UNIT III

BRANDING DECISIONS
BRAND :

A Brand can be definedas “A name, term, design, symbol, or any other feature that identifies one seller’s
good or service as distinct from those of other sellers.

-​ A/C to American Marketing Association

“A Brand is defined as a name, term, sign symbol (or a combination of these) that identifies the maker or
seller of the product”

-​ A/C to Philip Kotler

BRANDING :

Branding is the art of aligning what you want people to think about your company with what people
actually do think about your company. And vice-versa.

-​ A/C Jay Baer

Branding does not mean just selecting the Name and communicating it with the customers and public, It
is beyond that and includes creating Branding is “endowing products and services with the power of a
brand”​ ​ ​ ​ ​ ​ - Kotler & Keller

In simple words Branding means “A process involved in creating a unique name and image for a product
in the consumers' mind”. It aims to establish a significant and differentiated presence in the market that
attracts and retains loyal customers.

●​ Old Branding: Advertisers shouting carefully pedicured messages at consumers who don’t want
to hear it.

●​ New Branding: Advertisers humbly listening to what consumers tell others the brandand
incorporating appropriate innovations so their products continue to earn consumers’ loyalty and
word of mouth.

The following pyramid represents the sequential series of steps in branding, each contingent upon
successfully accomplishing the preceding one:
Types of Branding

Corporate branding: This type of branding involves using company’s name as product brand name.
Here, several products of the company are marketed under the single brand name and such practice is
referred as family branding or umbrella branding.

Personal Branding: In this type of branding, individuals and their careers are considered as brands.
Athletes, musicians, political leaders etc. promote the products under their name.

Ingredient Branding: This type of branding involves branding a component of certain product in order
to project high performance and quality of that particular component.

Community Branding: Here, a company looks for taking care of an entire community by helping the
needy, supporting the elderly, contributing to public education, or providing emergency relief and jobs for
the unemployed. Thus company keeps a promise in the community that it will take care of them and
stands as beneficiary.

Rebranding: This type of branding involves designing new symbol or logo or sort of, to already existing
brand in order to create a differentiation among the customers. Aimed at repositioning the brand or
company’s name, it is applied to new products or products still under development.

Co-Branding: In this type of branding, two or more brands of different products are promoted at a time.
This can give consumer a choice of one-stop shopping of his/her favorite brands.

Cultural Branding:This type of branding involves making promises to workers about improvement in
their work environment and relationships with higher management officials.

Example: Consider Apple Company. As a well-known brand, Apple projects a humanistic corporate
culture and a strong corporate ethic that supports for good causes. These values are evident from their
innovative products and best customer service. An emotional attachment between customer and company
do exist which boosts up its brand value.

TYPES OF BRANDS

1.​ Disruptive Brand — Challenges the current ways of doing things and introduces new concepts
that substantively change the market
 2.​ Conscious Brand — Is on a mission to make a positive social or environmental impact or
enhance people’s quality of life

3.​ Service Brand — Consistently delivers high-quality customer care and service

4.​ Innovative Brand — Consistently introduces advanced and breakthrough products and
technologies

5.​ Value Brand — Offers lower prices for basic quality

6.​ Performance Brand — Offers products that deliver superior performance and dependability

7.​ Luxury Brand — Offers higher quality at higher price

8.​ Style Brand — Is differentiated through the way its products or services look and feel, as much
as or more than what they do

9.​ Experience Brand — Is differentiated through the experience it provides, as much as or more
than the product or service

Another classification on types of Brands:

1. Manufacturer’s Vs Private Brand

Manufacturer’s Brand : Brand name that identifies Manufacturer. Ex :

Private Brand: A Brand name owned by Wholesaler or Retailer. This is also called as Private Lebel or
Store Brand.

Ex: Products available in Reliance Smart with Reliance Label

2. Individual Vs Family Brand :

IndividualBrand : A Brand that specifically identifies one product. Companies generally use different
brand names even though the product category is same

Ex: HUL is offering different individual brands in body soaps category such as Lifebuoy, Hamam, Liril,
Rexona, Lux etc

Family Brand: A brand name that identifies several other Products also offered by the same
Manufacturer

Ex: Ashirwad in ITC (pepper powder, Atta, Salt etc)

3. Captive Brand :a brand that carries no evidence of a retailer's affiliation, is manufactured by a third
party, and is sold exclusively at the retailer.

4. Generic Brand

5. Flanker Brand: A Brand Which is offered to counter competitive threats.

 BRAND NAME

Brand name is one of the brand elements which helps the customers to identify and differentiate one
product from another. It should be chosen very carefully as it captures the key theme of a product in an
efficient and economical manner. It can easily be noticed and its meaning can be stored and triggered in
the memory instantly. Choice of a brand name requires a lot of research. Brand names are not necessarily
associated with the product. For instance, brand names can be based on places (Air India, British
Airways), animals or birds (Dove soap, Puma), people (Louise Phillips, Allen Solly). In some instances,
the company name is used for all products (General Electric, LG).

