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An executive summary

for managers and Brand equity valuation: a global


executives can be found
at the end of this article perspective
Reza Motameni
Professor of Marketing, Department of Marketing and Logistics, Craig
School of Business, California State University-Fresno, California, USA
Manuchehr Shahrokhi
Professor of Finance, Department of Finance, Craig School of Business,
California State University-Fresno, California, USA

Introduction
As far back as 5000BC, identity marks were used on pottery. However, these
ancient marks identified the owners of the goods rather than the manufacturer.
In the twelfth century, the use of trademarks became widespread. Craft guilds
required that members mark their goods so that the quantity and quality of
products could be controlled (Sudharshan, 1995). Brand names and
trademarks usually guarantee that products bearing the marks will be of
uniform quality. Branding also enables a producer to obtain the benefits of
offering products with unique or superior quality and provides an opportunity
to transfer this identifiable relationship to other products or services.
The value of brand is indicated by the money paid by firms that have
acquired consumer package goods with strong brand names. Procter and
Gamble paid 2.6 times Richardson-Vicks’ book value, Nabisco sold for 3.2
times book value, and General Foods sold for 3.5 times book value
(Business Week, 1995). The enduring nature of brands is illustrated by brand
names such as Coca-Cola, Phillip Morris, Levi’s, McDonald’s, Nabisco,
Kellogg, Kodak, Del Monte, Wrigley, Gillette, Campbell, Lipton, and
Goodyear – all among brand leaders in the USA in both 1925 and 1985
(Financial World, 1996; Wurster, 1987).
Brand is a complex New brands in a global marketplace have little chance of rivaling established
phenomenon brands. To create a brand from scratch requires huge investments. The
process may take years, and its probability of success is slim. Empirical
research has shown that massive sums spent on advertising are not always
justified by short-term sales. The return on this investment is translated into
other less tangible brand awareness, image, and loyalty. The above examples
illustrate why, in recent years, a great deal of attention has been devoted to
the concept of brand equity (e.g. Ambler, 1995; Baldinger and Rubinson,
1997; Blackston, 1995; Cook, 1997; Johnson, 1996; Meer, 1995; Upshaw,
1995). The dominant model of branding in the twentieth century was the
manufacturer as mega-advertiser. McKinsey (1994) believes that the
traditional model of branding is no longer the only way, nor can it dominate
in the future. According to Murphy (1990), brand is a complex phenomenon:
“not only it is the actual product, but it is also the unique property of a
specific owner and has been developed over time so as to embrace a set of
values and attributes – both tangible and intangible – which meaningfully
and appropriately differentiate products which are otherwise very similar.”
The primary capital of many businesses is their brands. The notion that a
brand has an equity that exceeds its conventional asset value was developed
by financial professionals. The escalation of new product development costs,
and the high rate of new product failure, has led manufacturers to engage in
brand extension (Tauber, 1988).

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A comprehensive model This paper, has several objectives. First, the marketing and finance
of global brand equity perspectives of brand equity will be presented and integrated, and their
interrelationships will be shown. Second, the different measurements of brand
equity will be presented. Next, a comprehensive model of global brand
equity, which we believe is capable of both estimating the brand equity more
accurately and showing the sources of the equity, will be presented.

Different perspectives of brand equity


Brand equity has been viewed from a variety of perspectives. The first
perspective has used the concept of brand equity in the context of marketing
decision-making. The second perspective is financially based and views
brand equity in terms of incremental discounted future cash flows that would
result from a branded product revenue, in comparison with the revenue that
would occur if the same product did not have the brand name (Simon &
Sullivan, 1993).

Marketing perspective
Aaker (1991) has provided the most comprehensive definition of brand
equity to date:
A set of brand assets and liabilities linked to a brand, its name and symbol, that
adds to or detracts from the value provided by a product or service to a firm and/or
to the firm’s customers.
Aaker has also synthesized some contemporary thinking about marketing and
depicted a comprehensive yet parsimonious set of factors that contribute to the
development of brand equity (Aaker, 1996a). He has contemplated that, to a
greater extent, the equity of a brand depends on the number of people who
purchase it regularly. Hence, the concept of brand loyalty is established as a
vital component of brand equity. Strong effects of brand recognition on choice
and market share are discussed and documented extensively in marketing
literature. That is why Aaker regards the concept of brand awareness as a
second component of brand equity. Considering the PIMS findings (Buzzell
and Gate, 1987), perceived quality is included as another significant
component. Other proprietary brand assets – such as patents, trademarks, and
established channel relationships – constitute the final component.
Measuring a brand’s Shocker (1993) has contended that the above components are accepted
value largely on the basis of their face validity and little attempt is made to
demonstrate their relative importance or possible interrelationship. The
impression left is that higher brand loyalty, awareness, and perceived quality
are necessary for creating and maintaining brand equity. Tradeoffs among
the factors of the models are not discussed. Also lacking are substantial
references to the financial or accounting aspects of brand equity, or even to
the controversy that has characterized attempts to value brands as assets on
balance sheets. Measuring a brand’s value means identifying the sources of
this value. Marketers, therefore, are interested in the process by which the
value of a brand was created.

