S.Afr.J.Bus.Manage.

2014,45(4)

What is your corporate brand worth?

A guide to brand valuation approaches

J. Reynekea, R. Abrattab* and G. Bickc

•Graduate Researcher, Wits Business School, University of the Witwatersrand, P 0 Box 98, Wits, South Africa 2050.
bprofessor of Marketing, Huizenga Business School, Nova Southeastern University, 3301 College Avenue, Fort Lauderdale, FL33314
cProfessor ofMarketing, Graduate School ofBusiness, University of Cape Town, Portswood Rd, Greenpoint, Cape Town 8001

*To whom all correspondence should be addressed

abratt@nova.edu

Brand league tables are becoming very popular as a reflection of the performance of an organisation. Stakeholders also
view the ranking of brands as an important yardstick when forming a brand image. This article reviews the available
approaches to brand valuation. The research followed a case study methodology. The case site that was used for this
study was The South African Gold Coin Exchange. The main objective of this study was to calculate the value of the
corporate brand of one company using different methods. The aim was to show that the value of the brand is highly
dependent on the method used. In total twelve senior managers and directors were interviewed. It then calculates the
value of the South African Gold Coin Exchange Brand using a number of different models. There is a different result
under each approach. It has been established that different models are more appropriate than others depending on the
manager's valuation objectives. This research is a single case study and therefore future research should have an
increased sample size and be a cross industry study. Managers are often confronted with the problem of deciding which
valuation method to use as there are many alternative approaches. We provide guidance for managers who want to
perform a brand valuation of their organisation.

Introduction to brands, and then highlight the importance of the corporate

brand as a valuable resource to the organisation. We also
Ranking of brands and the publication of league tables has review all the available brand valuation methods. These are
become a popular yardstick for consumers, investors and then used to calculate the brand value of The South African
other stakeholders when forming a brand image about the Gold Coin Exchange. (http://www.sagoldcoin.co.za/).
'best' brands. Many organisations have seen their brands
grow in value to become a substantial asset, with brand Resource-based theory of the firm
valuation being used not only to measure the value of the
brand in question but also as a performance metric (Raggio The resource-based theory of the firm suggests that a firm is
& Leone, 2009). The problem with these league tables is able to develop a sustainable competitive advantage by
that they often produce different scores and valuations, strategically exploiting its strengths and opportunities while
leading to confusion and scepticism amongst different minimising its weaknesses and threats (Barney, 1991). A
groups of stakeholders. Certain valuation approaches, brand name is a resource that fits the criteria of the resource-
however, may be appropriate for certain brand equity based view (Christensen, Fahey & Srivastava, 2001).
valuation objectives but not for others (Salinas & Ambler, Resources, as assets that a firm uses, can and should be
2009). Managers face the problem of not knowing which allocated to differentiate the organisation in its industry or
brand valuation method is appropriate to use. Although the environment and thereby provide a differential advantage to
different brand valuations are well documented, a gap exists the organisation (Barney, 1991).
in the literature with regard to performing a brand valuation
of an organisation using different methods (see among The resource-based view theorises that, in a firm, resources
others Seetharaman, Bin Mohd Nadzir & Gunalan, 2001). which are heterogeneous, immobile and that provide
Each valuation method is more suitable to achieve specific empirical indicators such as value, rareness, imitability and
objectives which can vary according to organisational needs. substitutability, have the ability to provide a sustainable
The main objective of this study was to calculate the value competitive advantage (Barney, 1991). As a resource, a
of the corporate brand of one company using different brand's ability to fulfil these criteria is reiterated by Balmer
methods. The aim was to show that the value of the brand is & Gray (2003). They are of the opinion that a strong well-
highly dependent on the method used. Another purpose of managed corporate brand qualifies as a sustained valuable
this study was to investigate how to select a brand valuation resource. By differentiating a firm's products and providing
approach to meet specific brand valuation objectives. W e confidence to consumers, brands are being recognised as
first discuss the resource-based theory of the firm in relation adding value and contributing to the stren gths of
2 S.Afr .J.Bus.Manage.20 14,45(4)

