Companies spend millions of dollars annually on building a powerful brand. Why is it so? Why is brand value significant for companies? Does brand value help increase revenue? What's the benefit of having a high brand value?
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Companies spend millions of dollars annually on building a powerful brand. Why is it so? Why is brand value significant for companies? Does brand value help increase revenue? What's the benefit of having a high brand value?
You'll find out the answer to these questions and much more by reading through this explanation!
Brand Value Definition
If you were to sell your brand, its brand value would be the amount of money you could get from selling it.
Brand value is the monetary worth of a brand.
If another firm wants to utilise a company's name, logo, and brand identity to sell goods or services, the brand value would be the amount of money they would pay for the right to do so. This is the worth of a brand depending on the market. For example, the Pepsi brand is valued at around 11 billion US dollars.1
Another method to consider a brand's value is its replacement cost (cost-based brand value). In this context, the value of a brand refers to the amount of money required to create, implement, market, and magnify a whole new brand to the same level as the existing one.
This number may consider the cost of employing a team, the amount of money spent on marketing, PR sponsorship, and other additional expenses.
Brand value is considered an intangible asset, as it does have monetary value but is not a physical good.
A brand's value is evaluated during mergers and acquisitions (M&A). Having a positive brand reputation will increase the monetary value of a firm, giving it more leverage in negotiations to merge with or be purchased by a larger company.
How is Brand Value Measured?
A wide range of factors may contribute to a brand's success, including how brands interact with the psychology of consumers.
It should not come as a surprise that determining the worth of a brand may be challenging and perplexing in the absence of a well-defined plan.
The most basic means of determining the value of a brand are still relatively straightforward. One of the simplest strategies includes inquiring other businesses about how much they would be willing to pay for the rights to use your brand.
In doing so, you would have a range of values that you could then take the average of to determine the brand's true worth in the market.
Similarly, you may figure out how much it would cost to establish a brand comparable to your existing one by soliciting estimates from other service providers or by making estimations on your own.
We can observe the importance of brand value through brand loyalty - where customers routinely buy products from only one brand. This may occur even if the product's price increases. Due to the brand's perceived quality, customer demand is relatively inelastic, suggesting a valuable brand. Regardless of the price increase, consumers still want to buy the same brand.
You can examine brand value by looking at sales revenues for a brand before and after a price increase or the entry of a new competitor into the market.
If revenue increases even after a price increase, demand for the name brand product is relatively inelastic, suggesting a high brand value. Also, if revenue is unaffected or goes down only slightly after a new competitor's market entry, it may imply high brand value.
Brand Value Examples
Let's now take a look at some examples of brand value.
Virgin Media is one of the most common examples of brand value. The Virgin brand first appeared in the 1970s as a straightforward student newspaper. Richard Branson, the founder of Virgin Media, immediately found new methods to communicate his ideas to the public. He entered the world of retail, began releasing records, and even established a firm in the aircraft industry. All these ventures are now under Virgin Galactic Holdings, with a brand value of 1.96 billion.2
Richard Branson claims that the following fundamental principles helped his company increase perceived brand value: being fun (but responsible), offering good value for the money (never being cheap), providing high-quality services, and innovation (willing to take risks).
In addition to high product quality, brand value may also be influenced by convenience (lots of locations, easy to purchase) and the product's compatibility with many complementary goods (the brand offers a wide range of products that can work together).
We may observe an example of product compatibility that influences brand value through Apple. Apple's range of computer products, from the iPhone to the Macbook laptops, is intended to sync with each other easily, but not with substitutes.
Therefore, customers who own and enjoy Apple products are incentivised to remain loyal to the brand and not have to purchase additional adapters and software from rival brands.
Brand Value Proposition
A brand value proposition clearly states what a company's product offers to customers. The brand value proposition is a type of commitment made to target customers that includes a reason as to why consumers should buy the brand.
Brand value proposition refers to the value a brand offers its target consumers.
It outlines what the product can deliver (brand promise) and what problem it solves for its target audience.
