Earlier this month, British American Tobacco (BAT) announced a USD31.5 billion impairment on the value of some of its US cigarette brands. The affected brands, including Newport, Camel, Pall Mall, and Natural American Spirit, will see their value on BAT's balance sheet adjusted to a finite lifetime of 30 years, resulting in a non-cash impairment charge. This signifies the first instance where a major global tobacco company has written off some of the value of its traditional cigarettes business in a significant market such as the United States.

BAT's substantial write-down highlights the challenges faced by traditional tobacco businesses in the wake of evolving industry dynamics. BAT attributes the move to economic challenges in the US, where inflation-weary consumers are shifting to cheaper brands, as well as the rise of illicit disposable vapes. Furthermore, intensifying regulatory environments and the heightened awareness of health risks have resulted in a decline in cigarette sales volumes in certain markets. These are predicted to continue to fall, with BAT adding that global tobacco industry sales volumes will be down around 3% in 2023.

Responding to change

The decision to write down the value of some of its brands was a bold step for BAT because despite the short-term pain, the reality is that the market for cigarettes is shrinking, and pretending otherwise would be irresponsible on the part of management.

In the past, failure to embrace change has decided the fate of several top brands. Blockbuster, a giant in the video rental industry with thousands of stores worldwide, failed to recognize the shift towards online streaming and mail-order DVD services. In 2010, Blockbuster filed for bankruptcy, unable to compete with the likes of Netflix. Kodak, which resisted the shift to digital cameras, suffered the consequences, filing for bankruptcy in 2012.  Nokia, once a dominant force in the mobile phone industry, struggled to adapt to the rise of smartphones and the popularity of app ecosystems. Nokia's market share declined rapidly, and eventually, it sold its mobile phone business to Microsoft in 2014. These all serve as cautionary examples.

BAT's move is crucial in the context of the company consciously steering away from potential pitfalls, showcasing a commitment to survival and growth in new categories. The company is already investing heavily in alternative products, focused on vaping and oral nicotine, and wants 50% of its revenues to come from these by 2035.

Correlation between leadership tenure and impairments

Tadeu Marroco assumed the role of CEO in May 2023. Having previously served as BAT’s Finance Director, Marroco has played a crucial role in guiding the company through a transformative phase, emphasizing growth in emerging categories such as vapes and e-cigarettes.

The correlation between tenure length and significant impairments is an interesting one to note. When assessing 2019's largest impairments, a common thread emerges: new leadership, as depicted in the charts below. In this context, BAT's decision is not an isolated incident but rather a strategic response to industry challenges, reflecting a broader pattern observed in companies experiencing changes in leadership.

When looking at 2019’s biggest goodwill impairments, except for Procter & Gamble and CenturyLink, all companies listed had either a new CEO, a new CFO or both in 2019. Most of these companies’ previous leaders decided to not take an impairment in 2018. CenturyLink did take an impairment in 2018, when it also had both a new CEO and CFO. Therefore, new leadership appears to have a significant impact on the likelihood a company will impair its goodwill. Among the entire sample, we found that 30% of all impairments occur within the first year of having a new CEO or CFO.

For larger impairments, where the impairment represents at least half of the goodwill carrying amount, 41% of these occur within the first year of new leadership. At best, this analysis suggests that goodwill impairment can be influenced by varying personal opinions of management personnel and their perceptions of outlook and risk. At the worst, this analysis suggests that there may be an ulterior motive within the decision to impair goodwill. By taking an impairment at the beginning of your tenure as a CEO or CFO, it helps you to a) set a precedent that suggests your predecessor was negligent/ overoptimistic about their acquisitions, or b) influence the share price to fall initially then rise throughout the rest of your tenure.

Given these insights, the timing of the impairment—just nine months into Marroco's tenure as CEO—aligns with broader trends observed in companies with leadership changes. Adding to the leadership transition, BAT has recently appointed a new Chief Financial Officer, scheduled to assume the role in April 2024.

Looking ahead

BAT's impairment announcement should be viewed as a positive and necessary step in the company's journey towards a resilient future. Rather than focusing solely on the financial implications, stakeholders should recognize the strategic foresight behind this decision.

However, the industry is consistently grappling with challenges. Plain packaging laws have notably evolved, gaining increased comprehensiveness in some countries. These regulations now extend their coverage from traditional tobacco products to encompass heated tobacco, tobacco accessories, and other nicotine-containing items. Adding to the recent developments, this month, the World Health Organization has shifted its focus to vaping, urging governments to apply tobacco-style control measures to address this emerging concern.