Financial perspective
Simon and Sullivan (1993) have presented a financial-market-value-based
technique for estimating a firm’s brand equity. The stock price is used as a
basis to evaluate the value of the brand equities. Brand equity is defined as
“the incremental cash flows which accrue to branded products over
unbranded products”. The estimation technique extracts the value of brand
equity from the value of the firm’s other assets. First, the macro approach

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assigns an objective value to a company’s brands and relates this value to the
determinants of brand equity. Second, the micro approach isolates changes
in brand equity at the individual brand level by measuring the response of
brand equity to major marketing decisions. Simon and Sullivan believe that
financial markets do not ignore marketing factors and stock prices reflect
marketing decisions.
Brand earnings multiplier The Financial World approach and the Interbrand Group approach, explained
in Wentz and Martin (1989) and Kapferer (1992), use a brand-earnings
multiplier or weights to calculate brand equity. The brand weights are based
on both historical data, such as brand share and advertising expenditures, and
individuals’ judgments of other factors, such as the stability of product
category, brand stability, and its international reputations. The brand equity is
the product of the multiplier and the average of the past three years’ profits.
Each perspective takes a tunnel vision look at the brand equity concept. A
combined approach can provide a more accurate estimate of brand equity
and its sources. The diverse set of traditional subject areas in marketing and
finance dealing with the concept of brand value should be integrated. We
have tried to depict the interrelationship of all major brand equity models
(see Figure 1). The common denominator in all models is the utilization of
one or more components of the Aaker model. Based on this interrelationship,
we propose a new conceptual model which provides a more exhaustive and
integrative conceptualization of brand equity from a global perspective.

The need for a global perspective


The key to success is Proponents of the philosophy of global products and brands, such as Saatchi
global products and Saatchi, a successful international advertising agency, and Levitt (1983),
argue that in a world of growing internationalization, the key to success is
the development of global consumer products and brands. Colgate-
Palmolive spent three years preparing its Total anti-bacterial toothpaste
which produces sales of 150 million dollars annually and is sold in 75
countries (Brandweek, 1994). Successful maintenance of global image and
recognition translates into hard currency in international business. The active
marketing of global brands is as important for business-to-business products
as for consumer products. Unless business-to business marketers nurture
global identities, their future are at risk (Hirsch, 1997).

Other Brand Perceived Brand Brand Entry Advertising


Proprietary Loyalty Quality Awareness Association Order Share

BRAND
Brand Brand EQUITY
Multiple Profits

Key
Aaker Model
Simon & Sullivan Model
Global Market Brand Brand Interbrand Model
Potential Type Support Trend

Figure 1. Interrelationship among leading conceptual models of brand equity

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A global brand has Driving forces behind globalization include regional economic agreements,
advantages converging market needs and wants, technological advances, improvement in
communication and transportation, pressure to cut costs and to improve
quality, and increased global economic growth. Globalization offers a number
of advantages. The main reasons for adapting a globalization strategy are
efficiency, uniformity, and simplicity in production, distribution, and
promotion of the product. This philosophy emphasizes the search for
intermarket similarities and overlooks the differences. A global brand has
several advantages, including association with status and prestige, and the
achievement of maximum market impact with a reduction of advertising costs.
If a company seeks to globalize its brand, that brand will be of greater value to
the company than a brand restricted to local or regional levels. The value
measured by expected profits is totally linked to the intentions of the future
purchaser and the company’s global strategic plans for the brand. According to
Posten (1996) there is no stronger way to build value for both the corporation
and the global consumer than to leverage a strong trademark by producing
vivid brand personalities, providing unparalleled communication platforms for
the global community. It is crucial to understand how the consumers in each
country see their brand options, understand how they make brand trade-off
decisions, understand the different needs that drive their purchases.
Recent studies demonstrate that Web advertising’s positive impact on
customer loyalty and ability to produce levels of brand-linked and awareness
that may surpass television or print, through interactive involvement of the
customer. With more and more companies moving into their third and fourth
generation Web sites, and with Web advertising forecast to surpass an
annualized one billion dollars by early 1998 (Cristol and Johnson, 1997), the
Web site advertisement can play a significant role in accelerating the
globalization of brands.
Douglas and Wind (1987) have offered a very strong and convincing counter
argument: “the design of an effective global marketing strategy does not
necessarily entail the marketing of standardized products and global brands
worldwide. While such a strategy may work for some companies and certain
product lines, for other companies and products, market adaptation to local
or regional differences may yield better results”. Many professionals have
also disputed Levitt’s (1983) view. Adaptation or localization philosophy
challenges the homogeneity assumption. Problems arise due to the diversity
of religious beliefs, customs, standards of living, legislation, and media
availability. Product and promotion modification are often mandatory
because of government regulations that set product standards, systems, and
other requirements.
Revolutions in Revolutions in manufacturing technology are enabling companies to
manufacturing manufacture goods tailored to individual customer specification at relatively
technology modest costs. This is becoming possible through increasing use of computer-
aided manufacturing and design. Matsushita currently custom builds any one
of 11 million versions of a bicycle in three hours. The company still makes
customers wait two weeks for the finished product to ensure that they
appreciate its uniqueness (Moffat, 1990).
Between the above two extreme schools of thoughts, a compromise
approach is emerging. This reasonable approach attempts to address shared
inter-country denominators while allowing for some modification to suit
each market, thus achieving the cost efficiency advantages of globalization
and communication effectiveness of localization. This is called the

