The HTC brand was already there among its users. A few years ago we started to put the HTC logo on the phones. We basically formalized the brand recognition on the physical product.

Let me share with you how we think about brand. There is a very important difference between brand value and brand recognition. Brand value means something to the end user. Brand recognition, all it means is a bunch of advertising to make people recognize the brand name. At HTC we care about brand value, not brand recognition. Building brand value is like earning respect; you have to earn respect, you cannot buy respect.

The brand value vs. brand recognition point is generally true. But in certain markets (either geo or in terms of products) you might not have the time, the patience and the resources to wait for the recognition to come from the market in an “organic” way. Without a push on the recongnition pedal, you might not have the chance to put the brand value in customers hands. Definitely what a brand is looking for mainly is value. Value for the customer, for the brand itself or for the company that owns it. But I don’t think you should leave aside, by all means, the recognition effort. 

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Brand and relationship intangibles: these include trade names, trademarks and trade symbols, domain names, design rights, trade dress, packaging, copyrights over associated colours, smells, sounds, descriptors, logotypes, advertising visuals, and written copy. In addition, associated goodwill (the general predisposition of individuals to do business with one brand rather than another brand) should be included.

Then the article si focusing on several approaces to brand valuation:

There are two critical questions to answer in brand valuation. The first is exactly what is being valued. Are we valuing the trademarks, the brand or the branded business? The second important question is the purpose of the valuation. An important distinction can be made between technical and commercial valuations.

Technical valuations are generally conducted for balance sheet reporting, tax planning, litigation, securitisation, licensing, mergers and acquisitions and investor relations purposes. They focus on giving a point in time valuation that represents the value of the trademarks or of the brand as defined above.

Commercial valuations are used for the purposes of brand architecture, portfolio management, market strategy, budget allocation and brand scorecards. Such valuations are based on a dynamic model of the branded business and aim to measure the role played by the brand in influencing the key variables in the model.

Read full article here.

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Brand value is calculated as the net present value of the earnings the brand is expected to generate and secure in the future for the time frame from July 1, 2005 to June 30, 2006. To be considered the brands must have a minimum brand value of US$2.7 billion, achieve about one third of their earnings outside of their home country, have publicly available marketing and financial data, and have a wider public profile beyond their direct customer base.

Here is the list with 2006 top 10 standings:
Rank Brand Brand Value ($m)
1(1) Coca-Cola 67,000
2(2) Microsoft 56,927
3(3) IBM 56,201
4(4) GE 48,907
5(5) Intel 32,319
6(6) Nokia 30,131
7(9) Toyota 27,941
8(7) Disney 27,848
9(8) McDonald’s 27,501
10(11)Mercedes 21,795

Top Gainers
The top gainer with a brand value increase of 46%, Google (#24) creates growth under with the strategy of “do no evil” positioning itself at the opposite end of the spectrum from the more corporate Microsoft. Overall growth of Internet commerce has perpetuated consumers’ acceptance of purchasing goods and services online enabling eBay (#47) to skyrocket in value up 18% and the third highest gainer this year.

In the second spot with a value increase of 20%, Starbucks (#91) has found financial success by leveraging the brand with a premium fast food and extending its product offering into music and publishing.

Top Decliners
The growth of mass retailers has taken market share from traditional apparel brands such as Gap (#52). Losing the most brand value with a decline of -22%, Gap has been unable to clarify its brand image and with a less distinct positioning the brand has been less effective at selling clothing causing reduced long-term stability.

Ford (#30) continues to lose money on every car sold – and brand value year after year. Down -16% this year, Ford’s American heritage is an insufficient brand attribute to hold off growing competition from Japanese and German automakers.

Down -12% this year, Kodak (#70) has made valiant strides to catch up with the digital world, however the reality is that competition is fierce and profitability is thin compared to Kodak’s film business and thus the brand’s value continues to decline.

Last year Best Global Brands by Value for 2005

Further readings on this:
Interbrand’s press release
Business Week article

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The simplest direct measurement is to add all the brand’s communication investments, adjusted for inflation. An additional adjust- ment is sometimes made to account for and reward the risk taken by past managers. This adjustment is called the discount rate and it is used to compute the net present value of the successive investments, that is, what they are worth today. The method is simplistic and overvalues the brands; but brand buyers use it for that very reason. It also penalises brands that do not advertise heavily.

Another direct measurement is the awareness and franchise valuation method. Marketing/product managers, when projecting the volume for a new product, routinely use equations that convert a given advertising budget into its resulting awareness, awareness into trial, and trial into its resulting consumer franchise and consumption volume. Valuation just takes the same path but reverses its direction. This method is easy to use and requires less research than the one previously mentioned.