Features of a Good Brand Name or Essentials of a good brand Name

A good brand name should have following characteristics:

1.​ It should be unique / distinctive (for instance- Kodak, Mustang)

2.​ It should be extendable.

3.​ It should be easy to pronounce, identified and memorized. (For instance-Tide)

 4.​ It should give an idea about product’s qualities and benefits (For instance- Swift, Quickfix,
Lipguard).

5.​ It should be easily convertible into foreign languages.

6.​ It should be capable of legal protection and registration.

7.​ It should suggest product/service category (For instance Newsweek).

8.​ It should indicate concrete qualities (For instance Firebird).

9.​ It should not portray bad/wrong meanings in other categories. (For instance NOVA is a poor
name for a car to be sold in Spanish country, because in Spanish it means “doesn’t go”).

Process of Selecting a Brand Name

1.​ Define the objectives of branding in terms of six criterions - descriptive, suggestive, compound,
classical, arbitrary and fanciful. It Is essential to recognize the role of brand within the corporate
branding strategy and the relation of brand to other brand and products. It is also essential to
understand the role of brand within entire marketing program as well as a detailed description of
niche market must be considered.

2.​ Generation of multiple names - Any potential source of names can be used; organization,
management and employees, current or potential customers, agencies and professional
consultants.

3.​ Screening of names on the basis of branding objectives and marketing considerations so as to
have a more synchronized list - The brand names must not have connotations, should be easily
pronounceable, should meet the legal requirements etc.

4.​ Gathering more extensive details on each of the finalized names - There should be extensive
international legal search done. These searches are at times done on a sequential basis because of
the expense involved.

5.​ Conducting consumer research - Consumer research is often conducted so as to confirm

management expectations as to the remembrance and meaningfulness of the brand names. The
features of the product, its price and promotion may be shown to the consumers so that they
understand the purpose of the brand name and the manner in which it will be used. Consumers
can be shown actual 3-D packages as well as animated advertising or boards. Several samples of
consumers must be surveyed depending on the niche market involved.

6.​ On the basis of the above steps, management can finalize the brand name that maximizes the
organization’s branding and marketing objectives and then formally register the brand name.

Brand loyalty
Definition:

American Marketing Association (2011) has defined brand loyalty as

“The degree to which that a consumer is consistently purchases the same brand within a particular
product class”

The Toyota recalls of 2010 provide the perfect example of a brand that survived and continued to thrive
despite micro-environmental factors because consumers still trusted the brand and remained loyal to it.

Brand loyalty includes :

●​ Attitudinal components and

●​ Behavioural component

A mixuture of both leads to composite components of brand loyalty

The above two determines the brand loyalty

Attitudinal Components : Attitudinal components that determine brand loyalty are

1)​ Satisfaction
2)​ Emotional Bonding
3)​ Trust

Behavioral components: Behavioral components that determine brand loyalty are

1)​ Choice reduction (reasoning or logical understanding or Researching)

2)​ Habit
3)​ Association with the company

Brand loyalty tree :

Types of brand loyalty:

1) No loyalty: Some customers are indifferent towards which brand they’re buying as long as their other
needs in terms of price and/or convenience are fulfilled. An example would be a man who buys plain
t-shirts from any shop which sell them for $5 or less.

These people consider brand as a commodity and buy your products as long as you are accessible or
providing products within their budgets. They, however, shift to a new brand if they come with a better
offer.

2) Inertia : Inertia loyalty stems from repeated purchases coupled with some sort of attachment. These
are the customers which buy your brand out of habit. They are the ones which follow “because we’ve
always used it”, “because we always buy from here”, or “because it is convenient”. Situational factors are
the main triggers in this form of loyalty because users can’t really differentiate the brand from others. An
example would be a man who takes his car to the same gas station every day because he has always done
the same, even though there are new gas stations on the same route now.

Converting inertia loyalty into a higher form of loyalty isn’t that hard. All you need is to court him and
communicate how you’re different and better from others.

3) Pride (Premium loyalty ):

Pride, also known as premium loyalty, is the high to highest form of loyalty. This gets into the picture
when a high level of attachment and repeat purchase coexist. Premium loyalty is when the customer feels
proud of associating himself with the brand and takes pleasure in sharing the knowledge about the same
with the friends and family.

A premium loyal customer not only buys your brand always but also becomes a vocal advocate who
helps the brand in its word of mouth marketing strategies. The usual factors which affect the purchase like
price differences don’t usually affect the premium loyal customers as all they look for is the brand
promise and the pride of their association with the brand.
An example of a premium loyal customer is a man who always buys an iPhone and even recommends his
friends who own an Android to buy an iPhone

Spurious loyalty:When a customer repurchase a brand due to situational constraints such as

1)​ Vendor lock in

2)​ Lack of Viable alternatives
3)​ Inertia due to habit or out of convenience

True brand loyalty:Exists when the customer have high relative attitude towards the brand which is then
exhibited through repurchase behavior.