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“geocentric approach” by Onkvisit and Shaw (1994), and it represents a
proper balance of consistency and economy on one hand, and regional or
local relevance on the other.
For example, Time Inc’s Sports Illustrated has established a new division,
Sports Illustrated International, aimed at making SI brand a global brand. SI
international has made a deal with Los Angeles Times Syndicate to publish
the magazine’s celebrated swimsuit issue in 18 countries in local languages
(Case, 1997). Ford Motor Co. and General Motors Corp. both plan to launch
global brand marketing programs after embarking on new brand
management approaches at their US operations. General Motors sources said
that language and social nuances will account for national differences in the
company’s advertising in foreign markets (Halliday, 1997).
Equity will vary from one This middle-of-the-road approach, while recognizing local differences, holds
market to another that some degree of standardization may be both possible and desirable. Any
realistic attempt to measure brand equity should adapt this middle-of-the-
road approach to estimate the value of a brand. The equity of any brand will
naturally vary from one market to another. Neglecting market differences
will result in significant over- or under-pricing of a brand. A unique
characteristic of our proposed model is that it explicitly incorporates market
differences in the calculation of brand equity.

Alternative methods of brand equity measurement


Measuring brand equity deals with the measurement of intangible marketing
concepts, such as product image reputation and brand loyalty. Marketing
expenditures play a very significant role in securing long-term commercial
success and creating sustainable competitive advantages in the marketplace.
The long-term impact of marketing expenditures on goodwill and positive
image in a market can assume considerable commercial value. We believe
that land, building, or machines, although necessary, no longer constitute a
firm’s true assets, instead its intangible assets such as know-how, patents,
process, and brands are a firm’s true assets capable of creating sustained
competitive advantage.
Recent takeover activities have increased the awareness that the balance
sheet systematically excludes assets where cost is not easily verifiable. Such
assets can frequently be attributed to marketing functions. As reported by
Murphy (1990), the concept of brand value has featured in a significant
number of takeovers in recent years (e.g. R.J. Reynolds Nabisco: Ritz
Crackers; Philip Morris, General Foods: Maxwell House, Sanka; Guinness:
Johnnie Walker and White Horse; and Nestlé: Kit-Kat).
Need for long-term Allen (1990) advocates that evaluation systems be designed to monitor
performance performance in a manner more consistent with longer-term strategic goals
measurement than short-term operational goals. The need for long-term performance
measurement is particularly apparent with respect to the marketing function
where activities such as building of image, reputation, and market share are
naturally long-term and strategically oriented. Dyson et al. (1996) created
the consumer value model which bridges the gap between consumer and
financial equity. The aggregation of individual respondent consumer value
model allows to predict market share, a familiar sales measure with a direct
relationship to a brand’s revenue stream.
Among others, at least six general approaches to assessing the value of brand
equity have been proposed by Aaker (1991, pp. 22-7), and Kapferer (1992,
ch. 11):

