Brand audit

A brand is often among an organisation’s most valuable assets and can explain why an acquirer pays far more than the value of physical property and equipment. Measuring brand strength or assigning it a financial value is difficult. Accounting standards generally recognise an acquired brand at a transaction-supported value but do not permit an internally generated estimate to appear in the same way. Management still needs evidence that investment in the brand is producing value.

Brand audits range from transparent health measures to proprietary valuation “black boxes” requiring private databases. Interbrand, part of Omnicom, uses a well-known economic-value approach in its annual ranking of 100 valuable global brands. The method has five stages.

When to use it

• To diagnose and improve brand strength.
• To support decisions about positioning, investment, architecture and valuation.

Origins

Modern brand management took shape in the 1950s at consumer-goods companies including Unilever, General Foods and Procter & Gamble. Managers began separating components such as top-of-mind awareness, distinctive associations and customer value. Financial valuation accelerated during the late 1980s and 1990s through firms such as Interbrand and Brand Finance. Major research companies subsequently created proprietary systems—Millward Brown’s BrandZ, TNS NeedScope, Ipsos Brand Value Creator and GfK Brand Vivo among them—typically tracking awareness, use, satisfaction, recommendation and value. The naming of the systems is itself an exercise in differentiation.

What it is

1. Segmentation: define the markets and customer groups within which the brand should be measured.

1. Financial analysis: estimate the economic profit attributable to the branded business and create a five-year revenue forecast.

1. Demand analysis: determine how much purchase choice is driven by factors such as quality, innovation, design and value for money, and what role the brand plays.

Brand strength analysis: compare satisfaction, loyalty, share, awareness and growth prospects with competitors to produce a strength score.

1. Net present value of brand earnings: forecast brand-related profit and discount it at a rate reflecting the industry and risk.

Interbrand and London Business School developed the model in 1988. Its proprietary inputs make independent replication difficult. Brand Finance uses an alternative “royalty relief” method developed in 1996 by founder David Haigh, formerly of Interbrand. It follows four stages:

1. Calculate a brand-strength index from investment, satisfaction, loyalty and related evidence.

1. Translate that index into an appropriate royalty rate for the company and sector.

1. Apply the royalty rate to forecast branded revenue.

Discount the resulting future royalty savings to a net present value treated as brand value.

An audit can instead measure brand health without forcing a monetary estimate. B2B International’s practical model uses three core inputs and an optional fourth:

1. Awareness and usage: use market research to assess awareness, interest, desire and action across competing brands.

1. Brand position: test what the brand stands for, which associations it owns and whether customers see it as distinct.

1. Brand delivery: ask users whether the experience fulfils the promise, including satisfaction across key dimensions and likelihood to recommend through measures such as Net Promoter Score®.

Internal alignment: compare employee understanding and behaviour with external customer perception. Scores from the health wheel can then be combined into an overall result, provided the weights and assumptions are visible.

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David Aaker’s 1996 California Management Review article proposed the “Brand Equity Ten,” grouping ten measures into five categories. He argued that relevance and weighting depend on context: a food-and-drink brand and an enterprise-technology brand should not be evaluated through identical assumptions.

Developments of the model

Brand-audit methods have proliferated because category economics differ radically. Toothpaste may depend heavily on awareness, emotion and consumer values; a microchip brand such as Intel may rely on technology, patents and commercial partnerships. A breakfast cereal and a corporate enterprise require different evidence. The audit must adapt without changing definitions merely to improve the score.

How to use it

RSM International shows how audit evidence can guide brand architecture. The global audit, tax and consulting network originated in 1963 and accumulated local names through organic growth and acquisition. Independent member firms sometimes combined RSM with a local partner name; the US business used McGladrey, one of the names behind the initials Robson Rhodes, Salustro Reydel and McGladrey. Baker Tilly joined the UK network in 2014. Local equity created emotional support for those names but weakened global consistency.

To compete more strongly among mid-tier accounting networks, RSM commissioned international market research in 2015 covering prompted and unprompted awareness, associations and user experience across competing brands. The evidence exposed the strengths and weaknesses of the portfolio and supported unification under RSM. Similar tension arose when Mars renamed the UK Marathon bar Snickers to align with the name used elsewhere. Customers often feel psychological ownership, but a global architecture can still justify changing a familiar local name.

Some things to think about

• If the audit must prioritise, retain three critical measures:

– unprompted awareness; – distinctive position and associations; – loyalty.

Compare each with direct competitors and track movement over time.

• Decide whether the brand is large, separable and economically significant enough for a financial valuation to be meaningful.

Top practical tip

At minimum, measure unprompted awareness, distinctive associations and loyalty against named competitors. Preserve the underlying results instead of hiding them inside one composite score.

Top pitfall

Do not confuse a proprietary valuation with an objective fact. Segment definitions, forecasts, attribution and discount rates contain judgement; use financial value alongside customer and delivery evidence.

Further reading

• Aaker, D.A. (nineteen ninety-one). Managing Brand Equity. Free Press.
• Keller, K.L. (twenty thirteen). Strategic Brand Management. Pearson.