Rate of usage:Based on rate of usage companies often segment their customers into

1)​ Heavy users

2)​ Medium users
3)​ Light users

U just need to remember pareto’s 80-20 rule here . which means 20% of the people who contribute 80%
of sales/profits (which means target heavy users

Types of loyal customers:

1)​ Hard core loyals

2)​ Split loyals (loyal to two or 3 brands)
3)​ Shifting loyals (moving from one brand to another)
4)​ Switchers(no loyalty)

a) Looking for something different (vanity prone)

b) Looking for bargain (deal prone)

Benefits of Brand loyalty :

1)​ Dramatic effect on profitability (due Repeat purchases from the customers)
 2)​ Longer tenure as a constomer Referrals (loyal customers tell to the others through which
Potential new customers will be added)
3)​ Lower sensitivity to prices (Defence from competitors cutting of prices and Moreover
Customers willing to pay high prices)
4)​ Acceptance of brand extentions
5)​ Defence from competitors cutting of prices
6)​ Loyal customers Refer to other potential buyers

Factors affecting Brand loyalty :

Nowadays Social Media and Social networking (user generated reviews) weakening the influence of
Brand loyalty.

How to boost Brand Loyalty :

1)​ Develop a mutual benefitial interactions (What Apple and Hardley Davidson are doing)
2)​ Deliver Superior customer Value
3)​ Segment loyalty levels and reward accordingly
4)​ Run integrated promotion campaigns
5)​ Encourage sharing of reviews and customer success stories (through word of mouth)

How customer loyalty is different from brand loyalty :

Customer loyalty centers on the consumer where money and the best deals play a vital role.

On the other hand, brand loyalty is achieved through the customer's perception of a brand. How
they perceive companies is less about pricing than it is about other important aspects – a company's
reputation, the customer's experience they already have with a company,company's values and delivering
high levels of quality in your products and services while serving and supporting your customers well, can
earn brand loyalty. At this point in the customer experience, they don't feel a need to check out your
competition because you consistently provide value for them.

For a company both are important if you can achieve both these levels of loyalty, your customer
retention soars. You even turn happy customers into loud and proud advocates who are happy to refer
other potential buyers to your company.
 Brand Revitalization

Introduction:

Every brand needs re-evaluation and revitalisation to stay relevant and keep up with changing trends and
market demands to ensure its continued healthy growth and profitability.

Your decision to revitalise your brand should be based on a thorough brand health check or evaluation
which includes reviewing what’s going wrong or what should be improved and so forth, to ensure you
implement a rebranding strategy that will deliver the required results.

Definition:

The Brand Revitalization is the marketing strategy adopted when the product reaches the maturity stage of
product life cycle, and profits have fallen drastically. It is an attempt to bring the product back into the
market and secure the sources of equity i.e. customers.

Example:

Mountain Dew, A Pepsi product, was launched in 1969 with the tagline “Yahoo Mountain Dew” that
flourished in the market till 1990. After that the sales of mountain dew declined due to which it was
re-positioned, its packaging was changed, and the tagline was changed to “Do the Dew”. It targeted the
young males showing their audacity in performing the adventurous sports.

Reasons for Brand Revitalization: (Why and When)

The brand has to be revitalized because of the following reasons:

 1.​ Increased Competition In order to meet with the offerings and technology of competitor, the
company has to design its brand accordingly so as to sustain in the market.
2.​ The Brand Relevance plays a major role in capturing the market. The brand should be modified
in accordance with the changes in tastes and preferences of customers i.e. it should cater the need
of target market.
3.​ Globalization has become an integral part of any business. In order to meet the different needs
of different customers residing in different countries the brand has to be revitalized accordingly.
4.​ Sometimes Mergers and Acquisitions demand the brand revitalization. When two or more
companies combine, they want the product to be designed from the scratch in a way that it
appeals to both and benefits each simultaneously.
5.​ Technology is something that is changing rapidly. In order to meet with the latest trend, the
companies have to adopt the new technology due to which the product can go under complete
revitalization.
6.​ Some Legal Issues may force a brand to go under brand revitalization such as copyrights,
bankruptcy, etc. In such situations, the brand has to be designed accordingly, and the branding is
to be done in line with the legal requirements.
Brand Revitalization – Strategies :

In order to overcome the problems mentioned above following are some ways through which Brand
Revitalization can be done:

1.​ The Usage of a product can be increased by continuously reminding about the brand to
customers through advertisements. The benefits of the frequent use of a product can be
communicated to increase the consumption, e.g., the usage of Head & Shoulders on every
alternate day can reduce dandruff.
2.​ The untapped market can be occupied by understanding the needs of the new market
segment. The brand revitalization can be done to cater to the needs of new customers,
e.g.; Johnson n Johnson is a baby product company but due to its mild product line the same can
be used by ladies to have a soft skin and hair.
 3.​ The brand can be revitalized by entering into an entirely New Market. The best example for this
is Wipro, who has entered into a baby product line.
4.​ Another way of getting the brand revitalized is through the Re-positioning. It means changing
any of the 4 P’s of marketing mix viz. Product, price, place and promotion.The best example of
re-positioning is Tata Nano. On its launch, it was tagged as the “cheapest Car” that hurt the
sentiments of customers, and the sales fell drastically. To revive the sales, the new campaign was
launched “Celebrate Awesomeness” that re-positioned its image in the minds of the customer.
5.​ A brand can be revitalized by Augmenting the Product and Services. The company should try
to give something extra along with the product that is not expected by the customer. Some
additional benefits can revive the brand in the market e.g. A plastic container comes with a surf
excel 1 Kg pack that can be used for any other purpose.
6.​ The brand can be modified through the Involvement of Customer The feedback about the
product and services can be taken from ultimate consumer and changes can be made accordingly.
Customer’s involvement is best seen in service sector wherein feedback forms are filled in at the
time of availing the services such as hotels, restaurants, clubs, flights, trains, etc.
This shows that brand revitalization is an essential to the success of any product. The firm takes all the
necessary steps to keep its product very much alive in the market.

Some other Strategies to Revive Lagging Brand with examples :

Here are nine strategies you can use to revive a lagging brand, to recover and even expand your brand
influence, your market share, and your profitability.

1. Become Customer-Centric

Your customers are vital to the success of your brand. Find out what your customers want, and
give it to them. Of course, this is not a simple process. But with market research, insights, and thorough
planning, you can identify the needs or desires of your target audience, and restructure your brand to
deliver.

Example, Delta Airlines recently instituted a more customer-centric approach that saved the organisation
from near-certain failure. Facing near bankruptcy, the airline turned things around in 2013 by identifying
and focusing on the things that mattered to their customers.

Some of the customer-focused changes Delta implemented for their brand revitalisation included:

●​ Bringing back Red Coats—highly visible, “elite” customer service agents who are empowered to
solve passenger issues on the spot, rather than going through management
●​ Adding WiFi to their flights sooner than their competitors

●​ Implementing a “flat tire” policy that lets passengers waive change fees and get seats on the next
available flight if they’re delayed by unforeseen circumstances
●​ Improving performance and efficiency to achieve 95% on-time performance with no flight
cancellations
The move towards increased customer service saved the company, and restored Delta to one of the top
airline brands.

2. Rename Your Brand

For a faltering brand, a name change can have a powerful effect. Renaming your brand can enable you
to start with a clean slate, and go a long way towards reversing any negative perceptions that might
have been associated with the previous name.

3. Streamline and Simplify

As brands grow, they may often experience slowdowns or lagging sales due to the expansion itself. If
your brand is suffering from dilution through growth and expansion efforts, a streamlined strategy can
help you recover from falling sales and diminished brand recognition.

Example :Technology company IBM successfully used this type of strategy to recover from substantial
losses and setbacks due to increasing competition. In 1993, the company experienced a quarterly loss of
$8 billion—which represented the largest corporate loss in history at the time. IBM’s successful
revitalisation strategy was a return to the basics. The company discontinued business areas that didn’t
align with its core competencies and focused on just three areas: hardware, business software, and IT
services. Today, IBM remains one of the most successful global technology companies.

4. Reach Out to Your Community

Becoming a community-oriented brand can help you revitalise your image and revive lagging sales.
Focusing your brand strategies on community connection and outreach can help you build a strong and
engaging brand image—and in many cases can help you capture word-of-mouth, the most powerful
marketing method for any brand.

Example : of a community-oriented brand is Chipotle Mexican Grill, a restaurant chain based in Denver,
Colorado. Chipotle’s actually based their brand strategy on giving back to the community from the
beginning. The company spends very little on traditional advertising channels such as TV adverts—in
fact, its yearly advertising budget is less than what competitor McDonald’s spends in 48
hours. Instead, the first Chipotle’s restaurant drew in customers by giving away lots of free food, and
letting the product speak for itself.

Chipotle’s also currently sponsors a multitude of local programs and pioneered a campaign called “No
Junk” that helps millions of school children eat healthier.

5. Amplify Your Brand Story

One can revitalise a falling brand by refocusing on your unique brand story, and conveying your brand’s
origins, values, promise and driving characteristics.