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(1) Valuation based on marketing and R&D costs. This method of valuation
is based on the aggregate cost of all marketing, advertising, and research
and development expenditures devoted to the brand over a stipulated
period. it assumes that the brand is an asset whose value originates from
investment over a period of time.
(2) Valuation based on premium pricing. This type of valuation uses the
resulting extra revenue due to price differences as a basis for brand
valuation. In this approach, price premium can be simply observed in
the market or can alternatively be measured through customer research.
(3) Valuation at market value. This approach is a logical choice because it
uses objective market-based measures (Fama, 1970), and thus permits
comparison over time and across companies.
(4) Valuation based on consumer factors. Factors such as esteem,
recognition, or awareness – survey-based studies in measuring
customers’ preference and attitude can also be used to valuate the brand.
(5) Valuation based on future earnings potential. Future earnings
discounted to present day values may overcome the difficulties arising
from historical cost approach.
(6) Replacement costs valuation. This method tries to overcome the
difficulties arising from the historical cost approach.
Brand strength takes into One of the most comprehensive approaches to brand valuation is offered by
account seven factors Interbrand Group, a British consulting concern in conjunction with Financial
World (1996). The two components of the valuation of a brand are the
earnings attributed to the brand and the brand strength multiple. The former
are complied by Financial World, the latter number is estimated by Interbrand
Group. The Financial World uses a two-year weighted average of the
earnings attributed to the brand. This prevents brand values from showing
wild gyrations due to swings in the economy or short-term industry tumult
than the strength of the brand itself. The brand strength takes into account
seven factors: market leadership, brand stability, current market prospect,
brand extension possibilities, internationalization potential, adaptation to
time, brand support and legal protection. The brand strength is then correlated
to a multiple such as the price earning ratio which is a gauge of confidence in
the future. The brand multiple then will be applied to brand profit to derive
the value of brand equity. Interbrand has developed a chart known as the S-
curve” to relate the brand strength and brand multiple. The S-curve is based
on Interbrand’s examination of multiples involved in numerous brand P/E
ratios over the recent period, in sectors close to those studied. Interbrand uses
the weighted average profit before taxes for the previous three years
discounted for the rate of inflation (Financial World, 1996).
The Interbrand approach Although, the Interbrand approach seems to be comprehensive, it has its
has shortcomings shortcomings. The brand weights are based on historical data which may
produce biased and inconsistent estimate of brand equity which do not
accurately translate into future earnings. The source of bias can be related to
the assumption behind using historical data; what has happened in the past
will happen in the future. The proposed model by conducting consumer
surveys will overcome this shortcoming. By examining the above valuation
methods, it can be argued that in determining a brand’s value, since the
concept itself is a subjective notion, the only acceptable methods are those
based on historic and replacement costs. They have the advantage of at least
being semi-subjective in the sense that independent valuations would arrive
at roughly the same figure (Kapferer, 1992, p. 278).

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Global brand equity valuation model
Brand is an asset Although marketers have conceptualized the brand equity, they have not
been very articulate in measuring their brand equity. Alternatively, financial
researchers have been more concerned with measuring and quantifying the
value of equity – at aggregate level – than with exploring the nature of the
added-value equities of brands which has a significant potential to provide
managerial guidelines on how to manage and enhance the brand equity.
Measuring a brand’s value means identifying the sources of this value.
Marketing managers are less interested in the final valuation figure and more
in the process by which it has been calculated. In our view, brand is an asset
(or liability in some cases! ABC’s falling ratings is attributed to eroding
brand equity (Lowy, 1997)) that needs to be valued.
The proposed global brand equity valuation model has the advantage of trying
to bring the above concerns together by attempting both to estimate the brand
equity and show the sources of value which have significant implications for
marketing managers. The model is a synthesis of various models and has the
additional advantage of overcoming some criticism of other models. It
provides an interdisciplinary approach to the valuation of brand equity.
Global brand equity (GBE) is the product of brand’s net earnings and
brand’s multiple; it is very similar to the Interbrand model. The brand’s net
earnings is the differential earnings of a branded and an unbranded (generic)
product. We are applying the traditional net present value (NPV) methods
more in line with that of Simon and Sullivan. The advantage of our model is
that it quantifies all the components and applies generally accepted financial
techniques. The brand multiple will be determined based on brand strength
which will be derived from an in-depth assessment. Figure 2 depicts the
global brand equity valuation model.
Brand equity model The global brand equity model can be expressed symbolically as:
— n m n m n m
GBE = {M [[ (Σ Σ W CBPF ) + (Σ Σ W CPF ) + (Σ Σ W GPF )]/30]} BNE
i=1 j=1 ij ij i=1 j=1 ij ij i=1j=1 ij ij

Where:
GBE = global brand equity

M = maximum possible multiple in the industry
Wij = the importance of factor J in country I
CBPF = the value of customer base potency factor j in country I
ij
CPF = the value of competitor potency factor j in country I
ij
GPF = the value of global potency factor j in country I
ij
BNE = brand net earning

Notes: The brand strength percentage will not be directly multiplied by M. It
will be determined through application of S-curve.