organisations (Doyle, 2001). The resource-based theory and culture of an organisation with the commitments made
provides a model of how firms create value and how brands to employees, it has the ability to shape employee
can add to that value (Doyle, 2001). behaviours (Brownhill, 2012; Harris & de Chernatony
(2001).
The importance of corporate brands
Brand equity objectives
"The corporate brand defmes the firm that will deliver and
stand behind the offering that the consumer will buy and Brand equity can make up a significant portion of an
use." (Aaker, 2004: 6). Through this statement, Aaker organisation's market capitalization. Brand equity valuation
(2004) suggests that the corporate brand is the objectives can be grouped into three categories namely:
representation of the firm, its products and the experiences valuations for accounting purposes; valuation for
associated with their usage. He adds that the corporate brand transactional purposes; and valuations for strategic brand
is flexible and able to play different roles within the brand management purposes (Salinas, 2009). Brands on the
portfolio (Aaker, 2004). The corporate brand is able to play balance sheet or accounting for brands as a concept has been
multiple roles whereby stakeholders use it as a navigational around since the late 1980s and is a relatively new
tool, denoting ownership, representing the image of the accounting practice (Otonkue, Edu & Ezak., 2010). With
organisation, being a symbol associated with key values of managers increasingly under pressure to provide shareholder
the organisation, a way to construct individual identities value, including intangible assets on the balance sheet has
(differentiation) and, finally, a conduit for pleasurable become a more popular practice (Bick, 2009; Salinas &
experiences (Balmer & Gray, 2003). Brands are increasing Ambler, 2009). In a study conducted by Fortune magazine
in importance due to their internal value and the power that where 3,500 US companies were surveyed, intangible assets
they have to influence customer perceptions of organisations accounted for 72% of a company's market value with 40%
(Narayan, 2012). Balmer and Gray (2003) suggest that a to 70% of that potentially contributable to brands (Yeung &
corporate brand provides an overarching level of trust Ramasamy, 2008).
between stakeholders and the organisation. They comment
that the level of trust is transferred to new product lines and Organisations see brands as enormously valuable pieces of
even to diver sified products and services when entering new property that can be legally registered as a trademark that
markets. The ability of the corporate brand to transfer its has the ability to influence consumer behaviour which can
characteristics stems, in part, from the associations and provide security for future revenues and be bought and sold.
expectations that stakeholders have of the brand due to their Large earnings multipliers have been applied to brands
interactions with it. Whether negative, positive or neutral during mergers and acquisitions or when brands were
associations, stakeholders form feelings and thoughts about bought or sold (Kotler & Keller, 2009). Salinas (2009)
the brand and expect similar experiences in future identifies two types of transactions where brand valuations
engagements (Leiser, 2004). The association with, and will be useful. These are internal and external transactions.
expectation of, a corporate brand by stakeholders adds value Each contains two subcategories: securitization and tax
to an organisation, product or services and builds corporate planning as subcategories for internal transactions; and
brand equity (Shamma & Hassan, 2011). Smith, Smith and acquisitions and mergers for external transactions. Brand
Wang (2010) found that a positive brand image provides equity valuation has been used as a management tool in
organisations with the opportunity to derive a market certain instances and can be used to compare the levels of
premium benefit. Their studies also found that not only does success of different brands, to inform brand architecture and
positive brand image lead to a higher market value premium brand extension decisions, and to measure the return on
but it also leads to better financial performance and a lower investment of marketing expenditure (Salinas, 2009).
cost of capital. The value of brands is further illustrated by
the high prices that are paid for brands when traded in Building a strong brand has become an important obj ective
mergers and acquisitions. These transactions provide for companies because of the notion that strong brands
evidence of the acceptance of the corporate brand as a provide their owners with a competitive advantage (Amini,
valuable asset to the organisation (M'Zungu, Merrilees & Darani, Afshani & Amini, 2012). To extract the optimal
Miller, 2010). benefit from the information that brand equity calculation
can provide, organisations need to look even further into
Brand equity has an impact on a customer 's profitability and how brand equity can be leveraged to meet business goals
the customer 's lifetime value. As a customer ' s lifetime value (Leiser, 2004). This would require an understanding of the
increases so do the returns for the firm (Heitmarm, components that form part of the brand equity calculation
Lehmann, Neslin & Stahl, 201 2). Ger zema (2009) and and how these components align to the business goals and
Heitmann et al. (201 2) suggest that the customers ' objectives.
perception of the corporate brand has the ability to inform
their perception of the potential and profitability of an Brand equity valuation approaches
organisation. The corporate brand can shape both external
perceptions and behaviour and employee per ceptions and The current literature on brand valuation methods and
behaviour. The corporate brand not only focuses on models is vast. They tend to be grouped in different ways.
customers and, through aligning the communications, values Virvilaite and Jucaityte (2008) group brand valuation
S.Afr.J.Bus.Manage.2014,45(4) 3