6. Wrap-Up in Something New

Your packaging design is absolutely crucial to effective branding. Research has found that 70 percent
of customer purchasing decisions are made at the shelf, and 90 percent of those on-the-spot decisions are
made simply by looking at the face of the product in less than 9 seconds. If your brand is struggling,
launching a package redesign can help you refresh and restore success.

7. Go the Extra Mile

For suffering brands, another powerful revitalisation strategy is to choose an aspect that your brand
excels at, and make it even more effective—so that your brand stands out sharply from your
competitors.

Firms can do this by any of the following ways

●​ Pricing (for discount or premium brands),

●​ Faster delivery (such as Domino’s Pizza 30-minute delivery guarantee),
●​ Additional features or innovations,
●​ Exceptional customer service etc

8. Go Against the Grain

It can be challenging for brands to stand out from a sea of competition. the most successful brands have
distinctive differentiation that make them more innovative, valuable, or desirable than the competition.

Example, The bottled water industry was transformed when companies began adding nutrients, flavours,
and carbonation to various brand lines.

BRAND VALUATION
Introduction:

Brands today are not restricted to marketing or profits made by a company, but are a part of our everyday
life. The term brand, infers to names, terms, signs, symbols and logos that identify goods, services and
companies; Brand Value is not just a financial number. As put forth by Ajimon Francis, Indian head and
CEO for global brand consultancy Brand Finance, “It (Brand Value) is a measure of several factors like
loyalty of customers, the ability of a brand to keep offering newer products and technology, and the
connect with consumers, who give it a premium.”

Brand Valuation and Brand Equity:

Brand Valuation can be defined as the process used to calculate the value of a brand or the amount of
money another party is willing to pay for it or the financial value of the brand.

The concept of Brand Value, although similarly constructed to that of Brand Equity, is distinct. To put it
simply, while brand equity deals with a consumer based perspective, brand value is more of a company
based perspective. As early as 1991, Srivastava and Shocker identified brand equity as a multidimensional
construct composed of brand strength and brand value. This indicates that brand equity is a concept a lot
broader than brand value.
In order to further this discussion of the distinction between the two, let us consider an example. This
specific case concerns the $1.7 billion purchase of Snapple by Quaker Oats in 1994. Quaker Oats’
primary distribution strength was confined to supermarkets and drugstores whereas smaller convenience
stores and gas stations constituted more than half of Snapple’s sales. But despite the purchase, Quaker
Oats was unable to increase supermarket and drugstore sales enough to compensate for lost convenience
and gas station sales and was forced to sell Snapple for $ 300 million just three years later. As seen in this
case, Snapple’s Brand Value decreased enormously over the three years that Quaker Oats owned it, but
this had nothing to do with it brand equity, which could have been constant or increased owing to the
additional exposure in supermarkets and drug stores. What can be concluded from this example is that
neither a brand’s purchase price nor a dramatic change in its selling price provides information about the
magnitude or movement of a brand’s equity. This also means that while a company may have the highest
brand value, it is not necessary that it also has high brand equity. For example, Apple’s Brand Value ID
ranked #1 is worth $185 billion whereas its equity is #11 and Coca Cola has the highest Brand Equity.

Evaluating Brands:

Before evaluating brands, two essential questions need to be answered i.e. what is being valued, the
trademarks, the brand or the branded business and secondly, the purpose for such valuation. This brings us
to the answering what the utility of undertaking brand valuation is. The process of brand valuation is of
primal importance not only for the brand and the respective owning company to improve upon the same
but also for the purposes to increase the market value and ascertain accuracy in instances of mergers and
acquisitions. In other words, brand valuation would comprise of technical valuation which can be utilized
for balance sheet reporting, tax planning, litigation, securitization, licensing, mergers and acquisitions and
investor relations purposes and commercial valuation which is operational for the purpose of brand
architecture, portfolio management, market strategy, budget allocation and brand scorecards. Thus, the
application of brand valuation would be for strategic brand management and financial transactions.

Prior Approach:

Earlier research with respect to Brand Valuation was limited to two areas: Marketing measurement of
brand equity and financial treatment of brands. The former was used by Keller and included subsequent
studies by Lassar et al on the measure of brand strength, by Park and Srinivasan on the evaluation of the
equity of brand extension, Kamakura and Russell on single source scanner panel data to estimate brand
equity and Aaker and Montameni and Shahrokhi on the issue of valuing brand equity across local and
global markets. The financial treatment of brands has traditionally stemmed from the recognition of
brands on the balance sheet (Barwise et.al., 1989, Oldroyd, 1994, 1998), which presents problems to the
accounting profession due to the uncertainty of dealing with the future nature of the benefits associated
with brands, and hence the reliability of the information presented. Tollington (1989) has debated the
distinction between goodwill and intangible brand assets. Further studies investigated the impact on the
stock price of customer perceptions of perceived quality, a component of brand equity (Aaker and
Jacobson, 1994), and on the linkage between shareholder value and the financial value of a company’s
brands (Kerin and Sethuraman, 1998).

