By James T. Berger and Diana Tadzijeva James T. Berger, principal of Evanston (IL)-based James T. Berger/Market
Strategies, does extensive consulting and expert witness work for intellectual property attorneys
throughout the U.S. His areas of expertise are marketing communications and surveys. His survey work
focuses on infringement issues including likelihood of confusion, trade dress and secondary meaning.
He both develops IP surveys and critiques adversarial surveys. He is a faculty member at0 Roosevelt
University where he teaches a variety of courses in marketing and is an often-published freelance
business writer. He can be contacted at (847) 328-9633 or via e-mail at
jberger@jamesberger.net. His Web site is www.jamesberger.net.
Diana Tadzijeva is Research Associate at James T. Berger/Market
Strategies. Her background is in strategic planning, research development, project management
and resource management.
(Part II of a two-part series: Read Part I in the August
issue)
In trademark infringement litigation, getting a judgment or agreement on brand or trademark
infringement is only half the battle. The other half is attempting to determine what the damages
are, and the key to trying to make that determination is the ability to calculate what the brand or
trademark is worth from a marketing perspective.
The marketing valuation is far different from the accounting valuation. Accounting methods
determine trademark and/or brand values based on the real value of the asset. Such
calculations are relatively easy to determine because they are based on book values of the assets
— the value of the brand or trademark as reflected in financial statements.
Calculating the marketing value of a brand or trademark is often easier said than done.
However, there are a variety of methods and techniques that one can use to determine that marketing
value. Once such a value is determined, one can then attempt to assess damages by estimating
the percentage of the brand or trademark’s that can be attributed to the infringement.
There are many approaches to trademark and brand valuations. The approaches presented
in this second part of a two-part article are focus on “Formulary Approaches.” These are
among the most popular methods of brand valuation because they are not as rigid as the cost-based
approaches and take the greatest number of factors into consideration when determining the value of a
brand. There are many methods in this group with the most prominent being the Interbrand, Brandz,
and “Brand Equity Ten” approaches.
Interbrand approach
Interbrand, a division of Omnicom, is a branding consulting firm. Founded in London
in 1974 as Novamark by John Murphy, a former employee of Dunlop, Interbrand has developed
into a full-service branding consultancy with 40 offices in 25 countries. Annually, Interbrand and
Business Week publish “The 100 Top Brands.”
Interbrand’s approach, which is a method limited to big, high-profile brands, uses a three-
year weighted average of profits after tax. The factors considered are only the ones that directly relate
to the brand’s identity. Thereafter the multiplier is attached to the calculation. This multiplier
takes into account seven components of brand strength as articulated by Colin Bates of Hong Kong-
based Building Brands Ltd:
Market — 10% of brand strength. Brands in markets where consumer
preferences are more enduring would score higher. For example, a food or detergent brand would
score higher than a perfume or clothing brand, because these latter categories are more susceptible to
the swings of consumer preference.
Stability— 15% of brand strength. Long established brands in any market
would normally score higher, because of their depth of loyalty. For example: Mercedes Benz or
Volvo would score higher than Lexus or Infiniti..
Leadership—25% of brand strength. A market leader is more valuable because
being a dominant force with strong market share matters. For example on a global basis, Coca-Cola
brand would out-perform Pepsi.
Profit trend — 10% of brand strength. The long-term profit
trend of the brand is an important measure of its ability to remain contemporary and relevant to
consumers, according to Interbrand.
Support—10% of brand strength. Brands that obtain consistent investment and
focused support usually possess a much stronger franchise. However, the quality of this support
is equally important as the quantity.
Geographic spread— 25% of brand strength. Brands that have proven
international acceptance and appeal are inherently stronger than regional or national brands.
Because they are less susceptible to competitive attack, as assets they are therefore more
stable.
Protection— 5% of brand strength. Securing full protection for the brand under
international trademark and copyright law is the final component of brand strength in the Interbrand
model.
According to Bates, “this model is not perfect, for example several of the components have
a built in preference for older brands and so may not give adequate recognition to the value of newer
brands such as Amazon or Starbucks.” Also to be considered as a limitation is the
Interbrand approach’s limitation to valuing large, high-profile brands.
Brandz Study
Created by one of the world’s leading market research companies, London-based Millward
Brown, the Brandz Study provides what is believed to be a highly accurate methodology. Unlike
the Interbrand approach, which focuses on large brands, the Brandz methodology works for smaller,
lower profile brands. It is based on the combined effects of historical financial data as well as
consumer studies. The basis of this approach is something called “voltage,” which
is a brand’s potential to grow its market share in the future. At the heart of
“voltage” is a five-level pyramid based on Bonding, Advantage, Performance, Relevance
and Presence and the share of wallet – either strong or weak – the reflection of the
brand’s worth.
