The term brand equity (or brand value) refers to the monetary value of a brand. Simply the value of a company consists not only of sales, corporate real estate, employee potential and patents but also of the non-material value of its brand or brands. Only through the marking and the positive associations associated with the trademark with the consumer, a company can get more money for its product than is possible for generic brands, for example. Therefore, the trademark has its intangible value.
Impact of Brand Equity
In various countries (such as the UK), it is already possible to account for a company’s brands. This is also one of the reasons why many companies have higher stock market values than assets. For the determination of brand value, several models have in common that they must each use their evaluation scheme as a basis, so there is no objective setting for the concept of brand value. The approaches are complex and can have different goals. On the one hand, the brand value calculation can be used when buying and selling brands or companies to determine a realistic purchase price. When licensing trademarks to determine license rates, a brand value analysis is also useful to have a basis for price negotiations. Analyzing a brand value and its fluctuations can also be important for strategic brand management.
Brand loyalty describes the connectedness of consumers with a brand. Brand loyalty strengthens the brand against price promotions of the competition and has a positive effect on sales figures. Brand awareness can be decisive for the purchase when comparing similar products because the familiar is perceived as beneficial. In the case of well-known brands, consumers also conclude on reliability and good quality. The value of a brand can be measured not least by its anchoring in everyday language, for which linguistic methods are particularly suitable. Here is equally depends on the awareness of the brand by the user and his associations, which do not always have to coincide with the intentions of the manufacturer.
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Brand Equity by Brand Rating
The brand rating model consists of three components. The first component is a purely behavioural science, the so-called brand iceberg. The model is based on the S-O-R paradigm and divides the value of a brand into a brand image and brand credit. The brand image visible to the consumer consists of the current brand identity and is represented as the tip of the iceberg, it is designed by the use of the marketing mix. The brand credit corresponds to the large, invisible base of an iceberg. It reflects positive or negative experiences with a brand conveyed and learned through communication.
The brand credit cannot be directly influenced, it slowly develops from the design of the brand image in the minds of consumers. The results of the brand iceberg are highly relevant for marketing purposes, but the measurement of brand value in the classic, monetary sense is not possible with this model.
The second component of the brand rating model is the determination of a monetary brand value. This is calculated as a discounted price difference to the cheapest competitor, minus the customary maintenance expenses for the brand. The discount factor is determined by the industry risk, which consists of the degree of concentration of customers, legal framework, the threat from replacement products and services, quantities and price development, future brand relevance, market entry barriers for new competitors, degree of concentration of suppliers and threat of backward integration of customers. The volume factor results from the sales figures of the previous year.
The third component is intended to represent the development perspective of a brand. For this purpose, statements are made from numerous studies such as database searches, expert estimates, market and competition analyses about the development trend of the brand, its stretching potential and the existing trademark protection. From the results of these three components, Brand Rating calculates a monetary brand value. The underlying calculation formula is disclosed.
Since the procedure is rather young, no scientific judgments about it can yet be found in the literature. It is certainly interesting to link a purely behavioural science model with a classic monetary approach. The integration of the Brand Future Score also makes sense.
