The method in outline

The BrandMetrics originators were able to bring together two different brand variables: finance and marketing. In the model these are linked mathematically to produce values that capture the brand's financial performance and its relationship with its user group.

Discounting an asset's forecast earnings to present value (DCF) is standard valuation practice but is usually conducted over short periods of time. The BrandMetrics approach recognises that brands are long-lived assets and that they will generate earnings for many years into the future. The number of years in the model is to a large extent a function of the relationship between the brand and its loyal users. The stronger the relationship, the more years there are in the model, and the more valuable is the brand. Naturally the opposite is equally true and the model deals with this as well.

The method uses DCF but drives forecasts into the future using a unique approach. The expected life of a truly great brand can be as long as 50 years and more. Contrary to common wisdom, using a low discount rate, there is still value to be gained after this length of time. The BrandMetrics technique ensures this distant value is not lost.

The methodology requires four core inputs:

Financial : Net operating profit after tax; capital employed, a cost of capital and management forecasts for between one and three years.

Category expected life . A device developed by BrandMetrics is used to calculate the expected life for the category in which the brand sells. This process sets time markers for the valuation and dictates the shape of the DCF slope.

Dilution . A specially developed approach using a modification to the famous Delphi forecasting technique is used to work out the percentage of the brand's value added profits that are directly attributable to the brand.

Brand Knowledge Structure (BKS). Drawing on survey data, a Brand Knowledge Structure score out of 100 is calculated. It is this score, contrasted with competitors in the category, that drives the Brand Premium Profit into the future and determines the brand expected life.

Once the data is accumulated it is simply typed into the screens in the specially created and secure BrandMetrics web site. A report at the end provides the valuation and key information. Once the original valuation is locked cloned versions can be created in order to estimate sensitivities and test the effect of changes to the variables.


View graphical depictions of the model