Therefore, BAT and other tobacco companies must proactively adapt their strategies, leveraging innovation and regulatory compliance, to navigate the evolving landscape and ensure long-term success in an industry marked by ever increasing health related safeguards and regulatory barriers.

Reprinted from Tobacco Reporter's website, original article can be found here

ENDS

In 2009 our Telecoms league table, like many of our rankings at the time, was dominated by European and US brands in terms of both value and strength. Vodafone topped the table with a value of US$29.0 billion and a Brand Strength score of 85 in the same year, which also made it the 7^th most valuable brand in the world. At the time, lessons and best practices were previously learned by looking west, but now in 2022, the tide has turned and brands are emerging from new regions.

Etisalat this year claimed the title of the Strongest Telecom Brand from Jio, based in India, who have each implemented different strategies for creating a strong and valuable brand. Jio reached the top spot through competitive pricing to gain customer attention, while Etisalat focused on excellent service provision and cutting-edge technology.

Meanwhile, some of the largest telecoms businesses have been beset by issues related to the consolidation of branded portfolios, the onset of the ‘fourth industrial revolution’ and the slow commoditisation of the industry that have presented new challenges for brand managers.

By 2009, when Brand Finance published its first Telecoms league table, the telecom brands’ gilded age of growth and optimism at the turn of the millennium was already fading - the much-envied strapline of “The Future’s Bright, the Future’s Orange” had been retired 2 years earlier.

The smartphone, brought into the mainstream by Blackberry and popularised by Apple, began the gradual erosion of interaction between a consumer and their network operator. When all phones were capable of was calls and SMS, consumers’ dependence on the network provider was clear, but as phones have gained functionality, consumers spend far more time developing deeper relationships with other brands during their screen time, be that the handset’s manufacturer, the operating system, the app provider or the Wi-Fi network. It was in this challenging and tumultuous environment that Etisalat began its climb up our ranking.

At around this time, one of Etisalat’s ongoing flagship investments began in the form of its Manchester City partnership. As many brands have found, the prominent association with a top league sports team helped not only to kickstart brand recognition and awareness globally but also to improve brand drivers as perceived by its customers at home.

Alongside its primary market research survey, the Global Brand Equity Monitor, Brand Finance also conducts a Football Fan Survey, which indicated that Etisalat benefits from improved perceptions, reflected in brand attributes such as Cool, Open and Honest, Cares about the wider community, and Promotes Togetherness, resulting in an implied uplift in consumer consideration of 4% among those aware of the partnership.

The achievement of being the strongest brand is also tied to both building and benefiting from the growth of a nation. The UAE has made a name for itself as a pioneer of technology, and one of the key elements of this is its connectivity. In the year of Expo 2020, following the UAE’s rapid investment in 5G infrastructure, Etisalat was crowned the fastest mobile network in the world by Ookla.

Late last year, we conducted brand equity tracking to feed into our valuations, which revealed that 88% of respondents were aware of Etisalat’s achievement, and of those, 96% agreed that it represented their experience with the carrier. This awareness helped to increase other perception scores included in Brand Finance’s research, such as innovation, quality and reputation, helping Etisalat to become the world’s strongest telecom brand in 2022.

Etisalat has a vision to drive the digital future in the UAE and beyond. As part of this vision, it has also been developing tools to engage with its customer, such as its Smiles app. Originally a loyalty scheme, the app has now has a broader offering and has been made available to anyone in the UAE.

The acquisition of e-Grocer is the latest example of how the Group is finding ways to increase its touchpoints with consumers to address the never-ending challenge of retailing relevance. This evolution has been formalised in a new brand identity e& for what was formerly referred to as Etisalat Group.

Creating and maintaining the world’s strongest telecoms brand requires a focus on both emotional and functional attributes. Through its array of investments, promotions and activations, Etisalat has achieved this feat. Expo 2020 helped to showcase the best of the brand in 2021, the challenge looking forward will be to maintain the high standards its customers have come to expect.

Brand Finance Telecoms 150 2022

Read our annual report on the most valuable and strongest banking brands.

