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Brand Management:
Measuring Brand Equity

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Brand Valuation

• Cost-based approach
– Sum of accumulated costs expended on brand till date
– Alternatively, cost to replace the asset if destroyed
• Income-based approach
– Future net revenues attributable to the brand (after
discounting)
• Market-based approach
– Estimate of market value of brand at which it can be sold
• Formulary approach
– Multi-dimensional multiplier to adjust brand financial values

Assessing Brand Equity: Interbrand’s Earnings

Method
• To estimate brand value, Interbrand
determines:
– Projected future earnings for the brand
– The discount rate to adjust earnings for
inflation & risk.

• Brand earnings are based on a 3-year

weighted average of historical profits
that exclude a number of
considerations that do not relate to
the brand identity.

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Interbrand’s Earnings Method

• Financial Forecasting (Interbrand)

– Forecast revenues from the branded product(s)
– Deduct:
• Operating costs
• Corporation tax
• Charge for capital employed in the operation of the
branded product(s)
– = Intangible Earnings

• Role of branding within intangible → Brand Equity

1) Find the percentage of intangible earnings due to
brand (customer analysis ~ dependence of demand
on brand)
2) Find the brand-specific discount rate (adjust risk-free
rate)
3) Calculate the net present value of the brand-earnings

Demand Analysis

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Interbrand
To adjust these earnings, an in-depth assessment of brand
strength based on seven factors is conducted:

LEADERSHIP (25%) MARKET (10%) TREND (10%)

Market Share What is the market? Long term market share
Awareness Nature of the market performance
Positioning (e.g., volatility) Projected brand performance
Competitor Profile Size of market Sensibility of brand plans
STABILITY (15%) Market dynamics Competitive actions
Longevity Barriers to entry
Coherence INTERNATIONALITY (25%)
Consistency PROTECTION Geographical spread
(5%) International positioning
Brand Identity
Trademark Relative market share
Risks
registration & Prestige
SUPPORT (10%) registrability Ambition
Consistency of message Common law
Consistency of spend Litigation/disputes
Above vs. below line
Branch franchise

Net Present Value Calculation

• Strongest brands are discounted with the risk-free rate of the

total market while average-strength brands are discounted
with the industry WACC (cost of equity in the financial
service industry).

• Discounting the forecast period (present value) and the

calculation of an annuity (terminal value) results in the total
value of the brand.

• The transformation of brand strength into brand risk (or into

discount rate) is completed using an S-curve.

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Net Present Value Calculation

Assessing Brand Equity: Brand Asset

Valuator

• Young & Rubicam (Brand Asset Valuator)

• Brand Strength (Differentiation + Relevance)
“Growing Brand”
• Brand Stature (Esteem + Knowledge)

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BAV Model

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Healthy Brands Have Greater

Differentiation than Relevance
100 D>R
90

80 Examples:
70

60 Harley Davidson
50 Mini Cooper
40 BMW
30 T-Mobile
20 Ikea
10
Zara
0
Differentiation Relevance
Tesla

Room to grow...
Brand has power to build relevance.

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Brands with greater Relevance than

Differentiation Are in Danger of
Becoming Commodities Examples:
100 R>D Exxon
90
Shell
80
Mott’s
70
McDonald’s
60
AT&T
50
Enterprise
40
Verizon
30
Crest
20
Minute Maid
10

0
Fruit of the Loom
Differentiation Relevance

Uniqueness has faded; price becomes

dominant reason to buy.

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More Esteem than Knowledge Means,

“I’d like to get to know you better”

100 E>K
90

80
Examples:
70

60 LG Home Appliances
50 Tag Heuer
40 Calphalon
30 Harman Kardon
20 Trader Joe’s
10 Whole Foods
0
Esteem Knowledge

Brand is better liked than known.

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Too Much Knowledge Can Be Dangerous:

“I know you and you’re nothing special”

100 K>E
90

80
Examples:
70
Budweiser
60
Heineken
50
Chrysler
40 Maxwell House
30
Burger King
20 Viagra
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0
Esteem Knowledge

Brand is better known than liked.

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What’s in a Name?
Managing Brands in Mergers and Acquisitions

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Why Do Firms Merge?

• Expansion to new markets

• Build a more efficient supply chain
• Mitigate competition
• Achieve operational efficiencies
• Diversify business portfolio risk
à Exploit synergies

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Yet, Success Stories are Few and Far Between

• SMU study: 193 mergers of companies valued at

$100m or more between 1990-1997
– Only 36% maintained revenue growth through first quarter
after announcement
– 89% suffered a slowdown by the third quarter, with a
median revenue decline of 12%

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McKinsey Study on Mergers

• 160 mergers worth $100m or more between 1995-

1996, plus 25 biggest mergers between 1995-1999
• Scaled down to useable sample of 80 mergers
between 1995-1996
• Only 7 maintained strong total return to
shareholders (TRS)

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Post-Merger Performance: The Norm is to Slow

Down

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Why? The Marketing-Related Reasons

• Too much focus on operational synergies, too little

on brand and customer synergies
• No idea how to value intangible assets
• Failure to take into account impact on customer
retention and long-term profitability
• Poor management of brand architecture in merged
entity

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FOCUS ON OPERATIONAL
EFFICIENCIES

