Brand value is the financial worth of a company. It influences the revenue of certain businesses and markets and corresponds to customers’ awareness of a good.
In this article, we’ll review the importance of brand value, find the difference between brand value and brand equity, and get to know how to measure brand value.
Why is brand value important?
Entrepreneurs are ready to spend millions of dollars on building brand awareness to make customers recognize their brands and purchase from them. Brand value influences the revenue of certain companies and markets.
If customers appreciate one particular brand and often buy its goods, this company usually obtains a higher ROI. Moreover, if brands within a market have high customer loyalty, this can discourage new companies from entering such a market and increase the existing firms’ market share. To make a decision, new brands gather data and analyze their market to decide whether it’s worth taking this step.
Brands are intangible assets, yet they carry financial value. That’s why knowing brand value is essential when we talk about investments and whether stakeholders should consider them. Companies need to pay attention to brand equity (what consumers think about a certain brand and how they perceive it) to raise their brand value.
Now that you know the importance of brand value, let’s proceed to the next section to compare two essential measures that often evoke confusion.
Brand Value vs. Brand Equity
The two measures we’ll review in detail are crucial for every business, yet they are sometimes misinterpreted. Let’s start with brand value to make everything clear.
Brand value can be defined as a cost of a particular company. Business owners should calculate how much it costs in the market to find this measure. Simply put, it is how much money someone would pay to purchase a particular business.
This metric helps to be aware of the directional changes, namely whether a company is gaining value or losing it. With this information in mind, entrepreneurs can decide to change their strategy or improve their marketing campaigns.
Each company has to raise brand equity to improve brand value. Let’s take Tide, for example. This brand of laundry detergent is more famous than other smaller companies. The money Tide invested into marketing, creating brand awareness, and customer loyalty enables the company to increase revenues significantly.
Brand equity is the value a business obtains from its name and recognition. Brands should provide their customers with products of superior quality that are easy to recognize and memorable to create this value. As a result, although consumers can purchase such products from competitors at a lower cost, they are ready to pay higher prices. Customers do it because they want to buy goods or services from brands they love, trust, and admire.
Brand equity consists of consumer perception, negative or positive effects, and the resulting value. It influences the sales volume of a certain brand and its profitability.
The difference between these two essential measures is clear, so it’s time to move to the next section to review how to measure brand value.
How to Measure Brand Value
There are different ways to measure brand value, and you just need to choose an approach that makes the most sense for your company’s identity, situation, and goals.
- Market-based valuation. Using this method allows you to define the value of your brand based on the market climate. The easiest way is to determine how much similar companies cost on the market. If you want to have a clear picture of your brand value, you can also pay attention to other market measurements (for example, stock performance).
- Cost-based valuation. To find a necessary measure, you need to calculate the costs spent on creating and developing your company. You can easily estimate it by adding up all the expenses from the beginning till now. Remember to include your investments in marketing, salaries of employees, contracts with branding agencies, trademarks, and more. As a result, you will know how much money you’ve invested in your business. However, it can’t show your current brand value accurately.
- Income-based valuation. This approach focuses on the money your business generates. Pay attention to the financial streams of your brand, such as income, cash flow, cost savings, and future revenues, and evaluate them.
- Net promoter score (NPS) valuation. NPS is a measure that shows whether your customers can promote your brand. If you want to calculate your NPS, you need to ask customers whether they will recommend your company to people they know and let them rate it from 0 to 10. This way, you’ll determine how many consumers know, trust, and like your brand.
It’s evident that each of these approaches has pros and cons and that all of them will bring you different results, which is fine due to the intangible nature of brand value. Each of the methods enables you to obtain information that will help you adjust your brand strategy so that your company can prosper.
Resources:
- This article defines the term and covers the purpose and importance of brand value.
- In this article, readers can find a definition of the term, calculate the brand value, and discover the reasons to do it.
Last Updated: 05.07.2023
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