Brand Related

Services Brand Valuation.

The key to unlock the benefits
from your brand assets.

Creating and managing

brand value Interbrand Zintzmeyer&Lux
 The Interbrand
approach to valuation.

IBZ&L
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Brand The value of a brand lies in its economic benefit – brand value is therefore defined as the net
The brand’s
primary functions
1.
Origin, Orientation,
2.
Differentiation,
3.
Continuity, Certainty,
present value of future earnings generated by the brand alone. Interbrand’s approach is based on
Interpretation Self-realization, Confidence
Identification the following three economic functions: 1) the brand’s function to create cost synergies, 2) the
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Step five: Calculating the brand's value.
brand’s function to generate demand for the products and services, and 3) the brand‘s function
The effect on the
receiver (customer) Recognition of message Preference building Acquisition and retention
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The influence on Communication efficiency Economies of scale Risk mitigation
the operation
Price premium evaluate brands comprises five steps: segmentation, financial analysis, demand analysis, brand
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The financial Reduction of investments Higher earnings Page 12
Reduction of cost of debt strength analysis, and, finally, the calculation of the net present value of brand earnings.
consequence

Shareholder value
(higher economic value added)

Interbrand’s approach is based on the three Segmentation of the brand

economic functions of a brand: 1) to create cost
synergies, 2) to generate demand for the
products and services and 3) to secure future
demand and thus reduce operative and
financial risks. The three economic functions of Financial Analysis Demand Analysis Strength Analysis
a brand are assessed in the three analyses.
Economic Value Role of Brand Brand Strength
Added (EVA) Index (RBI) Score (BSS)

Brand Earnings Brand Risk

(Discount rate)

Net present value of brand (segment) earnings

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Germany Segmentation: Consumers’ purchasing behavior and attitudes towards brands differ from one
Professional France market sector to another, depending largely on product-, market- and distribution-related factors.
Products Spain
Benelux
For this reason, the value of a brand can only be determined precisely through the separate
assessment of individual segments that represent a homogenous customer group. Apart from this,
Germany
France brand management can only obtain the insights it needs to increase the brand’s value
Brand Consumer
Products
Spain systematically if the brand has been evaluated in all its segments.
Benelux
Eastern Europe

Germany
Financial Analysis: Interbrand’s brand valuation begins with an assessment of the company's
France value and then determines the value contributed by the brand. The first step towards isolating
Services
Spain
brand earnings from other forms of income is to determine the Economic Value Added (EVA)
Benelux
which tells whether a company is able to generate returns that exceed the costs of capital
The example above shows a typical employed. As both value creation and its counterpart, risk, lie in the future, the analysis is based
segmentation that differentiates the significance on a five-year forecast of future revenues generated in the brand segment being assessed.
of the brand between relevant customer groups
in different markets.
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Quality Demand Analysis: In this step, Interbrand analyzes the brand’s value chain and identifies the
Innovation position of the brand in the minds of customers. To determine the brand’s share of EVA,
Design
Interbrand examines what factors influence demand and motivate customers to purchase. These
Value/Money
Ease of use
factors are weighted in terms of their bearing on demand and for each, the contributions of the
Reliability specific associations with the brand are statistically calculated. The sum of these brand
Leadership contributions on the demand drivers is expressed as the Role of Brand Index (RBI) which,
Product Features multiplied with the EVA, yields the brand earnings.
0% 10% 20% 30%
Significance of demand drivers (total 100%)
Significance of demand drivers
Role of brand (Total
Index sector100)
average (36%) Brand Strength Analysis: The stronger a brand, the lower is its risk, and thus the more certain are
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Brand
Role ofstrength measures
Brand Index the40%)
(Total
Role of Brandcompetitive performance
Index (total 40%)
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ofRole
the of
brand.
Brand industry sector average (36%)
future brand earnings. Interbrand assesses this risk by analyzing the strength of a brand
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compared with its competitors on the basis of seven factors (i.e. market, stability, brand leadership,
– Average Brand Strength +
trend, brand support, diversification, and protection). In fact, a broad range of measured attributes
Market growth 3 Market explains the seven factors and facilitates an all-round diagnosis of a brand’s competitive position.
Industry Concentration
Satisfaction -2
3
Stability
This step results in the Brand Strength Score (BSS).
Customer Loyalty -5
Market share 5 Leadership
Awareness 12 Net Present Value Calculation: The economic value of future brand earnings is inversely correlated
Consideration
Attractiveness
1
3
Trend
with the brand’s estimated risk and this risk is directly linked to brand strength. The trans-
Share of advertising 9 Support formation of brand strength into brand risk (or into discount rate,) is completed using an S-curve.
Identity 10
Geographic diversification 3 Diversification
The procedure reflects the dynamism of the market, where brands at the extreme ends of the
Offer-related diversification -1 scale react differently from brands in the middle range as regards changes in their strength. The
Date of registration 4 Protection
Legal coverage and monitoring 5 strongest brands are discounted with the risk-free rate of the total market while average-strength
BZ&L brands are discounted with the industry WACC (cost of equity in the financial service industry).
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22.08.2005 with the industry average (Brand Strength Score 54%) Discounting the forecast period (present value) and the calculation of an annuity (terminal value)
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Product.
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Risk-free rate
e.g. 3%
28.12.2005 Since this procedure focuses on value creation, it is independent of potential and probable
Discount rate
for brand earnings
Page 8 changes in organizational structure. The total value of the brand is calculated as the sum of its
e.g. 9%
segment values (sum-of-the-parts).
Brand risk

