Brand value: What is a brand worth?
Brands—the most valuable but least understood intangible assets—are the lifeblood of companies. From the range of definitions of brand value to the different brand valuation methods, establishing a brand’s true value in tangible terms is fraught with difficulties, as Sarah Morgan reports.
Against a backdrop of evolving consumer behavior and a growing anti-IP sentiment, questions arise as to what factors affect a brand’s value and what exactly in-house counsel can do to boost brand awareness, within and outside their organizations.
Recognizing a need for answers to these questions, in March 2018, INTA established a Brand Value Special Task Force. After 18 months of research, the Task Force released a report in April this year, delving into the complex topic of brand value, brand equity, and brand valuation from the perspective of financial, legal, and marketing professionals. It offers a checklist for brand professionals to consider when involved in brand valuation and brand evaluation dialogues with various stakeholders, as well as provides recommendations for the Association.
The “Brand Value Special Task Force Report” reveals that the first thing that needs to happen is for the C-suite, general counsel, finance and marketing teams, and trademark professionals themselves to recognize that trademark professionals play a critical role in brand valuation exercises alongside their colleagues in finance and marketing.
Valuing the Unquantifiable
The top brands in the world, ranked by their brand value, are named in global listings every year. But there is a problem: brand placement in these rankings is rarely consistent. Does anyone really know how much a brand is worth?
The changing definition of a brand complicates these already complex concepts. Add to this the newer idea of brand equity—which refers to the importance of the brand to the consumer, rather than just the brand’s financial worth.
Gustavo Giay, Member of Marval, O’Farrell & Mairal (Argentina) explained: “In essence, brand value refers to the worth of a brand as an asset for an entity. Brand equity refers more to the relationship developed between the brand and its consumers.”
Indeed, the Task Force has recommended that INTA propose working definitions for brand value and brand equity for use by the Association.
Meanwhile, in the report, the Task Force has adopted the American Marketing Association’s definition of brand equity: “The value of the brand. From a consumer perspective, brand equity is based on consumer attitudes about positive brand attributes and favorable consequences of brand use.”
However, it struggled to agree on one definition of brand value.
Instead, the Task Force adopted two different definitions: one from an accounting perspective (International Organization for Standardization [ISO] 10668), and another from a marketing perspective (ISO 20671).
“There are several approaches to measuring brand value.” - Doug de Villiers, INTA Brand Value Special Task Force Co-Chair
There are several approaches to measuring brand value depending on the purpose for which the valuation is being conducted, explained Brand Value Special Task Force Co-Chair Doug de Villiers.
“Broadly those methodologies that are compliant with ISO 10668 guidelines deliver credible results,” he said.
ISO 10668 defines brand value as “the total economic value of a brand in transferrable monetary units.”
“Unlike most other intangible assets, one significant component of brands is the consumer’s perception of a brand, and as a result of this, there is a great degree of subjectivity when it comes to assessing the value of brands,” Mr. De Villiers said. “The primary question for most companies is how monetary value is attributed to brands when elements of brands exist in the consumer’s mind.”
For a 360-degree perspective from marketing experts, standard-setting experts, and financial experts on understanding the concept of brand valuation and the newer concept of brand evaluation, registrants at INTA’s Annual Meeting & Leadership Meeting can tune into the on-demand session, Understanding Brand Valuation and the New Concept of Brand Evaluation.
The session, which is on the Meeting’s Commercialization of Brands/Brand Value track, is moderated by Krista Holt, Econ One (US). It will also explore how to transform both brand valuation and brand evaluation standards into ongoing best practices for purposes of brand development, maintenance, enforcement, and value creation.
“Small differences in tangible and intangible attributes of a brand over its competitors can result in significant differences in market share and financial value.” - David Haigh, Brand Finance
Cooperation and Outperforming Competitors
If it’s so hard to quantify, why should brands care about brand value at all?
According to David Haigh, Founder and Chief Executive Officer of Brand Finance (United Kingdom), “Brand value is important because strong and differentiated brands outperform their less well-branded competitors. Small differences in tangible and intangible attributes of a brand over its competitors’ can result in significant differences in market share and financial value.”
To maintain and grow a brand’s value, companies should treat the brand like a physical asset and embed it into the company as a business planning tool, added Michael Rocha, Global Director, Brand Valuation at Interbrand (United Kingdom).
The report recommends that in-house practitioners meet with their company’s marketing and finance teams to determine the brands to be valued and how they will be valued, the purpose of the valuation, and how the valuation will be used. Among other ideas, it suggests that the legal, marketing, and finance teams work together to develop routine brand valuation and evaluation programs.
For law firm practitioners, the report recommends that they explore the possibility of adding brand valuation-related services to their current service offerings. Law firm leaders should also take brand valuation courses and seminars and host their own educational sessions.
Importantly, both in-house practitioners and law firm practitioners should read reports from various brand consultancies and understand the brand valuation approaches they adopt.
Mr. Rocha noted: “There has been a lurch towards short-term thinking within marketing, driven by digital marketing and the fact that short-term digital metrics are easily measured. But we’re now seeing a realization by many companies that there has been a shift too far towards the short term. Companies are now reallocating budget and placing more emphasis on brand-building initiatives which have a longer time frame, using the brand as a planning tool.”
But, without cooperation among lawyers, finance, and marketing, there may never be agreement on consistent principles on brand value across industries.
“It is clear from these findings,” Mr. Giay said, “that there is a need for the trademark community to start changing the way we address these issues and become more involved if we truly wish to promote and advocate for the development of brands worldwide.”