models together in terms of common use, proposing the than one brand it is calculated pro rata as per each brand's
following three groupings: Traditional economic brand contribution to revenues (Virvilaite & Jucaityte, 2008).
valuation models; Psychographic and behaviourally
orientated models; and Composite economic - behavioural The second model is the Market value-orientated brand
orientated models. Abratt and Bick (2003) grouped their valuation method which requires a marketer to determine
review of the brand valuation approaches into five the fair market price of the brand by comparing it to similar
categories: Cost-based approaches; Market-based brands in the market place (Virvilaite & Jucaityte, 2008).
approaches; Economic use or income-based approaches; The third model is the cost-oriented brand valuation
Formulary approaches; and Special situation approaches. (residual value according to the investment theory). This
The cost-based approaches consider the costs incurred to method is underpinned by the net asset value approach
create the brand or, should the brand be replaced, what the where the assets are listed by expenses and engagements
costs would be (Abratt & Bick, 2003). The reliability of cost subtracted to provide a "net" value for the asset (Virvilaite
measurement of brands is discussed by Otonkue et al. and Jucaityte, 2008). The fourth model is the Earnings
(2010) who suggest that the accounting policy in terms of capacity-oriented brand valuation (Kern's earnings capacity
brand recognition and cost measurement depends on the model). It uses the future cash flows attributable to the brand
way that the brand has been acquired. Salinas and and discounts them back to a present value using a set
Ambler(2009) suggest a market-based approach, where interest rate (Virvilaite & Jucaityte, 2008). The fifth is the
transactions involving brands in similar markets are Customer-oriented brand valuation model. It works on the
compared to determine an open market value, and is premise that customers form relationships with brands and
probably the most reliable approach. This approach is very as a result of the relationship, repeat purchases do not
useful when one wants to sell the brand (Abratt & Bick, require new purchasing decisions. The average customer
2003). Economic use or income-based approaches use the spend is used together with a rate of churn to determine
future net earnings contributed by the brand and considers future earnings (Virvilaite & Jucaityte, 2008). They
the value in the current time (Abratt & Bick, 2003 ). Salinas summarize this grouping as being skewed towards material
and Ambler (2009) suggest that the income-based approach brand value and is one which does not take the customers'
is a valuable tool should the user be concerned about share influence on brand value into consideration.
price fluctuation and the organisation's reputation in the
financial markets. Formulary approaches use multiple The sixth model is the Accumulated cost model which uses
criteria and are categorized together due to their popularity historical marketing costs to derive a value for the brand.
by the commercial sector (Abratt & Bick, 2003). Baumann, The primary difficulty with this model is determining which
Gray and Mirzaei (20 11) identify a host of formulary brand costs should be included as part of the marketing spend. One
equity valuation models used in the commercial sector and of its advantages, though, is that the historical costs are
question their subjective intangible measures as opposed to known (Abratt & Bick, 2003). The seventh model is the
objective behavioural metrics. replacement cost based on launching a new brand. Abratt
and Bick (2003) comment that this is one of the most
Prior research leads us to conclude that the different brand difficult models to calculate. They cite Aaker's (1991)
valuation approaches can be classified as either economic proposition that the cost of launching a brand is divided by
based, behavioural based, combined economic and the chances of success. This notion, however, does not take
behavioural based and formulary approaches. These will into consideration first mover advantage, versus the success
now be discussed. of existing brands. The eighth is using a conversion model.
This model uses the premise that the brand value is the level
Economic based approaches of awareness required to generate the current level of sales
(Abratt & Bick, 2003). One of the challenges of this model-
The first model is the Capital market-orientated brand as identified by Abratt and Bick (2003) is that it does not
valuation. In many sales environments (including the stock allow for change in consumer behaviour. It also assumes
market one can argue, as per the theory of markets), the that awareness guarantees purchase. The ninth model is the
product, item or company is worth the maximum amount Consumer preference model. This model is based on
that someone is prepared to pay for it (Virvilaite & Aaker's (1991) premise that the increase in brand awareness
Jucaityte, 2008). This would include value added from both compared to the increase in share price over the same
tangible and intangible assets, such as brand equity, where period, can be used to calculate the brand value. One of the
intangible assets augment the value provided by tangible challenges of this model is to ascertain how much of the
assets (Simon & Sullivan, 1993 ). The capital market- increase in share price is directly linked to the increase in
orientated brand valuation model uses the company's market awareness. Abratt and Bick (2003) also highlight the issue
capitalization value, subtracts all tangible assets and other that one would not expect the two variables to have a linear
known intangible assets (except brand value, should it ratio.
already be on the balance sheet), and the remaining margin
is attributed to brand value. The brand value is thus defined The tenth is the Comparable approach. This model - as the
as the present value of future cash flows attributed to the name would suggest - uses comparable brands that have
brand (Simon & Sullivan, 1993). Ifthe company has more been sold at a premium to derive a multiple that can be
applied to the brands being valued. One of the advantages,
as highlighted by Abratt and Bick (2003), is that the
4 S.Afr.J.Bus.Manage.2014,45(4)