Industry WACC
e.g. 10%

Year 2003 2004 2005 2006 2007 2008 2009 2010

Branded revenue 440 480 500 520 550 580 620 650
Max. risk Operating costs (357) (390) (407) (423) (447) (472) (503) (528)
0 20 40 54 80 100
Brand Strength Score (BSS) EBIT 83 90 94 97 103 108 117 122
Tax 26% (22) (24) (25) (26) (27) (29) (31) (32)
The Brand Strength Score, which measures the
competitive strength of the brand, is NOPAT 61 66 69 71 76 79 86 90
transformed into a discount rate on the basis of
the S-curve. The Industry WACC (cost of equity Operating assets 110 120 130 130 140 150 160 160
in the financial service industry), which ideally WACC 10% (11) (12) (13) (13) (14) (15) (16) (16)
comprises the same competitors assessed in
the Brand Strength Analysis, is used as the Economic Value Added (EVA) 50 54 56 58 62 64 70 74
benchmark for the company’s overall risk.
RBI 40% (Brand earnings) 23 25 26 28 29

Discount rate 9%
Discount factor 1.09 1.19 1.30 1.41 1.54
Discounted earnings 21 21 20 20 19

Value until the year 2010 101

Terminal value (growth = 2%) 277
Net present value of the brand segment 378

The Interbrand method has been used worldwide
in numerous value-related purposes for brand
management, balance sheet capitalizations,
licensing, litigation, asset-backed securitization,
business combinations, brand migrations, etc.
Origin and performance record.
A systematic approach to brand valuation was jointly developed by Interbrand and the London
Business School in 1988. The method was partially revised in 1993. Since then, Interbrand has
evaluated some 3500 brands for nearly 400 companies. These assessments comprise corporate
and product brands, complex brand systems, and simple "homogeneous" brands. Depending on
their purpose, evaluations can be broadly divided into two categories:
1. Evaluations for financial transactions in connection with mergers & acquisitions, internal
licensing and fiscal issues, as well as reporting or financing questions.
2. Evaluations for specific brand management purposes with a view to optimization of brand
investments, long-term controlling, internal and external communication and sustainable
increases in brand value.
The Interbrand model is one of the most frequently referenced methods in the international
market. It is effectively the only method that has gained consistent global acceptance during the
past ten years: valuations based on the Interbrand method have been used by, among others,
the US Internal Revenue Service and the tax authorities of many other countries, by the
Monopolies and Mergers Commission in Great Britain, by the European Antitrust Committee,
and by judicial courts in the USA, Germany, Austria, Great Britain, Ireland, France, and Hong
Kong. The Interbrand method of brand valuation has been assessed by all the world’s leading
auditing firms in conjunction with numerous balance sheet projects. In countries such as
Australia, France, Great Britain, and New Zealand, the capitalization of acquired brands has
been permissible for years.
The Interbrand method is based on formulae and procedures considered standard in general
business management as well as in financial and marketing theory. The method is therefore
absolutely transparent. Since input data are generally obtained through primary studies, the
brand values derived from them are objective and highly reliable. Moreover, the economic
functions of the brand are also included entirely and individually as part of the analyses
described above and are thus expressed as part of the company's value. Brand valuation thus
blends in seamlessly with conventional corporate strategic thinking and procedures. As a result,
the integration of value-oriented brand management into value-oriented corporate management
is effortless.
Interbrand is a member of various national bodies whose central concerns include the regulative,
normative and communicative promotion of brand value. In Germany, we play a significant role in
the activities of the DIN (Deutsches Institut für Normung e. V.) and the Brand Valuation Forum
(a work group set up by Germany's GEM), which focuses specifically on communicative
functions. Our involvement on these boards is coordinated within the Interbrand network and
creates a foundation on which the standardization and reporting of companies with regard to
brand value can be based.