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22 September 2014TrademarksMaria José Cruz

Brand equity: the Brazilian factor

A variety of approaches has been developed over the years to value brand equity, but the International Organization for Standardization, in Autumn 2010, issued Monetary Brand Valuation, ISO 10668, which set out the methods to adopt when valuing a brand.

According to ISO 10668 the three following methods are the ones to be used: (i) income approach, which seeks to measure the economic benefit of the brand to be generated from a stream of future earnings or cash flows; (ii) market approach, which estimates the value of a brand by reference to market transactions involving similar brands; and (iii) cost approach, based on the accumulation of the costs incurred to build the brand (further information is available at https://www.iso.org).

Regardless of the financial approaches applied to calculate brand equity, the use of appropriate assumptions in order to derive a fair value is essential. In recent years, methods for calculating brand value have shifted to accommodate subject inputs and modern-day judgements (ISO 10668 highlighted the importance of preliminary legal analysis and behavioural analysis to complement the methods of brand evaluation), as consumers largely contribute to boost a brand’s equity.

This contribution derives from the fact that currently the best way brands can grow over the long term is to increase the number of buyers. As a result, market strategies have to successfully communicate brand values and supplement consumers’ buying experience in order to achieve further penetration of the brand and consumers’ loyalty.

As a subject input contributing to a brand’s equity, an analysis of the specific characteristics of the relevant group of consumers can lead to a positive outcome regarding the valuation of a brand. Consequently, that can be a determining factor influencing foreign investment decisions.

A big country

Brazil, the seventh largest economy in the world according to The World Bank’s recent rankings, is a thriving country not only with respect to its array of natural beauties and resources, but especially due to cultural factors derived mainly from the melting pot of nationalities which helped shape a country that is, nowadays, basking in the global spotlight.

The country’s economic conditions, growing international influence on consumption habits and emerging social-media awareness, anchored in an increasing desire for luxury items as badges of social standing, have been pivotal factors for the strong buying trend of Brazilians.

"Brazilians continue to be leaders in online engagement, with users spending 29.7 hours per month online on their desktop computers, seven hours more than the average worldwide."

The unique behaviour, attitude and spending pattern of Brazilian consumers, long known for being big spenders, combined with the rising acquisitive power of the growing middle class—an estimated 118 million people by 2014—makes the Brazilian market an attractive place for leading companies to invest.

For example, in 2013, Brazilian consumers reportedly spent R$ 1.17 trillion ($520 billion) and are among the top global spenders in items such as perfumes, cosmetics, apparel and electronics. This avid consumption not only happens internally but also in foreign countries, especially the US and the EU, as Brazilians are now travelling and spending abroad. Expenditure on tourism in the first four months of 2014 was approximately $8.2 billion, according to the Brazilian Central Bank.

Plus, with the advent of social media and the internet, Brazilians are dramatically increasing the use of social media to inform buying decisions and provide feedback on their costumer experience, thereby assuming a new position capable of influencing brand value. These new consumers with added individual and collective power—described as citizen marketers by authors Jackie Huba and Ben McConnell—can often be a key factor influencing consumers’ opinion positively, especially when that opinion is set out in blogs, news articles, etc.

As a result, social networking can be decisive to a company’s reputation, and the Brazilian market is particularly alluring because of the so-called hypersocial culture that is a key factor in the amount of time people stay connected to social media sites. According to comScore’s latest 2014 Brazil Digital Future in Focus report, Brazilians continue to be leaders in online engagement, with users spending 29.7 hours per month online on their desktop computers, seven hours more than the average worldwide.

Brand expansion

This social behaviour and an audience of 145 million with online access to high-speed internet in the first three months of 2014 makes the Brazilian digital market as healthy and growing as it can be, which can dramatically increase the possibilities for brand expansion in the country and, therefore, growing the number of consumers through digital charges and online shopping.

Companies that want to seize the current digital momentum have been investing in ways to attract more buyers through e-commerce and digital tools made available to facilitate buyers’ experiences. And they are succeeding, as the Brazilian e-commerce market is expected to grow 20%, in 2014, reaching an astonishing $14.6 billion in sales, according to E-bit’s latest Webshoppers edition.

Although it is not a secret that navigating the complex business procedures in Brazil is often daunting—due to the high expenditure involved in local trading, allied to the impact of cost and high taxation on imported products—one cannot disregard the fact that Brazil has emerged as one of the world’s most important new consumer markets.

A brand strategy that considers and encompasses the characteristics of the people and conditions of the market will generate interest, brand affiliation and, ultimately, brand value, as Brazilians look for that particular brand when choosing their products and services.

Maria José Cruz is a partner at Luiz Leonardos. She can be contacted at: mcruz@llip.com

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