One of the indirect valuation method is excess-earnings method that tries to assess the increase in profit (or cash flow) attributable to the brand. Then it projects these cash flows over the useful life of the brand (usually limited to 10 years) and does a discounted cash flow analysis, where each year’s projected cash flow is discounted according to the assumed risk of the investment and how far away it will materialise. The sum of these cash flows plus the residual value of the brand at the end of the analysis gives the brand value. The major difficulty with this analysis resides in estimating the incremental effect of the brand on sales or profits.

Relief-from-royalty is another method used by financial analysts. It is based on the concept that, if the company did not have the use of its brand name, it would need to license that right in exchange for a royalty fee. These royalty fees are usually based on a percentage of sales (not profits). The valuation consists of first estimating the fee as a percentage of sales and then projecting that fee over the useful life of the brand.

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[There are] two other sources of brand equity: a consumer’s perception that a brand is better than it really is (“attribute-based” equity), and nonattribute-based equity, for instance, a consumer’s preference for a brand based on the cachet of owning it. If you’re successful in these three aspects, an added benefit is that stores will feel a customer pull to carry your product, and so your availability—and hence sales—will increase.

Simple awareness—getting the brand’s name to pop up in consumers’ minds—generates the largest return, followed by consumers’ responding to the cachet of owning the brand (nonattribute-based equity). Attribute-based equity trails in third place. This means that a brand’s image provides a stronger incentive for buying even than the perception that it is a better product. But greater awareness of your brand is the major component driving brand equity.

These are some extracts out of an interesting study with the tilte Calculating the Dollar Value of Brand Equity made by V.Seenu Srinivasan Professor of Management at Stanford Graduate School of Business along with Chan Su Park of Korea University Business School and Dae Ryun Chang Yonsei Business School. Read more about the study here.

Tags: brand equity, brand awarness, product category, consumer perception, consumer preference, awareness

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But all this is about to change. Next month global agency group WPP will launch an alternative brand valuation league table that will directly challenge Interbrand’s calculations. The system has been masterminded by chief research officer Andy Farr and his marketing quant jocks at Millward Brown Optimor (MBO).

Here are some insights into this soon to be revealed WPP study:

• WPP’s annual Brandz survey questions more than 650,000 consumers and professionals in 31 countries.
• The results are analysed to create a combined diagnostic and predictive tool that evaluates the strength and growth potential of brands.
• Respondents are asked to compare more than 21,000 brands in 300 categories from sectors including long purchase-cycle brands, FMCG, retail and e-commerce and services.
• Each respondent is asked to evaluate brands in a competitive context from a category they shop in.
• Their responses generate scores for levels of bonding with a brand, its advantage over rival brands, brand performance and relevance to consumer needs.
• Consumer loyalty and claimed purchasing data are used to generate a ‘brand voltage’ score, indicating the brand’s potential.

More here

Tags: Interbrand, WPP, brand equity, brand valuation

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How precisely is this value being added and incorporated into the brand? Advertising professionals say it is advertising. Consumers love the ad—so they’ll love the brand. Other marketing experts are suggesting that a consistent and total brand experience is the key.

Brands are not human-like and they do not have a life of their own outside the consumer’s mind. They are instruments, simply means to achieve ends. Emotions cannot be glued to them. They arouse emotions when they are perceived as a source of something beneficial. The positive emotions are direct outcomes of these anticipations. Their various symbolizations (name, logo, font, emblem and so on) have little impact on their own; their importance is mainly as identifiers of sources of already attributed and anticipated benefits.

The act of branding has 10 different meanings, which translate into 10 different ways to create instrumentality or usefulness beyond the tangible benefits of a product/service:

1. Creating a Conceived Linkage to a Tangible Benefit
Creating a conceived linkage between the brand name and other identifiers and a tangible benefit (a result in the physical world or an experience). That benefit is provided by the product itself or any component of the marketing mix.

2. Forming a Mental Context
A concept or an organizing principle that allows the consumer to connect unrelated facts by guiding intent or by some other common factor. In these cases, the main benefit of the brand to its customers originates in the mental context.

3. Directing an Experience
The branding here is the creation of an expectation that allows an experience richer than what the product alone can offer.

4. Creating a Means of Self-Presentation
Branding creates a symbol with a meaning that is well known to everybody in a relevant group. It enables the consumer to characterize himself and is used by him for inner communication, for interpersonal communication and for public communication.

5. Creating a Means to Deliver a Message
The branding role in this approach is to create a symbol of another kind, its meaning widely known as well. That kind of symbol enables the consumer to make a very specific statement and/or express a very specific emotion.