multiple is based on what the market is actually willing to and accounting anomalies into account, if one used free cash
pay for similar brands. One of the difficulties is to find two flows allocating the correct cash flows is difficult (Abratt &
brands that are alike to be able to make a fair comparison. Bick, 2003).
The eleventh is the use of real options. In this model the
brand value is the value of the underlying asset. The cost of Behavioural based approaches
developing the brand is the exercise price. To calculate the
value using tl1is model, Abratt and Bick (2003) note that the The first model under this grouping is the Aaker brand
following elements are required: risk free rate, implied valuation model. Aaker (1991) defines brand loyalty, brand
volatility of the underlying asset, and expiration time. Abratt awareness, perceived quality, brand associations and other
and Bick (2003) add that the practical application of tlus proprietary brand assets as elements that create brand equity.
model is very difficult. The twelfth model is the residual According to his model these elements provide value to
method. This model derives the brand value by subtracting customers by enhancing their product satisfaction and their
the net asset value from the market capitalisation. The confidence in the purchasing decision. It also provides value
"residual" value can be attributed to intangible assets of to the firm by improving marketing programme efficiency,
which the brand is one. Abratt and Bick (2003) highlight leverage in the trade, margins, brand extensions and
tw o key assumptions in this model, namely that the market competitive advantage. Virvilaite and Jucaityte (2008)
is efficient, and that the assets are being used to their full criticize this model because it lacks quantifiable value and
potential. because the psychographic attributes are not converted into
a representative monetary value.
The thirteenth is ilie Royalty relief method. Tlus model
determines brand value based on the royalty that a company The second model is the Kapferer brand valuation model.
would have to pay to use the brand if it had to license it This model suggests that the relationship between a
(Aaker, 1991). Abratt and Bick (2003) note that the customer and a brand is based on a trade-off where the
challenge of this model is to determine the correct royalty brand provides reassurance and the customer provides repeat
rate. They suggest iliat as a rule of thumb 25% of the net purchase. As such he concludes that the stronger the brand
profit or 5% of the turnover should be used. The fourteenth value the less the customer-purchasing risk. The lower the
is the Price premiw11. It is based on the premise tl1at a risk to the customer the less the need for the brand to
branded product can charge a premium compared to a non- differentiate the product (Kapferer, 1997). Virvilaite and
branded product (Aaker, 1991 ). The model thus discounts Jucaityte (2008) critique the model for not being dynamic
future sales premiwns to a present value. The fifteenth is enough to allow changes in factors such as customer values
Conjoint analysis. The conjoint analysis calculates the brand and competitive strategies which affect brand value,
value as the discounted potential future revenues of according to this model.
customers (Abratt & Bick, 2003). This model determines the
value of the brand attribute through market research to The third is the Keller brand valuation model. The true
determine future values. The sixteenth is the differences future value of brands is in the minds and actions of
between return on investment, return on assets and consumers. Through their purchasing decisions, they decide
economic value added. Tlus is very similar to conjoint which brands have more brand equity than others (Kotler &
analysis in tem1s of its approach, and encompasses three Keller, 2009). Keller (2013) defmes brand value as the
models in one, each using a different base. The premise, difference brand knowledge makes in the customers '
similar to that of price premium and conjoint analysis, is that decision-making. Brand knowledge comprises brand
branded products command a price premiwn and that if we awareness (recall and recognition) and brand image. The
calculate tl1e future premiums we would have calculated the focus of his grouping is the attitudes and behaviour of
brand value (Aaker, 1991). Abratt and Bick (2003) note tl1at customers (Virvilaite & Jucaityte, 2008).
the models do not make the distinction between intangible
assets and where exactly the premium is derived from. The Combined economic and behavioural based
seventeenth is the Price-to-sales ratio model. Using the approaches
price-to-sales ratio of a branded firm and that of a non-
branded firm the difference in value would provide the The first major model under this grouping is the integrated
brand value (Abratt & Bick, 2003). It is difficult to find two model ofVirvilaite and Jucaityte (2008). They developed an
firms that are the same except for their branding differences integrated brand valuation model which seeks a balance
and no allowance is made in this model for value being between the traditional company-based view and the
possibly derived from other differences. The eighteenth is customer-based aspects. The one side of this model is
the Future earnings model. This model uses future profits dedicated to the brand value from the customers' point of
derived from the brand and discounts them back. It is very view and uses Aaker's (1991) brand valuation model to
difficult, however, to determine what portion of the measure the value. Each element is rated on a scale between
estimated future profits are attributable to the brand and this zero and 20 and then added together to provide a point score
model does not allow for any balance sheet anomalies out of 100. On the other side ofthe model, is the brand value
(Abratt & Bick, 2003). The nineteenth is the discounted cash from the company's point of view. Financial asset factors
flow model. Similarly determining what portion of future are excluded from the calculation to r eceive a net brand
cash flows are attributable to the brand proves to be financial value. Financial stJ:ength factors are then used to
problematic, and even though this model takes balance sheet
S.Afr.J.Bus.Manage.2014,45(4) 5