Brand multiple
The calculation of brand multiple requires the calculation of brand strength,
which in turn needs a detailed review of each brand in terms of its
positioning, the market in which it operates, its competition, and its past
performance. The brand strength will be determined through a multi-staged
process utilizing a combination of techniques explained in “alternative

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Brand Strength Factors

Customer Base Potency


♦ Brand Image & Brand Loyalty
♦ Brand Awareness
♦ Brand Association
♦ Perceived Quality

Competitive Potency
♦ Brand Trend Brand Net Earnings =
Brand Multiple x Brand Return – = GBE
♦ Brand Support Generic Return
♦ Brand Protection
♦ Competitive Strength

Global Potency
• Market Factors
• Promotion & Personal
selling Factors
• Distribution Factors
• Product Factors
• Price Factors
• Regulation Factors

Figure 2. Global brand equity valuation model

methods of brand equity measurement” section of this paper. One hundred


percentage points will be assigned to each of the three potencies or factors:
customer base, competitive, and global. The brand will be assessed against all
factors, using a scale of –10 to 10 (–10 = least favorable score, and 10 = most
favorable score). The score of each factor will then be multiplied by its
weights, which will be determined either by management or customer surveys
depending on relevancy of factors, and will be summed to produce an overall
brand strength score. Because the maximum possible points in this scale will
be 30 points, we will divide the brand strength total score by 30 to express it
as a percentage. It should be noted that since the weights are determined by
management or customer surveys, there is room for slippage, there is room
for manipulation, if managers are compensated by value of brand equity.
Since, there is a logical and consistent relationship between the multiple –
the gauge of confidence in the future and – brand strength score, following
Interbrand approach, we will produce an S-curve based on examining the
multiples involved in brand negotiations in recent periods in product
category segments. Knowing the brand strength score, it would be a simple
task to calculate brand multiple using the S-curve. The shape of S-curve will
vary from one product category to another and should be constructed for
each brand. A typical S-curve is shown in Figure 3.
Many factors contribute Many factors contribute to the brand strength. We have synthesized in the
to the brand strength Appendix the factors proposed by Aaker (1991; 1996b) and Interbrand
described in Kapferer (1992, ch. 11). The factors are classified into three
different categories: customer base potency, competitive potency, and global
potency. All are described in the following section.

Customer base potency


Brand image and loyalty: loyalty is a core dimension of brand equity. A loyal
customer base represents a barrier to entry, a basis for a price premium, and
protection against intense price competition. Naturally, a positive and strong
brand image plays a significant role in creating brand loyalty. According to
Aaker (1996b), a basic indicator of loyalty is the amount a customer will pay
for the brand in comparison with another brand offering similar benefits.
Price premium may be the best single measure of brand equity:

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Brand Multiple

Sector Maximum Multiple

–1 +1

Figure 3. Relating brand strength total score to brand multiple

• Price premium can be a very effective measure of brand loyalty. The


price premium is defined with respect to a competitor or set of
competitors who must be clearly specified. A brand price premium can
be determined by simply asking consumers how much more they would
be willing to pay for the brand. A more sensitive and reliable measure of
price premium can be obtained using “conjoint” or “trade off” analysis.
• Customer satisfaction can be an indicator of loyalty. Enormous progress
in the measurement of satisfaction has been made in the past decade. A
direct measure of customer satisfaction can be applied to existing
customers. Satisfaction is an especially powerful measure in service
business.
Awareness drives brand Brand awareness: brand awareness is an important and sometimes
choice and loyalty undervalued component of brand equity. Awareness can affect perceptions
and attitudes, and it drives brand choice and loyalty. Awareness reflects the
salience of the brand in the customer’s mind. There are many levels of
awareness, including (Aaker, 1996b):
• Recognition (e.g. Have you heard of Buick Roadmaster?)
• Recall (e.g. What brands of cars can you recall?)
• Top-of-mind (e.g. the first named brand in a recall test)
• Brand extension possibilities: this criterion relates to the brand’s ability
to diversify by entering markets other than its present ones. There are
several measures of such potentials: for example, the brand’s existing
awareness in markets where it has no presence.
Brand association: The key association and differentiation components of
brand equity usually involve image dimensions unique to a brand.
• Value perception: if a brand does not generate value, it will usually be
vulnerable to competitors. The value measure provides a summary
indicator of the brand’s success at creating a value image. Brand value
can be measured by asking customers whether the brand provides good
value for money, or whether there are reasons to buy this brand over
competitors’ (Aaker, 1996b).
• Organizational association: many brands would not enjoy their share of
the market without the corporate support and reputation. When retailers
order a brand, they are influenced partly by the corporate reputation and