Legal Analysis is the method that draws a distinction between the trademarks, the brands and the
intangible assets involved and defines them as separate entities. After the brand valuer has clearly
determined the intangible assets and Intellectual Property rights included in the definition of the ‘brand’ in
concern, (s)he is required to assess the legal protection afforded to the brand by identifying each of the
legal rights that protect it, the legal owner of each relevant legal right and the legal parameters influencing
negatively or positively the value of the brand. Extensive Risk analysis and due diligence is required in
the legal analysis and the analysis must be segmented by type of IPR, territory and business category. In
other words, the valuer needs to observe and assess the legal protection afforded to the brand by
identifying each of the legal rights that protect the brand, the legal owner of each of those legal rights and
the legal parameters positively or negatively influencing the value of the brand.

Behavioral analysis involves understanding and forming an opinion on likely stakeholder behavior
specific to geography, product and customer segments where the brand is operational. For perusal using
this method, it is necessary to understand the market size and trends, contribution of the brand to the
purchase decision, attitude of all stakeholder groups to the brand and all economic benefits conferred on
the branded business by the brand. Here, the brand valuer must also look into why a possible stakeholder
would prefer the brand in comparison to that of the competitors’ and the concept of brand strength which
is comprised of future sales volumes, revenues and risks.

Financial Analysis is the most frequently used brand valuation method and uses four approaches – Cost,
Market, Economic and Formulary approach. Often, a fifth approach is also considered. Special situation
approach recognizes that in some instances brand valuation can be related to particular circumstances that
are not necessarily consistent with external or internal valuations. Each case has to be evaluated on
individual merit, based on how much value the strategic buyer can extract from the market as a result of
this purchase, and how much of this value the seller will be able to obtain from this strategic buyer.

COST BASED APPROACH:

Cost Based approach is the approach more often used by Aaker and Keller and is primarily concerned
with the cost in creating or replacing the brand. The cost approach can be further divided into the
following methods:

1.​ Accumulated Cost or Historical cost method:

It aggregates all the historical marketing costs as the value (Keller 1998).In other words, the method
involves historical cost of creating the brand as the actual brand value. It is often used at the initial stages
of brand creation when specific market application and benefits cannot yet be identified. However, the
shortfalls of this method are that there exists difficulties as to what would classify as marketing costs and
subsequent amortization of marketing cost as percentage of sales over the brand’s expected life.In
addition to that, it is sometimes difficult to recapture all the historical development costs and this method
does not consider long term investments that do not involve cash outlay such as quality controls, specific
expertise and involvement of personnel, opportunity costs of launching the upgraded products without
any price premium over competitors’ prices. The cost of creating the brand might actually have little to do
with its present value. Most alternatives suggested suffer from the same shortcomings but there is one as
proposed by Reilly and Schweihs which may be effective. They propose to adjust the actual cost of
launching the brand by inflation every year where this inflation adjusted launch cost would be the brand’s
value.

2.​ Replacement Cost Method:

The Replacement Cost Method values the brand considering the expenditures and investments necessary
to replace the brand with a new one that has an equivalent utility to the company. Aaker (1991) proposes
that the cost of launching a new brand is divided by its probability of success. Although this method is
easy in terms of calculation, it neglects the success of an established brand. The first brand in the market
has a natural advantage over the other brands as they avoid clutter and with each new attempt, the
probability of success diminishes.

3.​ Use of Conversion Model:

Using the method here, one estimates the amount of awareness that needs to be generated in order to
achieve the current level of sales. This approach would be based on conversion models, i.e., taking the
level of awareness that induces trial that further induces regular repurchase (Aaker, 1991). The output so
generated can be used for two purposes: to determine the cost of acquiring new customers and would be
the replacement cost of brand equity. The major flaw in this system is that the differential in the purchase
patterns of a generic and a branded product is needed and the conversion ratio between awareness and
purchase is higher for an unbranded generic than the branded product and this indicates that awareness is
not a key driver of sales.

4.​ Customer Preference Model:

Aaker (1991) proposed that the value of the brand can be calculated by observing the increase in
awareness and comparing it to the corresponding increase in the market share. But he had identified the
problem with this being how much of the increased market share is attributable to the brand’s awareness
increase and how much to other factors. A further issue is that one would not expect a linear function
between awareness and market share.

In alternative, another method is the Recreation method which is similar to the replacement method but
involves costs involved in creating the brand again, rather than simply the costs of replacement. Another
distinction that exists between the two is that the value computed through the replacement cost method
excludes obsolescent intangible assets.Another method is the residual value method states that the value
of the brand is the discounted residual value obtained subtracting the cumulative brand costs from
cumulative revenues attributable to the brand.