Consumers can observe brand value proposition in the auto industry, where vehicle manufacturers regularly advertise the performance statistics of SUVs, pickup trucks, and sports cars.
Auto manufacturers declare that - for a listed price - their pickup truck can safely tow a certain amount of weight, travel a certain distance on a single charge or tank of gasoline, or perform a specific task (e.g., have built-in electrical outlets for power tools).
Another typical example of a value proposition is a warranty, whereby the manufacturer promises to fix - at no charge - any problems that occur with the product for a certain length of time or amount of use.
Offering a warranty is also common in the auto industry, where most manufacturers provide guarantees for the first few years of new vehicle ownership. Consumers may value a brand because of its impressive warranty compared to rivals.
Some brands may try to attract more customers by offering to pick up the warrantied product to repair it and deliver it back to the customer quickly, promising additional convenience.
Brand Value vs Brand Equity
While brand value refers to the monetary worth of a brand, brand equity refers to the brand's ability to capture customer attention and preference. Brand equity also refers to consumers' impressions of the brand. Customers who choose a brand above others and remain loyal to it over time create substantial brand equity since they demonstrate brand loyalty.
When a brand establishes brand equity, it contributes to the attributes that will make it valuable.
These qualities include brand recognition, favourable connotations with quality and service, or aspirational values. Brand equity may be considered a component that influences brand value. All of these elements contribute to an increase in revenue by encouraging repeat purchases and customer loyalty.
However, brand value may exist even if a brand doesn't have brand equity.
For instance, during the pre-release phase of a product, a company will spend money and put value into establishing a brand before its prospective clients ever see it. Companies do this to prepare for the launch of the product. The money invested in building brand awareness contributes to brand value.
When compared to brand value, brand equity is a more vague term that is also more difficult to evaluate. This is because brand equity is more closely related to customer motivation, opinion, and behaviour than monetary statistics.
Check out our explanation of Brand Equity to learn more!
Brand Value Importance
Brand value is important for businesses as it aligns their values with their target customers. This helps the brand build and expand its customer base. As more customers recognise the brand, it increases the chances for repeat purchases which adds to the firm's revenue expansion.
When consumers feel as if they can connect to a brand and what it stands for, they will likely continue to do business with that brand. The likelihood that they will advocate for that company and suggest it to friends and family increases.
A brand needs to communicate its brand values and brand mission. This is because it allows them to target customers who share the same values as the brand, building loyalty and fostering trust. Trust and loyalty are some of a company's most crucial marketing weapons. It helps companies have a reliable customer base to which they can also market new product lines. Additionally, it provides leverage over competitors.
Iconic brands with high levels of customer loyalty can also maintain firms' profitability (or simply survival) during an economic crisis.
An example is the Twinkie snack cake, whose iconic popularity helped save it from the bankruptcy of Hostess (the parent company). The brand value of various Hostess snack cakes helped find buyers for the firm, ultimately saving both the products and some of the jobs.
Branding is more than advertising or giving a firm or product a catchy name. Brand value is crucial because it has the potential to sway clients to buy your goods rather than the product of a competitor. This gives high-value brands a competitive advantage over their competitors.
By pursuing more significant profit through higher brand value, firms also improve society by delivering better goods and services.
Without branding and only the existence of standardised goods, firms would have little incentive to improve their quality.
Brand Value - Key takeaways
Brand value is the monetary worth of a brand.
Brand value is considered anintangible asset, as it does have monetary value but is not a physical good.
Brand value proposition refers to the firm's value proposition to its target consumers.
While brand value refers to the monetary worth of a brand, brand equity refers to the brand's ability to capture customer attention and preference.
High-value brands have a competitive advantage over their competitors.
References
M. Ridder. PepsiCo - Statistics & Facts. Statista. 2022. https://www.statista.com/topics/1503/pepsico/#dossierKeyfigures
Macrotrends, Virgin Galactic Holdings Market Cap 2018-2022 | SPCE, https://www.macrotrends.net/stocks/charts/SPCE/virgin-galactic-holdings/market-cap
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