6. Building a Social/Cultural Authority
The next branding approach is the creation of an authority that the consumers can use as a guide. That guide helps them to understand what’s happening around them and informs them which behavioral ways are normative, what will make them happier and so on.

7. Creating ‘a Long Hand’
The branding creates means for the consumer and empowering him or her to act for noble objectives and high purposes that she can’t achieve by herself.

8. Creating an Alter Ego
The brand is a way for the consumer to behave (at least on a fantasy level) in a manner he would like to but doesn’t dare, or isn’t willing to pay the price for.

9. Building an Emotional Gym
Opting for our civilized and protected lifestyle, we compromise a lot of our possibilities as humans. We go to the gym to prevent the degeneration of our bodies, which because of our lifestyles don’t get to face the challenges they are otherwise capable of confronting. Similarly, we watch movies to exercise emotional skills that aren’t legitimate or acceptable in our lifestyles.

10. Facilitating Fantasies
This branding approach helps the consumer to fantasize an alternative reality. Consumers fantasize about irresistible sex appeal, omnipotence and dominance, importance, success, fatal love, murder and so on

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External investor relations
Mergers and acquisitions were the original driving force for brand valuation. Now many successful companies use brand valuation as an ongoing business performance indicator: to help ensure that brand strength is reflected in share value.

Internal marketing management
Brand valuation is increasingly being used as a management tool in leading organizations. For example: brand valuation figures can be used to evaluate new product and market development opportunities, to set business objectives or allocate budgets.

Internal royalty rates
Across a large organization there may be many affiliates, subsidiaries or divisions that make use of any particular brand. As the profit potential of brands becomes more clearly understood more companies are charging royalties, across their business operations, for the use of these brand assets.

Licensing and franchising
Where companies allow outside organizations to use their brand, on a licensing or franchising basis, a brand valuation can lay the foundation for appropriate charges.

Tax planning
As the management of brands as financial assets becomes more sophisticated, so tax authorities around the world have started to take an interest in how these assets are managed. The result is that more and more international organizations are planning the most cost-effective domicile for their brand portfolios and are organizing their tax affairs with their brands in mind.

Securitized borrowing
Even in the conservative world of banking, the asset value of brands has been recognized. As a result brands have been used to secure loans, especially in the US, where companies such as Disney have borrowed significant amounts of money against their brand name.

Litigation support
Brand valuations have been used to support litigation against the illegal use of a brand name (as a basis for calculating damages, for example) and also in cases of receivership, to prevent the assets of the business being undervalued.

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Quality

Quality is a vital ingredient of a good brand. The core benefits must be delivered well, consistently. Research confirms that, statistically, higher quality brands achieve a higher market share and higher profitability that their inferior competitors.

Positioning

Positioning is about the position a brand occupies in a market in the minds of consumers. Strong brands have a clear, often unique position in the target market. It can be achieved through the combination of brand name, image, service standards, product guarantees, packaging and the way in which it is delivered.

Repositioning

Repositioning occurs when a brand tries to change its market position to reflect a change in consumer’s tastes. This is often required when a brand has become tired.

Communications

All elements of the promotional mix need to be used to develop and sustain customer perceptions. Initially, the challenge is to build awareness, then to develop the brand personality and reinforce the perception.

First-mover advantage

In terms of brand development, first-mover means that it is possible for the first successful brand in a market to create a clear positioning in the minds of target customers before the competition enters the market.

Long-term perspective

This leads to the need to invest in the brand over the long-term. Building customer awareness, communicating the brand’s message and creating customer loyalty takes time. This means that management must invest in a brand, perhaps at the expense of short-term profitability.

Internal marketing

Management should ensure that the brand is marketed internally as well as externally. By this we mean that the whole business should understand the brand values and positioning. This is particularly important in service businesses where a critical part of the brand value is the type and quality of service that a customer receives.

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Market: 10% of brand strength. Brands in markets where consumer preferences are more enduring would score higher.

Stability: 15% of brand strength. Long-established brands in any market would normally score higher, because of the depth of loyalty they command.

Leadership: 25% of brand strength. A market leader is more valuable: being a dominant force and having strong market share matters.

Profit trend: 10% of brand strength. The long-term profit trend of the brand is an important measure of its ability to remain contemporary and relevant to consumers.

Support: 10% of brand strength. Brands that receive consistent investment and focused support usually have a much stronger franchise, but the quality of this support is as important as the quantity.

Geographic spread: 25% of brand strength. Brands that have proven international acceptance and appeal are inherently stronger than regional brands or national brands, as they are less susceptible to competitive attack.

Protection: 5% of brand strength. Securing full protection for the brand under international trademark and copyright law is the final component of brand strength in the Interbrand model.

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