“Buyers are seeking authenticity and a consistent connection between actions in all spheres of life and are challenging brands to meet these ideals.” - Melody Schottle, INTA Brand Value Special Task Force Co-Chair
Loyalty and Loss
One emerging issue tied to brand value is commitment to corporate social responsibility (CSR). Brand value is proven to react positively to CSR involvement.
“We have seen belief-driven buyers shy away from brands that take positions unpopular to a specific belief, and flock to brands that espouse values and positions that are in line with the buyers’ own,” said Brand Value Special Task Force Co-Chair Melody Schottle.
“Buyers are seeking authenticity and a consistent connection between actions in all spheres of life and are challenging brands to meet these ideals,” she said.
Gen Z—currently the largest group of consumers worldwide—and their predecessors, the millennials, have a flexible sense of brand loyalty and are more likely to try out new products than older generations. Half are ready to test different products, even if they know there is a version they already like, according to technology and media company Morning Consult.
Paired with the belief-driven buying of these generations—INTA’s report, “Gen Z Insights: Brands and Counterfeit Products” states that 85 percent of Gen Zers believe brands should aim to do good in the world—it can be tricky for companies trying to ensure brand loyalty.
The 2020 “Edelman Trust Barometer Special Report” presents the belief-driven trend among 22,000 consumers in 11 countries during the pandemic. In June, 44 percent of those surveyed had started using a new brand because of the brand’s innovative or compassionate response to the pandemic, while 40 percent had convinced other people to stop using a brand that they felt was not reacting appropriately.
Indeed, the Edelman report also found that brands are far more likely to gain trust than lose it when they act. Four times more people in the United States said that brands were likely to gain/keep their trust if they took actions in response to racial injustice than the number of people who said a brand would lose trust.
To find out more about the positive relationship between brand value and CSR, join the panel discussion The Good Business of Sustainable Brands today, Monday, November 16, 11:45 am–12:45 pm (EST), as part of the Commercialization of Brands/Brand Value track at the Annual Meeting.
“Buyers want to associate themselves with the messaging of the brand. Neutral brands are being criticized more and more,” said former INTA President David Lossignol, Global Head of Trademarks, Domain Names and Copyright at Novartis Pharma AG (Switzerland).
“Companies are now trying to strengthen their brands on this dimension, as marketers begin to realize that their brands need to stand for some larger purpose.” - Bobby Calder, Kellogg School of Management
Companies are now trying to strengthen their brands on this dimension, as marketers begin to realize that their brands need to stand for some larger purpose, suggested Bobby Calder, Professor Emeritus of Marketing, Kellogg School of Management (US), a speaker at the on-demand session, Understanding Brand Valuation and the New Concept of Brand Evaluation.
“Belief-driven buyers present an opportunity for companies to invest in making their brands stronger. One way to do this is to couple some of the pressures on the company for sustainability and social issues and view that as not ‘just corporate social responsibility and an add-on,’ instead making it part of the business case for building the brand,” Mr. Calder said.
The dawn of the digital age has ensured that all buyers have largely unlimited access to information regarding the brand’s purpose and whether the brand behaves in this way.
“It is no longer about what brands say but more about what the brands actually do. The belief-driven buyer needs to be satisfied that what the brand promises, and what the brand delivers, are in sync,” noted Mr. de Villiers.
Herein lies the challenge. According to Ms. Schottle, belief-driven buyers “hold the feet of the brand too close to the fire to some extent,” demanding that the brand represent certain things.
“If the brand fails to deliver, even inadvertently, belief-driven buyers can be quite harsh in calling that out,” she said.
These risks and opportunities mean it is now crucial for companies to think about the totality of their choices, because everything they do affects brand equity, and the fact that their trademark or brand teams are key business partners in this ecosystem.
The brand itself may be at the epicenter of the disappointment when it fails to deliver, but the aftershocks are also felt by the wider intellectual property (IP) world.
“When belief-driven buyers are disappointed they can begin to look at IP and claim that it is the problem. For example, patents for a high-tech company may be seen as preventing innovation by another brand,” said Mr. Lossignol.
But that is the opposite of what is actually happening, with IP driving innovation, he said, adding: “Consumers don’t always see that. We have to educate them and explain the importance of the brand.”
“We need to make the step to educate ourselves and work together so we can ensure better brand value.” - David Lossignol, Novartis Pharma AG
Spreading the Message
It’s not just educating consumers that can help build and maintain a brand’s strength: in-house counsel must take up the mantle of promoting their brands, both within and outside the business.
According to Ms. Schottle: “In-house counsel are in the optimal position to make recommendations on steps to increase brand value through obtaining and maintaining rights in brand assets via trademark/trade dress/design registrations, use, and licensing.”
Aside from traditionally IP-related tasks, in-house counsel must play a role in enhancing brand awareness inside the organization.
“As lawyers we sometimes try to escape from discussions with finance and marketing, but we need to make the step to educate ourselves and work together so we can ensure better brand value,” said Mr. Lossignol.
The Task Force’s report recommends that legal, marketing, and finance teams meet annually or at appropriate intervals to determine (i) the brand to be valued and evaluated; (ii) how to capture the value; (iii) the purpose of the valuation; and (iv) how the valuation will be used.
It also suggests that the three teams work together to develop routine brand valuation and evaluation programs.
“We need to take brand value to the C-suite, if it’s not there already,” Mr. Lossignol concluded. “But this message needs to spread to everybody—we are all brand ambassadors.”
Brands, consumer behaviour, INTA 2020, general counsel, trademarks, CSR, Novartis, technology, innovation