Brand Finance was set up in 1996 with the aim of bridging the gap between marketing and finance. A decade later, our analysts started conducting public studies on the most valuable and strongest brands in the world. Now, celebrating 25 years in business and 15 years of its brand rankings, Brand Finance performs more than 5,000 brand valuations a year, relying on ISO-certified methodology and insights from our original market research, and publishes nearly 100 reports annually which rank brands across all sectors and countries.

The Brand Finance Global 500 is our flagship report, explaining the dynamics shaping the industry-leading ranking of the world’s 500 most valuable and strongest brands. This year saw the publication of the 15^th iteration of the study. The world has changed profoundly since its first issue and just a quick glance at the data proves just how different the brand landscape was at the start of 2007 compared to 2021.

Brand value growth over the years

To start with, brands are immensely more important to businesses today, which is reflected in the growth of brand values over the years. At $263 billion, this year’s ranking leader – Apple is worth six times the value of 2007’s number #1 – Coca-Cola. The combined value of the world’s top 100 brands has increased threefold from $1.5 trillion to $4.1 trillion over the past 15 years.

Recording just one year-on-year decline following the Global Financial Crisis of 2008, the top 100 brands saw a steady annual growth rate of 8% over the whole period, immune even to the effects of COVID-19. Although the pandemic wreaked havoc on the global economy and smaller brands saw considerable damage, the top 100 brands increased their values by 5% in the year leading to the 2021 valuations – adapting relatively quickly to new market conditions and reinforcing their reputation as a safe haven for capital in times of uncertainty.

Nevertheless, maintaining relevance proved to be a challenge for many brands that once topped our rankings. More than half of the brands that made up the top 100 in 2007 dropped out of it by 2021. 47 brands managed to defend their spots and 53 new entrants took the places of the brands that struggled to keep up with change.

The competition proved especially fierce at the very top – Microsoft and Walmart are the only brands from the original top 10 that remain in this elite club today. This year’s top 3 brands – Apple, Amazon, and Google – all started way out of the top 10 in 2007, while Facebook (7^th) was still a private company and WeChat (10^th) did not even exist. The two social media giants have seen the highest annual growth rates among the top 10, at 55% and 36% respectively, even though they both entered the race halfway through the competition. However, they lose to Amazon when it comes to overall brand value growth – the e-commerce giant has seen an astronomical 4527% brand value increase from $5 billion in 2007 to $254 billion this year.

In addition to measuring brand value, Brand Finance determines brand strength through a balanced scorecard of metrics evaluating marketing investment, stakeholder equity, and business performance. According to these criteria, Coca-Cola is the only brand in the top 100 to retain its AAA+ rating 15 years on. It may have lost its position as the world’s most valuable brand, but it sure has remained the world’s favourite soda brand.

Brand value growth by sector

Indeed, while brands in many traditional sectors have hit their capacity in terms of growing brand value, for others sky is the limit as they capitalise on innovation – in terms of both latest technological solutions and adapting to customer needs faster than ever before.

In light of this, Tech is unsurprisingly the most valuable sector, accounting for 18% of total value among the world’s top 100 brands today. But it is the sectors revolutionised by technological innovation – Retail and Media – that really dazzle with their performance over the past 15 years. The two industries, ranking 2^nd and 3^rd behind Tech, have seen the fastest brand value growth in the top 100 among all large sectors of the economy at 454% and 467% respectively, as they benefit from the boom of e-commerce and the ascent of digital media. Oil & Gas and Automobiles have also seen solid growth (259% and 257%) as they continue to enjoy high demand and gradually address the challenge and opportunity of energy transition.

The case of Banking, which was the top industry in 2007, tells a different story. Today, still recovering from reputational damage incurred in the Global Financial Crisis and undermined by low interest rates as the global economy aims to bounce back from lockdowns, it accounts for merely 10% of total brand value and ranks 4^th, soon to be overtaken by 5^th-ranked Automobiles. Banking has 9 brands fewer in the top 100 than 15 years ago – the worst result across all industries, and the lowest overall growth (48%) bar Insurance (35%). As Banking and Insurance brands stagnated, another financial services sector has boomed – Commercial Services have gained 4 brands in the top 100 and increased in value by 433%, testament to the conscious efforts of both B2C payment services and B2B professional services companies to invest in their brands over the years.