derive the points for the company-based brand value. The size; however, the objective of the research was not to be a
customer-based viewpoints are added to the company-based broad all-encompassing study but rather to gain an in-depth
viewpoints to provide a total point based brand value. understanding and provide a guideline to marketing
managers.
The second model is the Swiss based International
Organisation of Standards (ISO) 10668. In an attempt to The case site that was used for this study was The South
provide consistency, they issued a new standard pertaining African Gold Coin Exchange.
to brand valuation - ISO 10668. 'The new standard (http://www.sagoldcoin.co.zal). This organisation has been
provides consistent, reliable procedures and methods for trading for forty years, and is the largest of its kind in South
measuring brand values ... " (Catty, 2011:1) Eight underlying Africa. Two executive and two non-executive board
themes are evident in the standard and include transparency, members were interviewed. In addition, eight senior
validity, reliability sufficiency, objectivity, parameters and executives were interviewed from various departments
purpose, all of which are currently best practice standards within the organisation. In total twelve senior managers and
(Catty, 2011). directors were personally interviewed, seven males and five
females. Two were from the finance department, four from
Formulary based approaches management, two from marketing, and one each from
information technology, sales, human resources and
Formulary approaches use multiple criteria and are retailing. Financial reports and management accounts dating
categorized together due to their popularity by the back five years were used. The interviews with board
commercial sector (Abratt & Bick, 2003). Baumann et al. members, financial department heads and executive
(20 11) identify a host of formulary brand equity valuation committee members were designed to establish their
models used in the commercial sector and question their perception of the brand, how they value the brand as a
subjective intangible measures as opposed to objective business resource, and for which purposes they would use a
behavioural metrics. Models under this category include: the brand equity measurement. These managers had the relevant
Interbrand approach (Interbrand.com); and the BrandZ access to the financial data needed to calculate the value of
method (http: //www.millwardbrown.com/BrandZ). The the company's brand and were the decision makers who
Interbrand approach is based on the assessment of what the decided the major strategies of the firm.
value is today of the earnings the brand can be expected to
generate in the future. It takes into account the ways in Once the different brand equity valuation approaches wer e
which a brand benefits the organisation; including the identified, mathematical models were used to apply the
attracting and retaining talent and delivering on customer selected brand valuation approaches. Semi -structured
expectations (Keller, 2013). The BrandZ valuation interviews were also used to determine brand equity
methodology combines extensive and ongoing consumer valuation obj ectives. Data wer e collected by reviewing the
research with rigorous financial analysis financial statements and management accounts of the case
(https://www.millwardbrown.com/BrandZ/Top_ 100_Global site as well as through the individual interviews conducted
_Brands/Methodology.aspx). It is not our intention to with the respondents. The data collected from the financial
discuss these commercial methods here but explanations can statements and management accounts were applied to the
be found on the company websites. mathematical models as suggested by Abratt and Bick
(2003) for each valuation approach.
Research methodology
Results
The case study method was used in this study as it is a
useful method because it allows data to be examined at a Valuations of the South African Gold Coin Exchange
micro level (Zainal, 2007). The advantages of this approach brand
is that the examination of the data was conducted within the
appropriate context (Yin, 2009). The detailed qualitative Respondents were then taken through seven calculations that
work that is allowed for in the case study method was had been performed on the organisation and asked which
explored in a real life situation and assisted in highlighting method they would feel most comfortable using.
and understanding the complications that the real life
environment adds. This would not have been possible in Seven brand valuation approaches wer e calculated as shown
experimental or survey based research (Zainal, 2007). A in Table 1.
disadvantage of using the method was that case studies
allow for very little generalisation due to the small sample
6 S.Afr .J.Bus.Manage.20 14,45(4)

