Study and design of brand valuation methods for B2B companies

Abstract

Global competition is getting tougher and several traditional competitive advantages such as technology are becoming short-lived. Companies are always in search of some form of competitive advantage that can be sustained in the long run. Brand is one of the few assets that can provide such an advantage. The contribution of brand to shareholder value is increasing and will further increase in the coming future. A large number of studies have been done to determine the impact of brand for B2Bcompanies. However, unlike for B2C companies, relatively little work has been done to assess the value of the brands for a B2B company. This study aims at evaluating various cost based, income based and formulary brand valuation methods currently prevalent in the industry and then, finding a method suitable for brand valuation of a B2B company. In order to evaluate brand valuation methods for B2B companies, firstly the study identifies how B2B context differs from B2C context in terms of supplier and buyer relationships, regulations and policies, consumer purchase behavior and various other factors. Each of the methods is then examined in light of their feasibility and applicability toB2B context. This analysis determines Inter brand s brand differential earnings and Interbrand s brand value added methods as the most suited for valuation of brands in B2B context. The infrastructure/construction industry was chosen as the setting to test these methods. Slight modifications had to be made to both the methods before they could be applied in this sector. Delphi Method i.e. expert opinions were used to finalize the brand strength score for each of the 3 infrastructure companies under study rather than the consumer surveys which are used to determine the same in a B2C setting. Besides, for the modified brand differential earnings method, future earnings were chosen over the historical earnings. The study ascertains that brands, like in B2C companies, form a significant proportion of unexplained market value over the book value for B2B companies as well. It thus establishes the importance and need of finding a suitable brand valuation method in infrastructure sector. The study also helps to gage that the value of a B2B brand depends on a number of factors such as expertise, reliability and efficiency in operations apart from the investment made by a company in building brand through direct advertising. The valuation method used in the study could be used for the valuation of other B2Bbrands as well with slight modifications in the brand strength factors for the particular industry.