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image. Organizational association can be measured by expenditures to
promote the organization (e.g. advertising share).
A brand needs to be • Differentiation is a bottom-line characteristic of a brand: if a brand is
perceived as different not perceived as being different, then it will have difficult time
supporting a price premium. The indicators of brand differentiation may
include asking questions such as the following: “is this brand different
than competing brands? Or is this brand basically the same as competing
brands?”
Perceived quality: Perceived quality is an association that is usually central
to brand equity. Perceived quality is one of the key dimensions of brand
equity (Aaker, 1996a):
• Competitor’s frame of reference: perceived quality involves a
competitor’s frame of reference. Perceived quality can be measured with
scales such as the following: In comparison to alternative brands, does
this brand have: high quality, average quality, or inferior quality?

Competitive potency
• Brand trend: certain brands have survived the passage of time better
than others by undergoing continuous renewal to keep up with changes
in needs and consumer lifestyles. In evaluating this factor, special
attention will be paid to long-term developments in brand image and
awareness.
• Brand support: Those brands which have enjoyed continuous support
are more valuable than those which have received some support without
any long-term consistency. Heavy advertising and sales support
expenditures, or strong advertising share, can indicate relative market
prominence.
• Brand protection: since the brand has economic value, it attracts not
only predators but also counterfeiters. Brand legal protection seeks to
protect the brand by registering not only the name but other
distinguishing features associated with brand, such as design, packaging,
and logo.
Established status Competitive strength: the established status of a brand defines the basic
defines the basic stability stability of the brand. Older brands, which in the course of time have built a
of the brand loyal and satisfied customer base, should be considered the very substance
of the market. In the USA, Coca-Cola, General Electric, and IBM are as
prominent as Hoover in the UK and Bayer in Germany. We are now well
aware of the link between market share and profitability, as well as the
strategic advantage of having a dominant relative market share. These
criteria become even more important with fast-moving consumer goods,
where major retailers are inclined only to hold on to market leaders (Buzzell
and Gate, 1987). Research and development expenditures indicate that a
company is supporting the brand to maintain its innovativeness and
uniqueness.

Global potency
Constraints on A company acquiring a brand naturally seeks to profit from it. To valuate a
globalization brand requires auditing the brand, using a manageable number of criteria to
predict future potential, both within its own market and beyond. The brand’s
overall profile according to those criteria will indicate its strength. Successful
brands have already established themselves in their home markets. When
they are globalizing their operations, important differences between the

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domestic and foreign environments may make the entire transfer of strategy
impossible. Due to significant differences between home and foreign
markets, the equity of a brand may vary from one country to another. The
Appendix shows many constraints on globalization of marketing strategies.
Those constraints should be considered when assessing global competency
of a brand.

Brand net earning


In computing the differential earnings, utilizing a methodology similar to the
Financial World, a company’s earnings is broken down by brand. Once
brand-related earnings are determined, they are adjusted by an amount equal
to what would have been earned on a basic generic version of the product.
To find this amount, the amount of capital it takes to generate the branded
sales would be calculated. Then we assume that a generic version of the
product would generate a net return of 5 percent on capital employed. After
subtracting that portion of capital employed, we allow for taxes. The
remainder is deemed net brand earnings. In applying the model some words
of caution are appropriate. Since the weights are determined by management
or customer surveys, there is room for slippage, and the model can be
manipulated by unethical managers if they are going to be compensated
based on brand equity value.

Summary and conclusions


A successful brand name The competitive advantage of a successful brand name is a valuable asset for
is a valuable asset the firm owning the brand. The value of this advantage is indicated by the
money paid by firms that have acquired consumer package goods with
strong brand names. Since 1986, there has been a frenzy of mergers and
acquisitions in which brands have played primary roles. Brands are
important to firms because they lead to customer loyalty which in turn
ensures demand and future cash flows. The brand also captures the
promotional investment over time. Therefore, it is not surprising that the
primary capital of many businesses is their brands. The notion that a brand
has an equity, that exceeds its conventional asset value was developed by
financial professionals.
Brand equity has been viewed from a variety of perspectives. The first
perspective has used the concept of brand equity in the context of marketing
decision making, with the aim of improving the efficiency of the marketing
process. The second perspective is financially based and views brand equity
in terms of the incrementally discounted future cash flows that would result
from a branded product in comparison with the revenue that would occur if
the same product did not have the brand name. The financial approaches
estimate the overall value of a brand for investment purposes (e.g. merger,
acquisition, or divestiture).
Geocentric approach A major contribution of the marketing conceptualization is the
identification of the sources of brand equity. However, each perspective
takes a tunnel vision of brand equity concept. A combined approach can
provide a more accurate estimate of brand equity and its sources.
Additionally, the brand equity concept should also be conceptualized from
a global perspective. The geocentric approach represents a proper balance
of consistency and economy on one hand and of regional or local
relevance on the other. Any realistic attempt to measure brand equity
should adapt this middle-of-the-road approach to estimate the value of a
brand. Naturally, the equity of any brand will vary from one market to

JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 7 NO. 4 1998 285


another. Neglecting market differences will result in significant over- or
under-pricing of a brand. A unique characteristic of our proposed model is
that it explicitly incorporates the market differences in the calculation of
brand equity.
The model synthesizes The proposed global brand equity valuation model estimates the value of a
various models brand and shows the sources of value which have significant implications for
marketing managers. The model synthesizes various models and has the
advantage of overcoming some of the criticisms leveled against other
models. The global brand equity valuation model provides an
interdisciplinary approach to the valuation of brand equity. Global brand
equity (GBE) is the product of brand’s net earnings and brand’s multiple
which will be determined based on brand strength.
The calculation of brand strength, in turn, needs a detailed review of each
brand in terms of its positioning, its operating market, its competition, and
its past performance. Since there is a logical and consistent relationship
between the multiple and brand strength score, we would produce an S-
curve based on examining the multiples involved in brand negotiations in
recent periods in the product segment. Knowing the brand strength score
makes it easy to calculate brand multiple using the S-curve. The shape of the
S-curve would vary from one product category to another and would be
constructed for each brand. Once brand-related earnings were determined,
they would be adjusted by an amount equal to what would have been earned
on a basic generic version of the product. To find this amount, the amount of
capital it takes to generate the branded sales would be calculated. Then, we
would assume that a generic version of the product would generate a net
return of 5 percent on capital employed. After subtracting that portion of the
capital employed, we allow for taxes, and the remainder is deemed net brand
earnings.
Expanded perspective Expanding the perspective of brand equity to include multiple markets can
have significant practical applications including benchmarking against the
best, insights into brand building process. Brand equity measurement over
multiple markets provides an opportunity to generate insights about the basic
principles for effective brand building and brand management (Aaker,
1996a).
Businesses must act in several ways if they are to gain a strong position in a
truly global environment. These measures include confronting cross-cultural
challenges; encouraging the growth of cross-cultural competencies in the
firm; “reducing time to global markets”; developing global brand identity by
building networks of global partners; and importing concepts from one
culture to another (Perimutter, 1995).

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Appendix

Customer base potency factors Measurement method


Price premium Conjoint analysis
Customer satisfaction Customer satisfaction survey

Brand awareness
Recognition Customer survey
Recall Customer survey
Top-of-mind recall Customer survey
Brand extension possibilities Customer survey

Brand association
Value perception Customer survey
Organizational association Customer survey
Product differentiation Customer survey

Perceived quality
Competitor frame of reference Customer survey

Competitive potency factors Measurement method


Brand trend
The overall long-term trend Annual report and 10-K’s

Brand support
Consistent brand investment Compustat, and 10-K’s

Brand protection
Registered trademark share Company’s record

Global potency factors Measurement method: secondary


sources of information
Market factors Promotion and personal selling factors
Attitudes toward change Legal limits on expenditures
Attitudes toward time Media availability
Attitudes toward advertising Distinct advertising needs
Rural-urban mix Dispersed buyers
Different buying habit Numerous subcultures

Distribution factors Regulations factors


Availability of channel Ad Valorem duties
Length of channels Trademark laws
Government owned channels Import duties
Extra transportation cost Tax laws
Restriction on channel Local production requirements
Competitor’s control of channel Taxes on advertising
Competitor’s margins to channel Legal requirements of advertising

Product factors Price factors


Experience with similar products Government controlled markups
Use of local parts Government controlled markups