Table 1: Brand valuation approach calculation results

Brand valuation approach Formula Result

Accumulated cost model Brand value = L costs incurred to date less amortization R62,391 ,330
Replacement cost based on launching a Brand value =cost oflaunching the brand I probability of
Rl 02,412,780
new brand success
Brand value= market capitalization (or equity valuation) less
The residual method R86,736,591
tangible assets and other identified intangible assets
Royalty relief method (using turnover as Brand value =royalty rate x base x (1 + growth rate) I (Discount
R66,927,778
a base) Rate growth rate)
Royalty relief method (using profits as a Brand value = royalty rate x base x ( 1+ growth rate) I (Discount
R77,915,715
base) Rate growth rate)
Brand value =price premium x base x (1 + growth rate) I
Price premium method R373,995,430
(discount rate - growth rate)
Future earnings model Brand value = L discounted brand profit Rlll,953,398
Discounted cash flows model Brand value = L discounted cash flows attributable to the brand Rl27,230,299

Respondents selected six out of the seven calculations, with The royalty relief approach calculation used two
future profits being selected four times and the residual calculations, one using net profit as the base value and 25%
method and price premium method being selected three as the royalty rate; and the other using turnover as the base
times each. The replacement cost method received no value and 5% as the royalty rate. The growth rate was
responses. Only one respondent indicated that he was determined by using a forecasted growth rate over a five-
selecting the calculation purely based on the value; all other year period. Forecasts were provided for both the turnover
respondents indicated that the inputs in the formula were and net profit growth calculations. The South African Gold
being considered and not the result of the calculation. As the Coin Exchange is a private company and as such the
calculations indicated, different brand valuation approaches traditional method of calculating a discount rate using
provided different brand equity valuation results. regression could not be performed. As per Damodaran
Respondents indicated that two out of the seven approaches (2008), fmding similar companies listed on the stock
were preferred. The future profits and residual methods exchange and using that firm's data to calculate a discount
received more than six interviewee selections. The results rate for the private firm is an acceptable method. The South
confirmed that different brand equity valuation approaches African Gold Coin Exchange has a unique product and in an
would provide different brand equity valuation results. The industry characterized by few players it was difficult to fmd
Seven brand valuation approaches calculated are now a listed firm that mimicked The South African Gold Coin
discussed. Exchange's performance. Financial institutions were ruled
out due to their governance by financial and banking
The cumulative cost approach calculation included the costs regulations. The gold price was ruled out due to a limited
incurred to date and were used from 2008 up to, and correlation between its influencers and that of the South
including, 20 12. All non-branded element costs were African Gold Coin Exchange. The New Gold exchange
removed and the amounts amortised. 12% of respondents traded fund was found to be a suitable measure as its
selected this model as one of their preferred methods and response to market forces matched the South African Gold
felt that although the formulation was relevant to marketing Coin Exchange closely. A regression was performed and a
spend it was not forward looking and inputs were too discount rate calculated. The discount rate was presented to
limited. The replacement cost approach calculation included the financial officer to ensure reliability, and was confrrmed
the cost to launch and was calculated as current costs and to be reliable.
included all existing branded elements, advertising and
current media holdings. The probability of success was The price premium approach calculation was calculated as
placed at 10%: this is because recent studies have shown per the description under the royalty relief approach. Net
that newly launched brands suffer from high failure r ates of profit was used as the base value. To determine the price
50% or more (Ogawa & Piller, 2006), and potentially as premium the premium charged on the sales of Krugerrands
high as 95% in the United States and 90% in Europe (Kotler was used. Rare and collectable products were excluded as
& Keller, 2009). The replacement cost approach received no the majority of products sold by the South African Gold
support from respondents whose comments included that it Coin Exchange are exclusively sold through the brand and
is not a fair reflection of brand value built up over time and as such there is no comparable non-branded product.
that the probability of success was too subjective. The Krugerrands are widely sold and in this study the
residual method approach calculation used an equity Krugerrand sales by the South African Gold Coin Exchange
evaluation and was performed using the financial were argued to be due to the brand association. The model
statements. Intangible assets were removed from the equity received the support with respondents indicating that they
valuation and there were no other identifiable intangible were comfortable with this method due to their brand value
assets. The residual method received a lot of support from definition: that it is the premium that a customer is willing to
respondents as they felt that this model was less subjective pay over a generic product.
than any of the other approaches.
S.Afr.J.Bus.Manage.2014,45(4) 7

