The Business Benefits of Brand Valuation
by Don E. Schultz and Heidi F. Schultz
excerpted and adapted from an upcoming book titled Kellogg on Branding, John Wiley.

If you're a brand owner or brand steward, you've probably asked yourself: What is the importance of a brand valuation, especially given the high cost and labor-intensive nature of most valuation projects? Increasingly, we get this very same question from CFOs and the financial community.

There are, in fact, several benefits of brand evaluation for the brand owner:

1. The Buying Decision: If the brand owner is planning to buy a brand, the knowledge of the brand’s value is vitally important. We won't go into this one much further, besides suggesting that there are at least three primary methods of evaluating brands over time. Each method has distinct goals and objectives. The challenge, of course, is determining which one to use and when.

2. The Selling Decision: Same as 1. The brand seller must quantify the business value of the brand before negotiations begin.

3. Optimizing Resource Allocation: Knowing the financial value of the brand allows management to compare it against other tangible and intangible assets and consider how to best apply finite resources to create additional value. Typically, the brand is one of the most valuable assets the firm owns, so it only seems prudent for management have a clear idea of the brand’s financial worth.

4. ROI: If the brand has definable financial value, then the investments and returns against it can and should be measured. A brand valuation provides a starting point for any determination of whether investments being made in the brand are providing a reasonable return to the firm.

5. Bargaining Power in Partnerships & Alliances: In many cases, brands often enter into various types of licensing arrangements, co-branding agreements, joint promotional programs, and so on. Knowing the value of the brand provides an important negotiating tool when working with other companies in developing the terms of such arrangements.

6. Tracking Shareholder Value: Brand value is a key element in shareholder value. If the value of the brand is increasing, the value of the shareholder’s holdings in the firm is doubtless increasing as well. Clearly, the value of the brand is a key element in identifying shareholder value.

7. Building a Brand Perfomance Scorecard: Brand valuation can provide the base for development of an ongoing “brand scorecard” to track financial progress over time. Typically, the scorecard pulls together attitudinal and market performance elements. It also serves as a framework for focusing organizational attention on the most important factors in the brand’ long-term success. Properly developed and executed, a brand scorecard serves as a valuable management tool to adjust and allocate scarce and finite corporate resources to the best benefit of the brand and the organization.

NOTE: This article has been excepted and adapted from an upcoming book titled Kellogg on Branding published by John Wiley.

Don Schultz is professor of Integrated Marketing Communications at the Medill School of Journalism, Northwestern University. He is also president of the consulting firm, Agora, Inc. Don is the author of thirteen books, including his latest “Brand Babble: Sense and Nonsense about Brands and Branding.” Early in his career Don worked at Tracy-Locke Advertising and Public Relations. He received his B.A. from the University of Oklahoma and a Ph.D. from Michigan State University. 28

Heidi Schultz is Executive Vice-President of Agora, Inc., a marketing and branding consulting firm based in Evanston, IL, and a lecturer in Northwestern University's Department of Integrated Marketing Communications. Heidi received her Bachelors’ Degree fro m University of Southern California School of Journalism and her Master’s Degree from Northwestern University’s Kellogg School of Management. She joined Agora in June 1995 after almost 10 years at Chicago, the nation’s largest monthly city magazine. Schultz is the co-author, along with her husband Don Schultz, of several articles and columns on IMC, brands and branding. In 2003 the couple completed two books, “IMC: The Next Generation” published by McGraw-Hill, and “Brand Babble: Sense and Nonsense About Brands and Branding.” published by South-Western/Thomson Publishing.