Brand value growth by country

A perfect example of a country, in turn, that has undertaken specific efforts to invest in brands is China. From barely any presence among the world’s top 100 brands in 2007, China has seen a staggering 8696% growth and now accounts for nearly a quarter of the top 100’s total brand value. Chinese authorities and industry associations actively support the creation and development of brands and the country has made considerable efforts in building a whole intangible asset accountability and best-practice ecosystem through the adoption of new standards and regulations, not to mention the introduction of the National Brand Day celebrated annually on 10^th May.

Although in competition with China’s growing potential, the United States has very much held its own over the past 15 years and still accounts for over half of the total brand value among the world’s top 100 brands. America’s economy remains the world’s largest and healthy competition regulated by the free market alone has created a perfect environment for innovation and brand development, which made the rise of the global tech giants such as Apple, Amazon, Google, Microsoft, or Facebook possible.

Other developed economies have seen mixed fortunes. Germany’s and Japan’s brand value within the top 100 has tripled over the past 15 years, but the UK’s presence has halved and France’s diminished to just one-third of what it was in 2007.

From the rise of tech and decline of financial services, to the rise of China and stagnation in the West, the last 15 years brought a revolution in the brand value landscape. With the challenge of reviving the global economy after the COVID-19 pandemic, growing inequalities within and between societies, and the irreversible impact of the climate crisis casting a shadow over our tomorrow, brands have an important role to play beyond value creation and it is their response to these issues that will determine their future. -

Richard Haigh, Managing Director, Brand Finance

Brand Finance GIFT™ 2021

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Even though the ESL fancy was crushed almost as soon as it was announced, and our estimations – thankfully – will not be fully realised, the damage has been done and the football clubs behind the project have seen a €600m brand value loss from the fallout.

What could have happened?

In the most likely scenario, had the ESL gone ahead, we estimated that the annual loss for the Founding Clubs would have been €1.1bn in revenue a year and the brands would have all suffered significant reputational damage, leading to a drop in brand value of €2.5bn. This loss would have been a combination of lower broadcasting, commercial, and matchday revenue. The scenario assumed that the UEFA would not have allowed the teams to compete in the Champions League and the national leagues would also have removed the teams from their rosters.

For the ESL ‘Founding Clubs’ the prize seemed obvious – more money – but this ignored the huge risk that fans wouldn’t follow, and neither would the money. There was outrage in the home markets from fans and leagues alike, the effects of which will be felt for months to come.

Richard Haigh, Managing Director, Brand Finance

We value the top European football club brands each year, and at the 2020 measurement the top 50 were worth a total of €19.5bn. The twelve clubs behind the ESL project make up 56% of this – €10.8bn euros. This highlights the dominant commercial position they hold and is likely part of the reason they thought they could get away with the new scheme without sanctions from the domestic leagues and associations.

In addition, our analysis indicated that not only would the move have inflicted financial damage on the ESL Founding Clubs themselves, but also on the other clubs in their leagues, which may have lost up to 25% of their brand value.

Get in touch to discuss with our sports services team how the failed launch of the European Super League could affect your brand's finances in the coming months.

Living the American dream?

If not from the domestic markets, then the revenue would have had to come from the US or China, but an uplift in either of these geographies would have been unlikely. In both the US and China, the domestic leagues are by far the most popular as measured in Brand Finance’s Football Fan Survey. 31% of US fans prefer Major League Soccer and 21% of Chinese Fans prefer the Chinese Super League – and these numbers are already strengthening year by year. Both are countries that will more readily put their resources behind home grown team brands than foreign ones if the opportunity presents itself.

China is no longer an undeveloped market for European and North American football brands to grow. As we have seen in our studies of other industries, Chinese brands are growing fast. Many of these brands, like real estate giant Evergrande, are starting to become known beyond the domestic market and it is only a matter of time before we start hearing about Chinese football clubs more regularly.

In 2011, President Xi Jinping announced his dream to see China win the World Cup – a dream many thought impossible, but as a result, the game has received investment at all levels in the country. If the ESL Founding Clubs think that the Chinese market is a vacuum available for them to fill, they are in for a nasty shock as there’s only one true ‘super league’ in China.

Richard Haigh, Managing Director, Brand Finance

What's the damage?

Although the ESL Founding Clubs will not see the full €2.5bn brand value loss we forecast, their brand strength and therefore also brand value have undoubtedly been damaged. The club brands in question are unlikely to carry the same appeal to fans and sponsors, and the negative sentiment around the ESL has damaged emotional associations and affected attributes that sponsors value very highly, such as strong heritage, community engagement, and trustworthiness.

