Measuring a Brand’s Impact On The Bottom Line.

Landor Associates unveiled a new service that enables companies for the first time to accurately quantify the value of their brands via a credible, objective financial methodology.

Specifically, the service permits clients to determine the following:

— Current and future brand value in dollar terms
— Brand strengths and weaknesses, and how they influence choices
— Appropriateness and value of brand expansion into other markets
— Strategy for maximizing brand strength in the future

“We can tell CEOs in the clearest terms what their brands are worth, what drives that value, and what actions they should take to capitalize on their brands,” said Clay Timon, chairman and chief executive officer, Landor Associates. “BrandEconomics is the most rigorous approach to measuring the true economic value of those brands available today.”

The methodology is the product of a two-year collaboration between Stern Stewart & Co., a global consulting company, and Landor’s parent company Young & Rubicam, Inc.

“For the first time, corporations have access to a fact-based, quantitative approach to brand management and strategy that combines the rigor of management consulting with the insight of a creative agency,” said Mich Bergesen, president and chief executive officer, BrandEconomics. “In a knowledge economy, innovation, brand strength and human capital, rather than physical assets, are the key sources of value.”

Why previous models haven’t worked

Brand owners and industry experts regularly voice two reservations concerning brand valuation techniques. First, many approaches produce values that vary tremendously from period to period, often heavily influenced by near-term changes in investor perceptions as reflected in stock prices. This volatility often runs counter to a brand’s consistently strong consumer franchise and sustained market positioning, causing managers to question the credibility of valuations.

Second, current techniques rely on subjective opinions about the role of branding in driving business performance, producing values that are not transparently linked to those drivers that managers can influence. Even if these produce reasonable valuations for brands, they fail to improve managers’ understanding of how to manage the brands for the future. The two key advantages of the BrandEconomics approach are the use of objective input metrics and its transparency in linking the metrics of brand health to superior economic performance.

The BrandEconomics approach

BrandEconomics uses two leading analytical techniques for financial and brand profiling:

1. Economic value creation. Stern Stewart’s Economic Value Added (EVA(R)) framework is widely recognized as the best technique for measuring and managing economic value creation. Numerous brokerage houses, most notably Goldman Sachs and Credit Suisse First Boston, have adopted EVA as a principal method of equity valuation. EVA involves deducting a charge from post-tax operating profits that represents the opportunity cost of all the capital employed by the business. The capital charge represents the minimum return required by the providers of capital to the business; whatever a company produces over and above this represents an excess return on the investment.

2. Brand health measurement. Young & Rubicam Inc.’s Brand Asset Valuator (BAV(R)) is the world’s largest database of consumer attitudes towards individual brands. The database extends back to 1993, includes more than 20,000 brands in nearly 40 countries and contains rankings for each brand across 56 attributes. The analysis of data demonstrates that brands are built on a very specific progression along four consumer dimensions — differentiation, relevance, esteem and knowledge — and documents the evolving relationship a brand has with consumers. BAV is based on a brand equity research study pioneered by Landor more than a decade ago.