The future earnings approach calculation used net profit and is encouraging in terms of matching brand valuation
was forecast for five years and discounted back to a present approaches to brand valuation objectives.
value. The percentage of future profits attributable to the
brand was determined by considering the percentage of Valuation objectives
profits attributable to exclusive products. Krugerrands as
such were excluded as customers could in future purchase The results indicated that respondents strongly believed that
these products from the South African Gold Coin the approach they had selected matched their objectives.
Exchange's competitors. Only rare and collectable products Respondents were more concerned about the structure of the
that were exclusively sold by the case site were used as a formula of the approach than they were with the actual
percentage of total profit. This ensured reliability of future result. More than half of respondents said that it was
contributions by the brand representing current important for a firm to differentiate it in order to stand out
contributions. This approach was well supported by the from competitors. They understood that a differential
respondents indicating that this would be a model of choice. advantage could be created through a unique offering and by
Respondents commented that they felt comfortable with this doing so it increased shareholder value. Respondents
approach since the brand value is a portion of future profits indicated that by representing the personality of the finn and
thus being able to add value in the future. positioning the overarching perception of the firm, the brand
aligned business and internal culture with the external
The discounted future cash flows approach calculation was perception of the brand. This made the brand a valuable
determined by forecasting cash flows over the next five asset to the organisation. Respondents believed that brand
years and then discounting them back to a present value. equity was based on brand recall and recognition and that
The portion of future cash flows attributable to the brand strong brand equity could increase sales and profits - and
was determined using the methodology as described under ultimately margins - which would add value to the business.
the future earnings approach. Discounted future cash flows The results confirmed that brand equity valuation objectives
did not receive as much support as expected. influence the selection of the brand equity valuation
approaches.
Brand valuation calculations applied to the South African
Gold Coin Exchange confirm that different brand valuation Table 2 shows the objectives for brand valuation provided
approaches will provide different brand valuation results. by respondents.
Respondents were more concerned about the inputs into the
approach formulation than they were about the results. This

Table 2: Respondents' brand valuation objectives correlated with Salinas (2009) categorization

Valuations for accounting Valuations for transactional Valuations for strategic brand
purposes purposes management purposes
To use the brand value as a selling
Listing on the stock exchange . Selling the business.
tool.
Respondents'
Bringing partners into the business. Determine the brand's strength.
objectives for
New market entry or diversification. Benchmarking,
performing a brand
Shareholder value calculation. Tracking the brand's growth.
valuation.
Putting the brand on the balance Use the value to build credibility in
sheet. the brand.

Results perta1mng to brand valuation for accounting future profits m ethod. Royalty relief and accumulated cost
purposes showed a range of preferred approaches; the method showed moderate significance.
accumulated cost method, future profits method, residual
method, royalty relief method and price premium method Objectives and brand valuation selection method
were all being selected an equal number of times for
accounting objectives. Results for brand valuation for Respondents indicated that their objectives influenced their
transactional purposes showed a strong preference for the selection of the brand valuation approach. Only one
residual method. Results pertaining to the brand valuation respondent indicated that he would not change his valuation
for strategic marketing management objectives showed a approach selected when asked to suggest a new objective.
slight preference for the price premium method and the This is shown in Table 3.
8 S.Afr .J.Bus.Manage.20 14,45(4)