The sentiment of fans online towards the ESL project was overwhelmingly negative, with negative posts outweighing positive ones 3 to 1. The sour taste left by the ESL may lead to lower matchday spend and commercial revenue, which is still the lion’s share of any European club’s income.

Hugo Hensley, Head of Sports Services, Brand Finance

Rebuilding the brands will take different actions for the different stakeholders and relationships impacted. Loyal fans of the English clubs already see the U-turn as a win and can be proud that their voices were heard and that they have an influence on the club’s direction; but it will take more than a video statement to win back their faith in the owners. The clubs will need to show a specific commitment to the damaged attributes through actions not words – communicating with fan groups better on a regular basis and involving them in the decision-making process much more than it has been the case to date.

It is a different story for the national leagues and associations, governments, UEFA and FIFA – they will be weary of these clubs attempting to seize power again, but they should also recognise that they have contributed to the inequality in football that caused the 12 clubs to consider themselves untouchable.

The clubs will need to convince the regulating stakeholders of their loyalty, and that might mean conceding a greater proportion of domestic revenue distribution. The leagues, on the other hand, will need to take the fan reaction as a warning and make sure they also respect the issues raised. This could bring more scrutiny on the Champions League new format, which gives even more security to the continent’s ‘big clubs’.

What have we learned?

There are three key takeaways relevant to all brands, including clubs and sponsors, which come from the ESL’s poor communication, weak marketing, and misjudged positioning:

1. There was a lack of communication with all stakeholders before the strategic decision, and this led to a defensive reaction to the announcement. Neither the fans nor the regulators seemed to have been properly consulted.
   
2. The marketing of the new plans was uninspiring – it was announced as a legal agreement between businesses, and not an exciting opportunity to break out of a structure that most agree isn’t working perfectly. The clubs missed an opportunity to deliver global fans what they clearly have the appetite for.
   
3. The positioning didn’t work for local markets, but our research also shows that football fans’ preferences in the key target market of China are much more driven by community attributes like passionate fans, strong heritage, and tradition – these were all damaged by the ESL reaction and show a misjudgement on the part of the clubs.

Brand Finance Football 50 2021

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In the most likely scenario, we estimate that the annual loss for the Founding Clubs will be €1.1bn in revenue a year and the brands will all suffer significant reputational damage, leading to a drop in brand value of €2.5bn. This loss is a combination of lower broadcasting, commercial, and matchday revenue. It assumes that the UEFA will not allow the teams to compete in Champions League and the national leagues also remove the teams from their rosters.

For the ESL ‘Founding Clubs’ the prize seems obvious - more money - but this ignores the huge risk that fans won’t follow and neither will the money. There is outrage in the home markets from both fans and leagues alike, but it is not clear yet what the repercussions will be. Will fans vote with their feet and leave the clubs many have supported their entire lives? Will the leagues impose fines, or point deductions leading to relegation and further financial loss?”

Richard Haigh, Managing Director, Brand Finance

We value the top European football club brands each year, and at latest measurement the top 50 club brands were worth a total of €19.5bn. The twelve clubs signed up to the European Super League make up 56% of this - €10.8bn euros. This highlights the dominant commercial position they already hold, and is likely a part of the reason they thought they could get away with the new scheme without sanctions from the domestic leagues and associations.

The impact on brand value could potentially be as high as €4.3bn, which considers the scenario in which the clubs' brand strength is damaged. This would mean that they no longer carry the same appeal to fans and sponsors, and the negative sentiment around the ESL would damage emotional associations and affect attributes that sponsors value very highly, such as strong heritage, community engagement, and trustworthiness. This would further impact all revenue streams and lead to losing a significant amount of matchday and commercial income.

Our analysis indicates that not only would the move inflict financial damage on the Founding Clubs themselves, but also on the other clubs in their leagues, which may lose up to 25% of their brand value.

In our view the result will be damaging for the clubs involved. The sentiment of fans online is overwhelmingly negative, with negative posts outweighing positive ones 3 to 1. Negative sentiment like this will inevitably lead to lower matchday spend and commercial revenue in the clubs’ home nations, which is still the lion’s share of any European club’s income.