MARKET BASED APPROACH:

Market based approach basically deals with the amount at which a brand is sold and is related to
highest value that a “willing buyer & seller” are prepared to pay for an asset. This approach is most
commonly used when one wishes to sell the brand and consists of methods herein stated:

1.​ Comparable Approach or the Brand Sale Comparison Method

This method involves valuation of the brand by looking at recent transactions involving similar brands in
the same industry and referring to comparable multiples.In other words, this method takes the premium
(or some other measure) that has been paid for similar brands and applies this to brands that the company
owns. The advantage of this approach is that it looks at a third party perspective that is, what the third
party is willing to pay and is easy to calculate but the flaw in this method is that the data for comparable
brands is rare and the price paid for a similar brand includes the synergies and the specific objectives of
the buyer and it may not be applicable to the value of the brand at issue.
 2.​ Brand Equity based on Equity Evaluation method
Simon and Sullivan (1993) believe that brand equity can be divided into two parts:

●​ The “demand-enhancing” component, which includes advertising and results in price premium
profits,
●​ The cost advantage component, which is obtained due to the brand during new product
introductions and through economies of scale in distribution.
Hence, they basically estimated the value of brand equity using the financial market value and the
advantage of this approach is that it is based on empirical evidence but shortfalls of this approach is that it
assumes a very strong state of efficient market hypothesis and that all information is included in the share
price.

3.​ Residual Method

Keller has proposed the valuation of the brand by means of residual value which would be when the
market capitalization is subtracted from the net asset value. It would be the value of the “intangibles” one
of which is the brand.

Another alternative approach that is suggested is that of usage of real options as proposed by Damodaran
(1996). The variables that need to be calculated are: risk free interest rate, implied volatility (variance) of
the underlying asset, the current exercise price, the value of the underlying asset and the time of
expiration of the option. This method is useful in calculating the potential value of line extensions but the
inherent assumptions in this approach make any practical application difficult.

Income Based Approach:

Income Based or Economic Use approach is the valuation of future net earnings directly attributable to
the brand to determine the value of the brand in its current use (Keller, 1998; Reilly and Schweihs, 1999;
Cravens and Guilding, 1999). This method is extremely effective as it shows the future potential of a
brand that the owner currently enjoys and the value is useful when compared to the open market valuation
as the owner can determine the benefit foregone by pursuing the current course of action.

The methods used under the approach are as follows:

1.​ Royalty Relief Method:

The Royalty Relief method is the most popular in practice. It is premised on the royalty that a company
would have to pay for the use of the trademark if they had to license it (Aaker 1991).

The methodology that needs to be followed here is that the valuer must firstly determine the underlining
base for the calculation (percentage of turnover, net sales or another base, or number of units), determine
the appropriate royalty rate and determine a growth rate, expected life and discount rate for the brand.
Valuers usually rely on databases that publish international royalty rates for the specific industry and the
product. This investigation results in a variety and range of appropriate royalty rates and the final royalty
rate is decided after looking at the qualitative aspects around the brand, like strength of the brand team
and management. This method has an edge of being industry specific and accepted by tax authorities but
this method loses out as there are really few brands that are truly comparable and usually the royalty rate
encompasses more than just the brand.

2.​ Differential of Price to sale ratios method:

The Differential of Price to Sale ratios Method calculates brand value as the difference between the
estimated price to sales ratio for a branded company and the price to sales ratio for an unbranded
company and multiplies it by the sales of the branded company. Why this method can be used is because
information is readily available and it is easy to conceptualize but the drawback is that the comparable
firms are a limited few and there exists no distinction between the brand and other intangible assets such
as good customer relationships.

3.​ Price Premium Method

The premise of the price premium approach is that a branded product should sell for a premium over a
generic product (Aaker, 1991). The Price Premium Method calculates the brand value by multiplying the
price differential of the branded product with respect to a generic product by the total volume of branded
sales. It assumes that the brand generates an additional benefit for consumers, for which they are willing
to pay a little extra.The fault in this method is that where a branded product does not command a price
premium, the benefit arises on the cost and market share dimensions.

4.​ Brand Equity based on discounted cash flow:

The problem faced by this method is the same as when trying to determine the cash flows(profit)
attributable to the brand. From a pure finance perspective it is better to use Free Cash Flows as this is not
affected by accounting anomalies; cash flow is ultimately the key variable in determining the value of any
asset (Reilly and Schweihs, 1999). Furthermore Discounted Cash Flow do not adequately consider assets
that do not produce cash flows currently (an option pricing approach will need to be followed)
(Damodaran, 1996). The advantage of this model is that it takes increased working capital and fixed asset
investments into account.

