Brand Value

Part of the elevator pitch for bloomfield knoble is, “To enterprises seeking to grow their business model, bloomfield knoble is the strategic marketing and advertising firm that provides precise planning to surpass business growth targets.” In other words, we pride ourselves on showing return on investment (ROI) for the work we do. However, it can be a bit challenging to show ROI when trying to measure things like “emotional attachment” or “top of mind.” But the truth is that everything can be measured – even branding. So I thought I’d peel back the curtain a bit this post and show you how bloomfield knoble (or anyone in advertising) estimates the financial value of a brand.

Let’s jump back (just in case you haven’t read my last couple of posts –  here, and here) – agencies try to build brand equity, because it affects the way the target audience responds to marketing efforts. Brand equity affects response to price, advertising, engagement, everything – and that’s where value comes in. For example, Coca-Cola has tremendous brand value – almost $80 billion. So where does that value come from? If you went to the store and there were two bottles of soda sitting on the shelf and one said “soda” in black letters on a yellow label and the other was Coca-Cola, which one are you most likely to pay a higher price for? Exactly. Part of it is the value from a higher price that people are willing to pay, but it’s also from the value of having people willing to pay a higher price. People want Coca-Cola and because of that demand, Coca-Cola has a certain amount of market power, which means that retailers give more shelf space, more promotional opportunity, etc., which in turn builds up the brand and drives demand . . . hence a cycle of success for Coca-Cola.

All of this power can be expressed in monetary terms. There are three key factors that contribute to brand equity:

1. Financial performance – the economic profit gained from the brand;

2. The role of brand in the purchase decision – the portion of the purchase decision that is attributable to brand, excluding other aspects (such as price or features);

3. The strength of the brand – the ability of the brand to secure the delivery of expected future earnings (such as shelf space or a channel’s willingness to sell the product).

There are several different methods to estimate the brand value, but two of the more popular are top-down approach and bottom-up approach. In the top-down approach, the firm takes the value of the company as a whole, in terms of its market capitalization, and subtracts all items such as cash and physical assets and what remains is considered to be equal to the brand value. In the bottom-up approach, brand value can be calculated by comparing the market price of the branded product with equivalent non-brand products (such as the generic brand in the example above). This price difference is used to calculate additional profits earned due to the brand image of the product. The bottom-up approach often uses case studies that look at the impact of the branded product on market share or price premium versus a weaker or unbranded competitor.

When using the bottom-up approach, some of the questions that might be asked (using the Coca-Cola example) are, “How much will consumers pay if a soda is not called Coca-Cola?” “How much will they pay if it is called Coca Cola?” “How many more cans of Coca-Cola will consumers buy?” “How much shelf space, compared to a competitor, will the store give to Coca-Cola?” In this bottom-up approach, we have extra margin (Coca-Cola costs more) and extra sales (Coca-Cola sells more product) which helps a firm arrive at a brand value, and gives agencies like bloomfield knoble the confidence to say we pride ourselves on building ROI for clients.

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