 43%

Top ten brands

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2008 BEST GLOBAL BRANDS

2008

RANK

2007

RANK

BRAND

COUNTRY

SECTOR

2008 BRAND VALUE

($m)

CHANGE IN BRAND VALUE

(2008 2009)

45

46

Italy

Luxury

8,254

+ 7%

91

94

Italy

Luxury

3,585

+ 9%

93

New

Italy

Automotive

3,527

New

94

New

Italy

Luxury

3,526

New

Italian brands in the Top 100

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CONCLUSION• BRAND EQUITY economic / financial value

of the brand.

It’s important to measure brand equity:

• To know the strength of the brand.

• To know the position of the brand in the market.

• To have a common value of the brand in case of take over.

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CONCLUSIONCOMPARATIVE

APPROACHES

• Brand-based methods

• Marketing-based methods

HOLISTIC APPROACHES

• Residual methods

• Evaluative methods

1. Cost-based

2. Market-based

3. Income-based INTERBRAND

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CONCLUSIONThe Interbrand method evaluates brands much

like analysts would value any other asset: on the basis of how much they're likely to earn in the future.

This makes Interbrand’s valuation process a uniquely valuable strategy and validation tool – recognized by businesses, academic and regulatory bodies, and accountancy and legal practices.

www.interbrand.com