Measuring the value of a brand
A brand is an identifying symbol, mark, logo, name, word and/or sentence that companies use to distinguish their product from others. A combination of one or more of those elements can be utilized to create a brand identity. Examples of strong brands are Zara, Mercedes, Apple, Tata, Amul, etc.
- This provides us with a first step in measuring the value of a brand. Strongly advertised brands carry a higher-than-average price, so they are more profitable. They have lower price elasticity than less well-advertised or unadvertised brands.
- A growing brand also becomes increasingly profitable for two further reasons: the first connected with consumer behavior and the second, with advertising.
- In consumer terms, the sales of a brand can be calculated by multiplying its penetration (numbers of households buying the brand in a defined period) and its purchase frequency (the number of purchases of the brand during that period).
- The second factor increasing the profit of large brands relates to their advertising. The normal pattern for a stable brand is for its share of all advertising in the category (share of voice or SOV) to be approximately equal to its share of the market (SOM).
- Small brands over-advertise (with SOV higher than SOM) while large brands under-advertise (with SOV below SOM). Such underinvestment – often by 2 or 3 percentage points of SOV – represents large sums that go straight to the bottom line.
- The brand’s health and buoyancy are expressed in its annual profit, and this becomes the basis of negotiation between the manufacturer and the buyer of the brand, the eventual sum being a multiple based on a number of years’ profit.
In a market like India, where there is significant growth in nearly all categories, the multiple is likely to be much higher, and a figure of 30 should not be unexpected.