Peter Walshe, global brand director for Millward Brown, explains that consumer perceptions are the
key input into the “voltage rankings.” He explains the brand’s relationship
with its market can be mapped as a pyramid. The bottom layer is “awareness” or
the proportion of consumers with an active knowledge of the brand. The second layer is
“relevance” which focuses on the ability of the brand to meet a consumer’s
specific needs. Next comes “performance,” and this dimension asks: does the
brand meet or exceed the category standards as well as the ability to deliver the brand owner’s
promised experience. Moving up on the pyramid is “advantage,” and this refers to
the market’s perception that the brand has some edge over its competitors such as pricing or
innovation. Finally at the top of the pyramid is “bonding,” which refers to some
unique advantage for individual customers that forms the best relationship to the brand and therefore
has the best voltage ranking.
“Voltage represents a real competitive advantage,” according to Walshe. It
represents the No. 1 summary of the growth potential of the brand. It takes into account how
many people are very loyal to the brand (the brand’s bonding score) and the claimed
purchasing data for the category to produce that single brand voltage number. A brand with a
positive (+) voltage score has the potential to gain share from its own marketing actions and to resist
the actions of competitors. Brands with a negative
(—) voltage score can still grow, but will have to work harder and will be more vulnerable to
actions of other brands.
In the Brandz study there is a ranking of eight brand typologies:
- Clean Slate: Little known to most consumers (Acer).
- Little Tiger: Relatively unknown but with strong following within a core group
(Singapore Airlines).
- Cult Brand: Not widely known and not for everyone but has attained a fanatical
following (Starbucks).
- Aspirational. Well known but not suitable for a mass audience. Maybe too
expensive (Tommy Hilfiger).
- Classic: Well-known well-loved with a relatively large core following (Budweiser).
- Olympic: Well-known, well-loved and a large core following (Wal-Mart).
- Defenders: Good balance between product performance and price but not real
product-based or emotionally rooted advantages (Fila).
- Fading Star: Previously known and universally liked and still relevance to a mass
audience but it has lost some appeal and has little product or image based advantage (7-Eleven).
In the Brandz mapping are growth rates and financial outcomes. For example, “Little
Tigers” have higher average growth rates but have higher volatility (risk) while
“Olympians” grow slower but more predictably.
‘Brand Equity Ten’ Approach
This flexible, qualitative approach to brand equity evaluation was developed by University of
California Marketing Professor David Aaker. In “The Brand Equity Ten” Aaker
identifies what he believes to be the 10 key aspects of brand performance, which illustrate the
components of brand strength.
The following explanation is provided as an appendix to “Brand Valuation: Measuring and
Leveraging Your Brand,” a report prepared for the Institute of Canadian Advertising by David
Haigh, chief executive, Brand Finance PLC:
Loyalty Measures
- Price Premium: Measuring the additional price that consumers are prepared to
pay for a brand. For example, a structured questionnaire may be used to establish the
relationship between cost and stated consumer preferences for a number of similar goods. Or,
empirical evidence may be available to demonstrate from historical data the actual relationship.
- Satisfaction/Loyalty: Researching the customer’s level of satisfaction with a
brand and the level of price sensitivity allows the market to be segmented into “loyal users, price
chasers and those in between.”
Perceived Quality/Leadership Measures
- Perceived Quality: Statistical models can be used to correlate perceived quality and
financial measures such as returns on investment and stock return. The changes in perceived
quality scores can be measured across a variety of different sectors, allowing a comparison of relative
brand health.
- Leadership/popularity: Leadership scales attempt to measure whether a brand is a
“category leader, is growing more popular or is respected for innovation.”
Associations/Differentiation Measures
- Perceived Value: This measures whether a brand represents value for money and
whether consumers have a reason to choose one brand over its competitors. In the latter sense
it is a similar measure to perceived quality.
- Brand Personality: This is a particularly important factor where there are apparently
only minor functional differences between different brands in a market. Brand personality
“says something” abut the consumers of different brands. The soft drink market is
an example of this. There may be little discernable differences in taste between Pepsi and Coca
Cola, so the marketing functions in each company concentrate their efforts upon differentiating the
products through image,
- Organizaional Associations: Brand strength often goes beyond the product brand
which underlies it. For example, companies might seek to gauge how consumers react over time
to statements such as:
- This brand is made by an organization I would trust.
- I admire the brand X organization
- I would be proud (or pleased) to do business with brand X.
Awareness Measures
- Brand Awareness: A simple measure of the distinctiveness of a brand’s
personality and the effectiveness of its advertising and communications campaigns. Loyalty and
purchase build from this platform. Performance relative to competitor brands is a key indicator
of brand health.
Market Behavior Measures
- Market Share: Measuring a brand via market share can be a clear indicator of
consumers’ perceptions and satisfaction with that brand. A falling market share is usually
a good indicator that the brand is slipping in the consumers’ estimations, although distinctions
clearly need to be made between volume value share.
- Market Price and Distribution Coverage: Brand strength can be measured by
distribution percentage. Unlike market share these measures are easier to define and are less
subject to short term blips that may be caused by price promotions. Measures like the
percentage of shops stocking the brand, and the brand’s accessibility to the percentage of
customers are often used to judge a brand’s performance.
End of Part II
