Strong brand is the most valuable intangible asset of the company. Although brands are not listed on corporate balance sheets, they play key role in determining the company’s success in the long-term perspective. Successful brands allow companies to effectively manage premium prices, reduce relative power of the trade, increase communication effectiveness, attract managerial talent, and reduce vulnerability to downturns. Scorecards or KPIs based on the drivers of brand value, provide focused and actionable measures for optimal brand management.
According to the research conducted by Interbrand, one of the leading brand consultancies, strong brands account for over a third of shareholder value. Share prices of companies with well-known brands have significantly higher investment returns and lower risk rate when compared to the stock market as a whole.
Brand has a clearly identifiable financial value conveyed in the price tag associated with a specific brand. This financial value represents the economic value of the brand to the owner. The brand equity is a fusion of the capitalized value of the consumer’s trust in the brand and its future sales volume potential (commercial exploitability of the brand). Consumer awareness of the brand is a powerful motivation for the customer to consider buying the brand product. Besides, the strength of the brand equity promotes consumer loyalty and stimulates the customers to purchase these products consistently and repeatedly over a long period of time. It should be noted that the brand value is created only if ongoing positive earning streams can be generated as a result of customer purchases.
Brand equity is an intangible asset of the company. Therefore, to measure its financial value, the company management should identify key performance indicators (KPI) of the branded business, and then determine the degree to which each KPI is directly influenced by the brand. The data for the analysis comes from market research, client workshops and interviews of the (potential) customers.
The brand measurements can be classified in three categories: Brand perception, Brand performance, and Brand financial value. Each category consists of several KPIs, which contribute to the total brand value.
For instance, Brand perception category consists of the following measurements, or metrics: Consumer awareness (Measures brand recognition and differentiation), Brand strength (Measures brand stability, relation to market leaders, profitability, geographical spread, and protection), Credibility (Measures the extent to which the brand is reliable and responsible for the customers, and the effectiveness (trustworthiness) of the brand advertising), Relevance (Measures the brand modernity, ability to excite, as well as its commitment to non-consumer driven ethical or socially responsible values), and Consideration (Measures the influence of the brand familiarity on actual consumer choice).
Brand financial value includes four major metrics: Revenue generation capabilities (Measures the impact of the brand familiarity on sales, including future sales volume potential of the brand), Return on investment (Measures the ROI in the brand marketing), Transaction value (Identifies the product/serivce transaction value and measures the current and potential value the brand adds to a transaction), and Growth sustainability rate (Measures the impact of the brand to the maximum growth rate the brand owner can sustain without increasing financial leverage).
As a result of the brand evaluation using Balanced Scorecard or KPI, the company can determine the current value of the brand equity compared to its short-term and long-term objectives. The bottom line includes percentage values of the actual and expected performance of the brand, and identifies both strong and weak areas of the company’s brand management.