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A Story of a Merger

• InBev and Anheuser Busch

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InBev

• Brands:
– Gobal: Stella Artois (80 countries), Heineken (100
countries)
– Multi-country brands: Leffe (60 countries),
Hoegaarden, Brahma, Staropramen (30
countries)
– Local brands: Labatt’s Blue, Skol, Siberian Crown,
etc.
• Corporate philosophy: performance-
oriented, cost-cutting, “McDonaldization” of
beer

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Anheuser Busch

• Brands:
– Above-premium: Michelob, Michelob Light, Michelob Ultra,
Kirin, Tequiza, Zeigenbock, etc.
– Premium: Budweiser family, Michelob Golden Draft + MGD
Light
– Value: Busch, Natural Light
– Malt beer brands
– Licensing deals/part ownership (InBev brands such as
Beck’s, Stella Artois; Corona, Tsingtao, etc)
• Corporate philosophy: Firmly entrenched in
American culture, iconic advertising, philanthropy,
pampered employees

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Basis for Competitive Advantage

• Taste/Flavor does not really matter

• Brand, Brand, Brand
– Making brands relevant to customer needs by a well
diversified portfolio
– Investing in advertising and brand building
• Capture scale advantages, focus on cost savings

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The Difference Between InBev and AB

• InBev: low-cost, high-efficiency, broad portfolio of

brands
• AB: High-cost, marketing focused, targeted brands

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What Happened?

• Contribution to employee pension plans stopped

• Reduction in number of new ads
• Olympic spending cut by 50%
• Theme parks sold for $2.3 b
• Payments to suppliers delayed to 120 days

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Results

• Sales of Budweiser dropped almost 10% between 2009 and

2010, 26% decline between 2009 and 2014.
• Only 4 of the top 30 brands in the portfolio were growing
• Budweiser dropped to #3 in market, overtaken by Coors Light.
Bud Light still remains on top.
• Share prices of AB InBev have improved significantly since
takeover – but is it a pyrrhic victory?
• Next target: SAB Miller

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IGNORING BRAND VALUE

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Brand Value Does Matter in Mergers

Source: Mizik and Jacobson (2009), “Valuing Branded Businesses”

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Source: Mizik and Jacobson (2009), “Valuing Branded Businesses”

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Value of Brands Across Industries: Incremental Benefits of

Brand Value in Explaining Value-to-Sales Ratio
Financial Firms High Tech Durable Firms Travel/Transpo
Firms rtation Firms
Return on Sales 4.81** 3.98** 4.67** 4.95**
Differentiation .472* .185* .304* .383**
Relevance .291 .416* .251 -.289
Esteem -.029 -.207 -.175 .032
Knowledge -.053 -.287** -.226 .081

Improvement 11% 26% 26% 11%

in R2 by using
brand value

Source: Mizik and Jacobson (2009), “Valuing Branded Businesses”

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IMPACT ON CUSTOMER METRICS

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Impact on Brand Value on Customer

Metrics
• Long-term firm value depends on customer
retention and profitability
• Post-merger customer attrition rates are significantly
high

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Customer Attrition in Financial Sector

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Impact of Brand Value on Customer

Acquisition and Retention

Source: Stahl, Heitmann, Lehmann, Neslin (2012), “The Impact of Brand Equity on Customer Acquisition, Retention,
and Profit Margin”

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ISSUES WITH BRAND

ARCHITECTURE

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Brand Structures
• Acquisition Branding: The identity of one of the merging
companies is discarded completely and all its operations and
products are rebranded with the name of the other firm
• Business-as-usual Branding: The corporate brand identities of
both firms are maintained and they continue to operate
under their own names and symbols in the product market
• Amalgamation Branding: Elements of both brands are
maintained in the new branding

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Acquisition Branding

Pros Cons
• Simplicity • Discards all long-term brand
• Expediency equity of acquired firm, and
goodwill of customers and
• Clarity
employees
• Efficiency
• Immediate cost to rebrand all
• Low-costs over long term
operations of the acquired firm
• Market power

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Business-As-Usual Branding

Pros Cons
• Preserves brand equity of both • Long-term cost to maintain two
firms separate brands
• Expediency • Impairs post-merger integration
• Allows for market segmentation

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Amalgamation Branding

Pros Cons
• Preserves brand equity of both • Re-branding costs to be incurred
firms immediately
• Signals continuity and integration • Stakeholder buy-in may be
• Low cost over long term difficult
• Market power

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Brand Strategy and Mergers: Empirical

Findings (Mizik, Knowles,& Dinner 2011)
• 216 mergers over $1 bn, completed between 1997
and 2006
• 119 acquisition, 53, business as usual, 44
amalgamation

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Overall Market Response

• Abnormal returns post-merger were negative for

acquirer and positive for target (as measured one
day pre- and post-announcement)

• Merged companies under-perform the market by

7% in the three years following the merger

• However, significant differences in performance

based on branding strategy followed.

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Short- and Long-Term Effects of Branding

Choices After Mergers

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Summary

• Measuring and quantifying brand equity is vital to business

enterprise

• Strong brands enjoy reduced discounting of future earnings

• Understand the four pillars of brand strength – Differentiation,

Relevance, Esteem, and Knowledge

• Mergers and acquisitions need to go beyond cost savings and

efficiencies and consider impact of brand value and
customer metrics

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