Hugo Hensley, Head of Sports Services, Brand Finance

If not from the domestic markets, then the revenue will have to come from the US or China, but an uplift in either of these geographies seems unlikely. In both the US and China, the domestic leagues are by far the most popular as measured in Brand Finance’s Football Fan Survey. 31% of US fans prefer Major League Soccer and 21% of Chinese Fans prefer the Chinese Super League – and these numbers are already strengthening year by year. Both are countries that will more readily put their resources behind home grown team brands than foreign ones if the opportunity presents itself.

Get in touch to discuss with our sports services team how the launch of the European Super League can affect your brand's finances.

China is no longer an undeveloped market for European and North American football brands to grow. As we have seen in our studies of other industries, Chinese brands are growing fast. Many of these brands, like Evergrande, are starting to become household names in Europe and it is only a matter of time before we start hearing about Chinese Football clubs more regularly. The European Super League launch plays into their hands.

In 2011, President Xi Jinping announced his dream to see China win the World Cup, a dream many thought impossible, but as a result, the game has received investment at all levels in the country. If the ESL Founding Clubs think that the Chinese market is a vacuum available for them to fill, they are in for a nasty shock when they discover there’s only one true ‘super league’ in China.

Richard Haigh, Managing Director, Brand Finance

Brand Finance Football Annual 2020

Download the full report to learn more about the role of brand in driving football finance.  

If we zoom out here, in general terms all our valuations follow a process flow. This process flow indicates how specific actions, taken by marketing and other corporate managers, result in changes to a brand's attributes (i.e. quality, availability, price, positioning, personality, etc.).

We then measure how much these actions affect the level of consideration for the brand, how increased consideration leads to stakeholder behavioural change, ultimately leading to a favourable financial uplift effect. 

The process flow can be used in both directions. In one direction it explains the value of the subject brand. In the other, it explains what actions need to be taken by marketing and corporate managers to strengthen brands and add value. So, the process is both a comprehensive summary of the performance of marketing activities to this point and a highly actionable tool for brand guardians. 

This is a very broad explanation, and we would be happy to spend all day talking through the nuances and applications of brand valuation. For now, though, we want to tackle some of the most common questions we asked around our annual valuation study.

How do we value brands that have not been bought, sold, or licensed?

We are lucky because there are real-world market examples of businesses buying, selling, and licensing brands. By using these real-world examples, we can build an accurate spectrum of what brands of certain sizes and strengths, within specific geographies, and sectors, are worth.

Through this process, we can then start to value brands (that have not been valued before) based on assumptions that are proven to exist in commercial reality. This is how we can perform robust valuations for brands that have never been valued as part of an auditing or balance sheet exercise.  

To understand where to place a brand within this spectrum we look at two key areas: We look at the financial performance (revenues) of the business operating under a brand, and we also look at brand strength measures. It is very easy to compare revenues, it is a lot harder to measure one brand’s strength against another.  

Measuring a brand’s strength is a key aspect of any brand valuation calculation. It is also probably the stage most familiar to brand, marketing, and insights teams. Everyone in some way or another is measuring the strength of their brand and tracking the changes of those strength metrics over time. For our valuations we conduct our Global Brand Equity Monitor to measure consumer perceptions of 5,000 brands in 30 countries across 14 industries and then include this in the Brand Strength. 

Once we have conducted a ‘Brand Strength Assessment’ of brands with a sector, we then start to build out a relative understanding of how much brand is impacting overall business performance. Through measuring and benchmarking brand strength within a competitive set, we can identify the impact brand is having on the bottom line. From there it is relatively straightforward to then understand how much value the brand is bringing to the overall business.    

In our valuations we are essentially combining the two disciplines of marketing and finance. We are translating marketing into finance, and vice versa. which informs the principle of our strapline – ‘Bridging the gap between marketing and finance’. 

Brand Valuation 101
Our Vision for Improving Brand Valuation
6 Strategic Applications for Brand Valuation
Technical Reasons to Value Your Brand

Measuring Brand Strength

One of the key questions that inevitably evolves from establishing a measure of brand strength is: what brand attributes should be included in my brand strength scorecard? The answer is quite straightforward in principle, but difficult in practice: a brand strength scorecard should aim to capture as many trackable brand attributes as necessary, but as few as possible.   

We split our measurement of Brand Strength into three fundamental pillars: Brand Investment, Brand Equity, and Brand Performance.  

We chose these pillars because they ask what any brand manager, owner, or potential licensee, should be considering when assessing the quality of a brand: 

1. Is management working to invest in the brand to grow and maintain it into the future?  
2. How does a variety of relevant stakeholders currently perceive the brand?
3. Is the brand doing what it should be doing to bring value to the business?   

