BRAND EQUITY 53Quaker Oats, illustrated this by stating: ‘If we were to split up the company, you can have
all the buildings, I will take the brands. I am sure I will be more successful than you.’ As a
result, huge amounts of money are paid for brand portfolios. Nestlé took over Rowntree
(KitKat, Aft er Eight, Rolo) for $4.5 billion, while analysts estimated the value at $3 billion.
Similarly, the physical assets of Jaguar represented only 16% of the price Ford paid for it.^46 Th is
brand value can also easily change. For example, in 2008 HP was valued at $23.509 billion,
Apple at $13.723 billion and Dell at $11.695 billion, whereas in 2011 these brands were
valued at $28.479 billion, $33.492 billion and $8.347 billion respectively, noting a spectacular
increase in the value of the Apple brand.^47The German company Adidas-Salomon bought Reebok in 2005 for €3.1 billion, 34% on top of Reebok’s shares.
It was clear why Adidas-Salomon was willing to pay such a surplus. Nike was number 1, Adidas number 2 and
Reebok number 3; consequently it would be easier to compete with Nike if Adidas and Reebok joined forces. With
Reebok, Adidas hoped to close the gap with Nike in the USA. Nike held a market share of 36%, Adidas 8.9%
and Reebok 12.2% of the US market. Furthermore, Reebok had already made great strides in emerging markets
such as China, Korea and Malaysia. Reebok was not only complementary to Adidas concerning geographic markets
and foreign distribution channels, but also complementary in terms of market segments. Reebok was, for example,
much stronger than Adidas in basketball, football, hockey and fashion/athletic segments. As a result, the acquisi-
tion looked like a perfect fit and certainly justified the money that has been paid for it.^48BUSINESS INSIGHT
Building a strategic brand portfolioHow can the fi nancial brand value be calculated? Diff erent calculation methods exist.
Interbrand, one of the leading brand valuation companies, uses four criteria:^49
z A fi nancial analysis to identify business earnings.
z A market analysis to determine what proportion of those earnings is attributable to the
brand (‘branding index’).
z A brand analysis , to fi nd out how strong the brand is in the perception of consumers
(‘brand strength score’).
z A legal analysis , to establish how well a brand is legally protected.
Using these four categories, experts determine fi nancial brand equity. In Table 2.2 an
example is given of the importance of the brand (branding index), relative to other assets, in
a number of industries.^50 Especially in consumer product companies, the brand accounts for
a large part of the business earnings. In IT and pharmaceutical companies, other intangibles,
such as patents and the quality of personnel, are relatively more important. In industrial
sectors, tangible assets play a major role. Obviously these percentages are only averages, and
the situation may be signifi cantly diff erent from one company to the next. Th e higher the
branding index or the importance of a brand for a company, the more branding strategy and
brand support in terms of marketing communications will be important for the company’s
economic success.
Another important aspect of the brand valuation system is the brand strength score. Th is
is based on seven criteria with diff erent weights. Th ey are summarised in Table 2.3. Th e most
important criteria are leadership and internationality (each accounting for 25% of the score).
Obviously, a leading brand is generally a more stable and valuable property. Additionally,M02_PELS3221_05_SE_C02.indd 53M02_PELS3221_05_SE_C02.indd 53 6/5/13 2:59 PM6/5/13 2:59 PM