Brand Value - Definition, Importance & Example
What is Brand Value?
Brand value is the financial value of a brand which can be represented on a financial statement. Brand Value is the net present value or the future value of the cash flows that are attributable to the brand name or brand personality as compared to a generic substitute. A brand is an intangible asset of a business, and helps in differentiating between a company’s book value and market value. The difference is mostly attributable to the brand.
Brand value is a similar concept to brand equity but they are quite different in the fact that brand value is more of a financial worth attributed to the brand whereas the equity is based on more holistic perception by customer which can result in a pricing premium.
Importance of Brand Value
Companies spend a lot of time and effort on creating a sellable product. This product is mainly associated to a name or a personality which becomes the brand of the product offered by a company. A lot of money is invested in creating the brand awareness, equity and identity in the market which if successful can make the product standout among the competitors. The concept of brand value quantifies that overall value in terms of dollars and can be used in a financial statement.
If a company is being acquired, the brand value is the amount which in addition to the other aspects is part of the overall equation. It can be represented with a figure. A popular brand can command values in millions or billions of dollars. Brand value becomes very important in these cases where the company needs to be valuated for purpose of investment and acquisitions. If the brand value is not considered then the valuation would be incorrect.
Brand Value Metrics
There are a number of metrics to measure brand value.
Some of them are as follows:
1. In a consumer goods industry, number of repeat purchases, customer loyalty towards paying a premium for their products serve as good measures.
2. In other general industries, another measure of brand loyalty from an employment perspective is the number of people willing to associate with the brand/ company at the same or lower salary.
3. Brand value depends a lot on the inherent characteristics of the product that make up the brand. All the branding concepts incur expenses and costs. A campaign, product research, rebranding exercises all cost millions of dollars when it comes to developing and sustaining a brand. All these can be seen as investments and add to the brand value of the product or the organization. The brand image is a very important qualitative aspect of the value. A positive brand image has high worth from investor's perspective.
Brand Value Example
Apple's iPhone brand is a good example to show the brand value concept. Just the name iPhone leads to many people paying premium for a phone as they associate the brand with quality and status. iPhone is sold at a premium globally and still customers buy it as compared to other options in the market. The extra premium which the brand gets on every purchase is the brand value of iPhone.
Hence, this concludes the definition of Brand Value along with its overview.
This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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