Week 3 - Brand Management - Lecture
Week 3 - Brand Management - Lecture MKTG 421
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This 6 page Class Notes was uploaded by Erin McGoff on Wednesday September 14, 2016. The Class Notes belongs to MKTG 421 at American University taught by Dr. Sanal Mazvancheryl in Fall 2016. Since its upload, it has received 4 views. For similar materials see Brand Management in Marketing at American University.
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Date Created: 09/14/16
Brand Marketing 9/14/16 2:35 PM September 14, 2016 Brand Value – another value of brand strength – financial value of brand • The premium that accrues to a brand because customers are willing to pay more for the brand than generic products or other competing brands • Brand value = brand equity (correlation) o Even though brand is intangible asset, brand value can be values in dollars. o Intangible asset ▯ Reputation ▯ Patent ▯ Trademarks ▯ Etc. o Easy to value tangible aspects o If you want to know how much an intangible asset is worth, it’s a bit harder. • EX: Disney purchased Lucasfilm for $4billion in 2012 o They had to value the brand in order to make this deal • Why? Strong brands command higher prices or a higher share at a given price. o Looked at a chart of top 30 companies in the world. Apple (170b), Google then Coca Cola. 2/3 of them were American Brands. They were tech, car, clothing and shipping companies. o Branding secures premium prices ▯ Water (tap) 2 cents / Poland springs $13 (69,000% premium) • Uber (largest taxi company), Airbnb (largest hotel chain), and Amazon’s value comes from intangible assets. o Out of Coca Cola’s total market value, 50% of it comes from brand value. • How? o Several methods ▯ Economic Use ▯ Comparable ▯ Discounted cash flow • Premium pricing • Premium earnings ▯ Cost method • Cost Based Approaches o Money spent to create the brand o Money needed to reproduce brands (how much would it cost to build the brand today? Advertising, R&D, test marketing, etc.) ▯ Issues: ▯ Backwards looking (we want to know how much it’ll be worth in the future) ▯ Estimation of replacement cost is difficult (the brand might be really old like coca cola) ▯ Relationship between costs and brand values in unclear—it is not just the amount of funds that invested that matters. • Economic use method o Basis: present value of future economic benefits o Several approaches (all look at economic benefits of brand) ▯ Comparable ▯ Similar to applying (price/earnings) ratio approach ▯ Find a similar brand. ▯ Value of a brand = (value/sales)c ▯ Ex: Nike vs. Reebok ▯ Not a reliable approach. ▯ TIME VALUE FOR MONEY ▯ A dollar is worth more today than it will be tomorrow. ▯ There will be a decrease in the buying power of a dollar due to inflation ▯ You could invest the dollar today and get a return from that investment ▯ You could buy something today and thus get utility from the dollar now rather than in the future. ▯ Calculate present value to future value. • Net Present Value aka “discounting” = 800 ▯ Price premium ▯ Idea that people pay more per unit than they would for the unbranded unit. ▯ V = (price x volume brand) – (price x volume generic) – (cost of branding) ▯ Total brand value = extrapolate the next 10 years (excel) ▯ MOST IMPORTANT THING TO REMEMBER: Two things: the value of the brand will go up, and the value of the dollar will go down. ▯ Premium earnings ▯ How much more will you earn in a year compared to the generic product? • Start with brand revenues • Deduct all operating costs (production, marketing, selling…), tax, and a charge for capital employed. o Results in earnings from intangibles o Decide what % of these earnings is due to the brand? • These earnings are then discounted to obtain the NPV (net present value) of brand earnings ▯ V = (financial data) x (customer research) / (competitor data) ▯ Step 1: Obtain net earnings from intangibles • You need access to detailed information (public companies) ▯ Step 2: [evaluate the brand] What % of that brand’s value comes from the brand? Estimate brand contribution to index. ▯ Step 3: [discount the future] brand risk analysis: assess the volatility of the brand earnings • How to convert a brand strength score into a discount rate? • Brand risk analysis: convert the brand strength score to a discount rate • The higher the brand strength, the lower the brand discount rate 9/14/16 2:35 PM 9/14/16 2:35 PM
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