What is brand value?

Brand value is the dollar value of a brand, calculated as net present value (NPV) or, today’s value of the earnings the brand is expected to generate in the future. Like any other NPV, brand value is measured at a point in time, based on the assumptions and information available at that point in time. Brand value is calculated according to the most widely accepted and used valuation principles. Brand value is, therefore, comparable to business and all NPV-based asset valuations. The valuations of brands appearing in the Top Taiwan Global Brands survey are calculated in their current use to their current owner. They, therefore, do not necessarily represent the potential purchase, extension, or licensing value of the brands.

Why value brands?

The purpose of these valuations is to demonstrate to the business community that brands are very important business assets and, in many cases, the single most valuable company asset. We also aim to make branding and marketing key business issues that have direct impact on a company’s growth and prosperity.

How does Interbrand derive the value of brands?

Brand value is the net present value or, today’s value of the earnings the brand is expected to generate in the future. This valuation approach is a derivative of the way businesses and financial assets are valued. It fits with current corporate finance theory and practice.

There are three key elements and they are detailed as follows:

Financial Forecasting

We identify the revenues from products or services that are generated with the brand. From these branded revenues, we deduct applicable taxes, and a charge for the capital employed, to derive intangible earnings. Intangible earnings are the earnings that are generated by all of the business’ intangibles, including brands, patents, R&D, management expertise, etc. This is a prudent and conservative approach, as it only rewards the intangible assets after the tangible assets have received their required return. The concept of intangible earnings is, therefore, similar to value-based management concepts, such as economic profit or EVA (Economic Value Added is Stern Stuart’s branded concept). Based on financial reports, we prepare a long-term forecast of intangible earnings.

Role of Branding

Since intangible earnings include the returns for all intangibles employed in the business, we need to identify the earnings that are specifically attributable to the brand. Through our proprietary analytical framework called “role of branding,” we can calculate the percentage of intangible earnings that are entirely generated by the brand. In some businesses, e.g., fragrances or packaged goods, the role of branding is very high, since the brand is the predominant driver of the customer’s purchase decision. However, in other businesses (in particular, b2b), the brand is only one purchase driver among many, and the role of branding is therefore lower. For each of the brands (and categories), we have assessed the role of branding. In situations where the brand is used across a variety of businesses, the role of branding figure was assessed for each core business segment.

The role of branding is a percentage and, thus, if it is 50%, we take 50% of the

intangible earnings as brand earnings. If it is 10%, we take only 10% of the earnings.

Brand Strength

For deriving the net present value of the forecast brand earnings, we need a discount rate that represents the risk profile of these earnings. There are two factors at play: firstly, the time value of money (i.e., $100 today is more valuable than $100 in 5 years because one can earn interest on the money in the meantime); and secondly, the risk of the forecast earnings actually materializing. The discount rate represents these factors because it provides an asset-specific risk rate. The higher the risk of the future earnings stream, the higher will be the discount rate. To derive today’s value of a future expected-earnings stream, it needs to be discounted by a rate that reflects the risk of the earnings actually materializing and the time for which it is expected. The assessment of brand strength is a structured way of assessing the specific risk of the brand. We compare the brand against a notional ideal and score it against common factors of brand strength, such as awareness, market position, customer satisfaction, loyalty, and advertising and marketing support. The ideal brand is virtually “risk-free” and would be discounted at a rate almost as low as government bonds or similar risk-free investment. The lower the brand strength, the further it is from the risk-free investment, and so, the higher the discount rate (and, therefore, the lower the net present value).

What was the basis of the financial assessments?

Interbrand formed an initial consideration set of brands owned and operating in Taiwan. Annual reports sourced from various stock exchanges were used to examine the revenues, earnings, and balance sheets of the brand-owning companies.

What was the basis for the marketing assessments?

Our experience in creating and managing brands for over 30 years has resulted in the development of brand metrics that consider:

•    Level of differentiation the brand has achieved;

•    Success of the current position;

•    Ability to control that position; and

•    Differentiation sustainability.

Our expertise was supplemented with press articles, analyst comment, and market research.