5.​ Brand Equity based on differences in return on investment, return on assets and economic
value added.
These models are based on the premise that branded products deliver superior returns, therefore if we
value the “excess” returns into the future we would derive a value for the brand (Aaker, 1991). This
method is easy to apply and the information is readily available, but there is no separation between brand
and other intangible assets and does not adjust, by their volatility, the earnings of the two companies
compared, including discount rate.

Other methods also include conjoint analysis, income split method, brand value based on future earnings,
competitive equilibrium analysis model, etc. The very fact that there are so many methods worth
discussing under the income or economic approach show how accurate and sought after this approach is.

FORMULARY APPROACH:

The Formulary approaches are those that are extensively used commercially by consulting other
organizations. This approach is similar to the income or economic use approach differing in the
magnitude of commercial usage and employing multiple criteria to determine the value of the brand.
Within formulary approaches are the following approaches:

1.​ Interbrand Approach

Interbrand is a brand consultancy firm, specializing in areas such as brand strategy, brand analytics, brand
valuation, etc. It determines the earning from the brand and capitalizes them by making suitable
adjustments. (Keller, 1998) The firm bases its brand valuation on financial analysis, role of the brand and
brand strength.

The firm attempts at determination of brand earnings by means of using a brand index which is based on 7
factors namely –leadership, internationalization/geography, stability, market, trend, support and protection
in the descending order of weightage. This approach is popular and widely appreciated because of its
ability to take all aspects of branding into account. The difficulty in this approach is that it is difficult to
determine the appropriate discount rate because parts of the risks usually included in the discount rate
factored into the Brand Index score. In addition to that, even the capital charge is difficult to ascertain.
Aaker reveals that “…the Interbrand system does not consider the potential of the brand to support
extensions into other product classes. Brand support may be ineffective; spending money on advertising
does not necessarily indicate effective brand building. Trademark protection, although necessary, does not
of itself create brand value.”

2.​ Finance World Method

The Financial World magazine method utilizes the “brand index”, comprising the same seven factors and
weightings. The premium profit attributable to the brand is calculated differently. This premium is
determined by estimating the operating profit attributable to a brand, and then deducting the earnings of a
comparable unbranded product from this. This latter value could be determined, for example, by assuming
that a generic version of the product would generate a 5% net return on capital employed (Keller, 1998).
The resulting premium profit is adjusted for taxes, and multiplied by the brand strength multiplier.

3.​ Brand Equity Ten

As stated by Aaker, the Brand Equity Ten Method measures brand equity through 5 dimensions – loyalty,
perceived quality or leadership measures, other customer oriented association or differentiation measure
like brand personality, awareness measures and market behavior measures like market share, market price
and distribution coverage. Brand Equity ten, thus, looks at the customer loyalty dimension of brand equity
and the measures to create a measurement instrument.

4.​ Brand Finance Ltd.

Brand Finance Ltd. is a UK based consulting organization which undertakes brand valuation by means of
identifying the position of the brand in the competitive marketplace, the total business earnings from the
brand, the added value of total earnings attributed specifically to the brand and beta risk factor associated
with the earnings. On the value so obtained, it discounts the brand added value after tax at a rate that
reflects the brand risk profile.

CONCLUSION:
Having looked at the above mentioned methods and approaches, it is clear that brands and the process of
valuing them is essential for marketing purposes and profits for the firm that owns them and that the
developed literature in this arena is indicative of interest taken by various stakeholders and academicians.
However, despite the variety of methods available and their respective comprehensibility, the prominent
problem that emerges time and again is the lack of uniformity in the methods adopted and the results so
achieved as there exists large amounts of variations in the valuation amount obtained. This can be clearly
understood upon considering the case of Kingfisher Airlines and their valuation as when the brand was
evaluated by Grant Thornton LLP in 2011, the amount was Rs. 4,100 Crores but when SBI, after
obtaining the brand as collateral had evaluated the brand after acquiring it as a collateral against the loan
of over Rs 9,000 Crores, the brand was valued at a mere Rs. 160 Crores. This case is indicative not only
of the lack of uniformity in valuation but factors like time, market reputation or adverse circumstances
like the company declaring bankruptcy being variable and affecting the process of brand valuation.
Depending on the method adopted for brand valuation, these factors may or may not affect the value. It is
true that this process of evaluating concerns only the firm owning the brand or the one acquiring it, the
existence of a supervising authority would evade the variation and subsequent disputes that arise in
addition to preventing companies from alleging inflated cost of the brand. ISO 10668 has provided a
uniform standard for brand valuation but the lack of administrative or controlling authority to not only
decide disputes but scrutinize and approve of the brand valuation done by the firm would go miles to
reduce the problem of ambiguity attached to the resultant amount. Hence, though there has been a lot of
progress in the field of brand valuation, there is still scope for more. After all, what is a product, if the
consumers don’t relate and recognize it; Brands are here to stay and certainly are assets worth encashing
in.