Table AI. Factors contributing to brand strength

288 JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 7 NO. 4 1998


This summary has been Executive summary and implications for managers and
provided to allow executives
managers and executives
Big brands are (almost) unassailable – that’s where their value comes
a rapid appreciation of
the content of this from
article. Those with a “The value of (a) brand is indicated by the money paid by firms that have
particular interest in the acquired consumer package goods with strong brand names.” With this
topic covered may then observation Motameni and Shahrokhi open their discussion of brand equity
read the article in toto to and its valuation. In considering the impact of the model proposed here, we
take advantage of the need to appreciate some important aspects of brands as an asset.
more comprehensive
description of the Brands are intangible
research undertaken and The prices paid to acquire brands demonstrates that brands have a definite
its results to get the full value: “creating new brands “…requires huge investments…” and isn’t guaranteed.
benefit of the material For brands there is not a direct relationship between investment and value.
present Not only is the brand intangible so are the elements by which we measure its
value.”
Set against this picture, we can understand why accountants and finance
managers resist explicit valuation of brands for inclusion in a balance sheet.
In the case of buildings or plant we can include a figure determined by either
what we paid to acquire the asset or a valuation of what somebody else
would pay to buy the asset. In principle, we can apply this thinking to an
intangible asset but, as the multitude of brand asset valuation methods
indicate, valuing the brand can’t be done in the same way as valuing plant or
buildings.
Motameni and Shahrokhi argue that brand valuation needs to accept the
facts of international business and “globalization”. Indeed the belief that
“…in a world of growing internationalization, the key to success is the
development of global consumer products and brands”. In simple terms, the
brand selling in 100 different markets around the world has more value than
a brand confined to one or two local markets. Thus the rationale for Mars
changing “Marathon” to “Snickers” in the UK relates to the global value of
the brand rather than any expectation that the change will improve market
share or sales.
The challenge for marketers wishing to use brand valuation as a means of
stressing the importance of the marketing function lies in dealing with the
intangibility and value judgement elements of a brand’s worth. It may be
true that “intangible assets…and brands are a firm’s true assets capable of
sustained competitive advantage”. But managing brand investment cannot
follow the same rules as apply to physical assets. I can calculate (with
considerable confidence) the return I will get in asset value from investing
$1 million in building improvements. Calculating the contribution to brand
asset value from $1 million invested in marketing is only a short step from
educated guesswork. Indeed the effect of that $1 million can rise from
negative, through no effect to a very significant impact.
Although this problem of assessing the effect of my investment in the brand
represents a considerable challenge to marketers, it also shows up one of the
strengths of established brands. We may not know how past investment
succeeded in creating such a strong brand but we can be sure that over 90
percent of investment in competing with that brand will not succeed. What the
brand does is to act as a significant block to competitor market entry. The
fact that so few of the world’s leading brands were created in the last 30
years demonstrates just how important the brand is to consumer goods firms.

JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 7 NO. 4 1998 289


Motameni and Shahrokhi’s proposed model extends this argument by
including the related fact that brands sold globally have an additional
protection from market competition. It’s a big enough job launching a brand
in one market. Succeeding in creating a global brand not only involves
taking considerable risks but take a long time and a great deal of money. In
large, mature consumer goods markets the main competitors already have
established global brands and no other competitor has the resources to enter
the global market and compete effectively.
While Coca-Cola and Pepsi will suffer from competition in some markets no
new entry (such as Virgin) has the finances to really challenge these two
giant brands in every market. As we have seen in the UK competition from
own-label and new brands has made little difference to the market share and
dominance of these two leading cola brands.
It is likely that, for the foreseeable future, we will not see the emergence of
any new global brands outside services and new product categories. For
most household goods the main brands are set and the marketing battle will
revolve around market share since that influences customer loyalty, pricing
premiums and overall asset value. A 1 or 2 percent increase in share at the
expense of a competing brand represents a significant contribution to profits
and, if the brand asset is valued, to the balance sheet of the brand owner.
This brings us to the issue of buying and selling of brands. Motameni and
Shahrokhi point out just how much firms are willing to pay for brands and
we have seen – over recent years – the consolidation of major brands into
large consumer goods groups. And, as the recent merger between Guinness
and Grand Metropolitan demonstrates, the process of consolidation
continues. The resulting firm, Diageo, joins Proctor & Gamble, Unilever,
Nestlé and a few others as dominant firms in consumer goods manufacture.
Yet we know that buying up brands does not always work. Quaker’s
purchase of Snapple failed to sustain the excitement and difference of the
soft drink brand. We must realise that, for some consumer goods brands and
certainly for service brands, the brand incorporates elements of style,
culture and attitude that will not necessarily transfer with the brand identity
itself. It would be difficult to picture the Virgin brand without Richard
Branson embodying its spirit. Valuation of brands needs to acknowledge this
additional factor influencing brand value.
Motameni and Shahrokhi contribute to the debate about how and when to
value brands. By acknowledging the importance of globalization in brand
value, the authors take us a step closer to winning the argument with
accountants about inclusion of brands in the balance sheet. But there will, I
suspect, remain a doubt in many minds given the problems and
disagreements about what constitutes the brand asset and how we measure
the various intangible factors that build up to create the brand’s value.
(A précis of the article “Brand equity valuation: a global perspective”.
Supplied by Marketing Consultants for MCB University Press.)

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