Exactly how these three questions are answered will differ from industry to industry and even brand to brand. 

How we value brands in our annual rankings 

In the case of our rankings, we use the real-world examples of licensing agreements as a basis for our valuations, using a methodology called the Royalty Relief Methodology, or Relief from Royalty Method. The method determines the value a company would be willing to pay to license its brand as if it did not own it. This approach involves estimating the future revenue attributable to a brand and calculating a royalty rate that would be charged for the use of the brand.  

As this is purely hypothetical, and for the most part the brands in our Global 500 are owned, rather than licensed, these brands are relieved from paying these royalties on their revenues. Hence the name royalty relief.  

The steps in this process are as follows: 

1. Calculate brand strength on a scale of 0 to 100 based using a balanced scorecard of a number of relevant attributes such as emotional connection, financial performance and sustainability, among others. This score is known as the Brand Strength Index. 

2. Determine the royalty rate range for the respective brand sectors. This is done by reviewing comparable licensing agreements sourced from our own extensive database of real world license agreements, as well as and other online databases. 

3. Calculate royalty rate. The brand strength score is applied to the royalty rate range to arrive at a royalty rate. For example, if the royalty rate range in a brand’s sector is 0-5% and a brand has a brand strength score of 80 out of 100, then an appropriate royalty rate for the use of this brand in the given sector will be 4%. 

4. Determine brand specific revenues estimating a proportion of parent company revenues attributable to each specific brand and industry sector. 

5. Determine forecast brand specific revenues using a function of historic revenues, equity analyst forecasts and economic growth rates. 

6. Apply the royalty rate to the forecast revenues to derive the implied royalty charge for use of the brand. 

7. The forecast royalties are discounted post-tax to a net present value which represents current value of the future income attributable to the brand asset. 

Brand Valuation Calculation Visualisation

The Royalty Relief Method is not our own proprietary methodology; it is just one of many that are outlined in ISO:10668. The reason why we use the method, is that it is favoured by tax authorities and the courts because it calculates brand values by reference to documented third-party transactions.  

It can also be done based on publicly available financial information, and it is compliant with the requirement under the International Valuation Standards Authority and ISO 10668 to determine the fair market value of brands. For these reasons, the royalty relief method is used in over 80% of all brand valuations.  

The role of brand research in our valuations

The thing which we have stressed most over the 25 years is that to value a brand well is a holistic exercise. It is not just a financial spreadsheet which spits out a financial number. We practice this by following four principles:

• Context: Our financial brand valuation opinions must be driven by high quality insight and analytics of the sector trends driving the markets in which the brands operate.

• Stakeholder Impact: We need to understand and predict how stakeholder opinion will drive demand and other economic and financial benefits underpinning the valuation.

• Transparency: we have always felt that all assumptions in the valuation need to be disclosed in full so that they can be challenged.

• Due Diligence: We always apply financial sensitivity analysis so that we can evaluate brand value scenarios.

Holistic connection is baked into our approach. We have always considered stakeholder research, particularly customer and consumer research to be a central requirement of high-quality brand valuations. Brand Finance has occasionally been characterised as purely financial, with no understanding of demand and of brand value drivers. However, stakeholder insight has been part of our DNA since inception in 1996.

Since 1996 we have commissioned original research or reused existing client research in client brand valuations. But as we have grown to become the leading global provider of brand valuations produced speculatively each year, using publicly available data, we have commissioned our own global research to underpin our brand valuation tables.

We now conduct research in 31 countries and over 23 sectors. Our research includes brand funnel measures such as Awareness, Familiarity, Consideration, Trial, Loyalty, and Recommendation. We also research key attributes which drive the funnel measures. Taken together we are able to use statistical analysis to predict customer and consumer behaviour leading into the forecast demand and revenue in our models.

Conclusion

Brand Valuation is ultimately a financial discipline, but unlike all other financial disciplines, it requires an intuitive and well-researched understanding of stakeholder perceptions, motivations, and behaviours. Nowadays this is often referred to as Behavioural Economics by many marketers. But really this is what we referred to when we coined the term Brand Economics back in 1999.

More than ever before, Brand Finance can help brands understand how they tick and help them work better for all their Stakeholders.

Brand Finance's Global 500 2021

Learn more about this year's most valuable brands.