Table 3: Brand valuation method selected for different brand valuation objectives

Brand valuation objective Brand valuation method Number of times selected

To use the brand value as a selling tool Royalty relief method 1
Bring equity partners into the business Accumulated cost method 1
Price_l}femium method 1
Future profit method 1
Residual method 1
To track brand growth Accumulated cost method 2
Future profits method 3
Integrated approach 1
Discounted future cash flows method 1
Price_l}femium method 1
To determine brand strength Residual method 1
To sell the business Residual method 4
Price premium method 1
Discounted future cash flows method 1
Future profits method 1
Build brand credibility Price_l}femium method 1
To determine the company value The method thatprovides the highest value 1
To benchmark the brand Royalty relief method 1
Price premium method 1
New market entry or diversification R()yal!Y_ relief method 1
To put the brand on the balance sheet Price premium method 1

Results show that different objectives led to the respondents selected and considered solely for that specific objective.
preferring different brand valuation methods. This explains The second step in the process is to consider the brand
why there is a large discrepancy in the lowest brand value valuation approach options available in each category.
and the highest brand value in the case site. Figure 1 also lists the appropriate brand valuation
techniques for each objective. Once a brand valuation
Conclusion approach has been selected the third step requires that the
inputs of the specific brand valuation approach be inspected
Many different brand valuation approaches were reviewed. and evaluated based on two questions:
Seven approaches were applied to the SA Gold Coin
Exchange, each providing a different brand equity valuation 1) Do the elements or inputs to the calculation relate to my
result and thereby confirming that different brand equity objective?
valuation approaches will provide different brand equity 2) Is the information required to perform this calculation
valuation results. It was observed from the respondents available and reliable?
when selecting a brand valuation approach model they
considered brand valuation objectives. A preference for an Step 4 involves scrutinizing the data, the filters applied to it,
approach that has as little subjectivity as possible was the sources and the "purity" of the input relating to the
strongly favoured. Not only were the approaches confirmed objective. Ensure that the data does not contain elements
to have an influence on the brand valuation approach that may skew results. For example in the accumulated cost
selection, but brand valuation approaches could clearly be approach the costs need to be removed of any marketing
categorized as suggested by Salinas (2009). Anyone looking spend that does not relate to building the brand. For example
at the brand equity valuation of an organisation must be a prize with no branding on it should not be included.
aware of the fact that that valuation is one of many and this Applying this filter to each input will ensure the reliability
could vary depending on what method or approach was of the inputs. Finally step 5 entails performing the actual
used. calculation.

Recommendations This process will help managers with their decision making
with regard to the appropriate brand valuation to use. This
Any organisation that wants to do a brand valuation should will depend largely on their brand valuation objectives and
go through the process shown in Figure 1. the availability of the required information needed for the
relevant calculations (Hull, 2008). One thing is for sure.
The first step in the process is to determine the objective of Various stakeholders of the organisation must not accept the
the brand valuation. This is an important first step as it frrst brand valuation that they are given by the management
determines which valuation methods are appropriate to of an organisation. The method or approach used must be
achieve this obj ective. Ten major brand valuation objectives queried, other valuation approaches should be considered, as
have been identified in this step. Should more than one well as the objectives of the valuation.
brand valuation objective be selected, each brand valuation
objective will need to have a brand valuation approach
S.Afr.J.Bus.Manage.2014,45(4) 9

Step 1: Determine the Objectives of the calculation

Use the brand Bring equity Track brand D etermine To sell the Bu ild Brand Determine To benchmark Newmarket To put the
value as a partners into growth brand strength business Credibility company the brand entry or brand on the
selling tool the business value diversification ba lance sheet

Step 2: Consider the brand valuation approaches relevant to the determined objective category

il
Use the Use either: Use either; Residual Use either; Price premium Use the Royalty Royalty relief Price premium
royalty relief Accumulated Future profits method Residual method method that Relief method method
method cost method; method; method; provides the method;
Price premium Accumulated Price premium highest value Price
method; cost method; method; premimn
Future profit Integrated Discounted method
method; approach; future cash
Residual Discounted flows method;
method future cash Future profits
flows method method

Step 3 : Consider the inputs of the approaches appropriate for the objective

Step 4: Ensure the credibility of the data

il
Step 5: Perform the calculation

Figure 1: Recommended brand valuation calculation process

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