Brand value is the financial worth of a company. It influences the revenue of a certain business and the market and corresponds to the customer 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 to build brand awareness, make customers recognize their brands, and purchase from them. Brand value influences the revenue of a certain company and the market.
If customers appreciate one particular brand and often buy its goods, this company usually obtains higher ROI. Also, if brands within a market have high customer loyalty this can discourage new companies from entering the market and increase the market share of the existing firms. To make a decision, new brands gather data and analyze the 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. To raise the brand value, companies pay attention to brand equity (what consumers think about a certain brand and how they perceive it).
Now when you know the importance of brand value, let’s proceed to the next section where we’ll compare two important measures that often evoke confusion.
Brand Value vs Brand Equity
The two measures we’ll review in detail are essential 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 certain company. To find this measure, a business owner should calculate how much it costs in the market. Simply put, how much money would someone pay to purchase a certain business.
This metric helps to be aware of the directional changes: whether a company is gaining value or losing it. With this information in mind, entrepreneurs can decide to change the strategy or improve marketing campaigns.
To improve brand value, each company has to raise brand equity. 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 greatly when consumers buy its products.
Brand equity is a value a business obtains from its name and recognition. To create this value, brands should provide customers with products of superior quality that are easy to recognize and are memorable. As a result, consumers are ready to pay higher prices although they can purchase such products from competitors at a lower cost. Customers do it to buy goods or services from brands they love, trust and admire.
Brand equity consists of three key components such as consumer perception, negative or positive effects, and the resulting value. Brand equity 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, 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 find out how much similar companies cost on the market. 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 spendings on marketing, salaries of employees, contracts with branding agencies, trademarks, and more. As a result, you will know how much money you’ve invested in the business. Yet it can’t show an accurate current brand value.
- 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, future revenues, and evaluate them.
- Net promoter score (NPS) valuation. NPS is a measure that shows whether your customers can promote your brand. To calculate NPS, you need to ask customers whether they will recommend your company to people they know and let consumers rate it from 0 to 10. This way, you’ll find out how many consumers know, trust, and like your brand.
It’s obvious that each of these approaches has pros and cons and all of them will bring you different results and it’s 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 brand could prosper.
- 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, how to calculate the brand value and why to do it.
- This article explains the difference between brand value and brand equity.
Last Updated: 07.07.2021