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55UDC 338
INTENDED USE OF BRAND VALUATION (BY THE EXAMPLE OF L'OREAL)
Buyanova A.N., student
Financial University under the Government of the Russian Federation, Moscow, Russia
Email: scarletbuyanova@gmail.com Scientific supervisor: Zvyagintseva E.P., Associate Professor, Financial University under the Government of the Russian Federation, Moscow, Russia
Email: EZvyagintceva@fa.ru
Abstract. This article discusses brand concepts and proves that first of all a brand is a promise of conformity of price and quality and, especially, symbolic properties of a product (service) to the expectations ofpotential consumers. A brand is a promise that allows a product to take its place, primarily in the minds of consumers, and only then in the market. The methods of calculating the cost of brand assessment are described as profitable, costly and comparative as well as mixed and expert. The advantages and disadvantages of the most widely-spread methods are analyzed. Using L'Oreal as an example, the relationship between brand value assessment and company valuation is examined. The content of the article gives an explanation of why brand assessment is necessary and whether it is really important in business or not. In the future, the article assumes the development of this topic and the development of recommendations for the effective evaluation of the brand and its implementation in business.
Keywords: brand, brand valuation methods, company value, brand value.
ПРЕДНАЗНАЧЕННОЕ ОЦЕНКИ СТОИМОСТИ БРЕНДА (НА ПРИМЕРЕ L'OREAL)
Буянова А.Н., студентка
Финансовый университет при Правительстве Российской Федерации, Москва, Россия
E-mail: scarletbuyanova@gmail.com Научный руководитель: Звягинцева Е.П., доцент, Финансовый университет при Правительстве Российской Федерации? Москва, Россия
E-mail: EZvyagintceva@fa.ru
Аннотация. В статье рассматриваются концепции оценки стоимости бренда и доказывается, что в первую очередь бренд - это обещание соответствия цены и качества и, в особенности, символических свойств продукта (услуги) ожиданиям потенциальных потребителей. Бренд - это обещание, которое позволяет продукту занять свое место, прежде всего в сознании потребителей, и только потом на рынке. Методы расчета стоимости оценки бренда описаны как доходный, затратный и сравнительный, а также смешанный и экспертный. Анализируются преимущества и недостатки наиболее распространенных методов. На примере L'Oreal рассматривается связь между оценкой стоимости бренда и оценкой компании. Содержание статьи дает объяснение, почему оценка бренда необходима и является ли она действительно важной в бизнесе. В дальнейшем статья предполагает развитие данной темы и разработку рекомендаций по эффективной оценке бренда и внедрение в бизнес.
Ключевые слова: бренд, методы оценки бренда, стоимость компании, стоимость бренда.
Introduction
Currently consumers are greatly affected by the companies' brands, that cause loyalty, commitment and respect for the products and services provided. It is necessary to treat with great attention to the brand and to find ways of its development. Companies' leaders need to understand the importance of a brand value assessment.
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"Soon government would be replaced by state firms. And we will cease to be citizens of a country, we will live in trademarks - Microsoft and McDonald's - and will be called kelvinklyaynians or ivsenlorantians", Frederic Beigbeder supposes in his book "99 francs". Methods
The analysis of the business literature and mass media sources used for developing the topic, shows
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that there are a lot of brands nowadays, and we should know how much they can cost to consumers and producers as well as what is the impact of an assessment that the exact brand has on the development of the company. Results
The concept of "brand" is multifaceted and ambiguous, but demanded nowadays and interesting. It is difficult to say which brand was the first, but it goes without saying that these days branding is quite a current and growing phenomenon.
According to the American Marketing Association, a brand is a name, design, term, symbol or other intangible property, which distinguishes a product or service [1]. According to V.A. Ilyina, the concept of the brand is based on several approaches [2]:
• "'authentication" approach, i.e. something that is unlike competitors have (e.g. a name, a logo, a slogan, etc.);
• legal approach, that is a license, giving a permission to use the name; the availability of this license prohibits other persons or companies to apply to the registered name;
• marketing approach, that includes the analysis of consumer needs;
• economic approach, that means the concept of "brand" as an intangible asset. The brand has a value, generating an added value.
For many consumers it is not a clear economic approach. We all have our preferences, favorite brands, but we never think that it can be estimated in a monitory term. The brand adds some value to the product, it determines the market value and the company's capitalization. But how much does the brand itself cost, and how to calculate this cost?
Firstly, it's necessary to consider under what circumstances to evaluate the brand. There are two areas of brand assessment: financial and non-financial [3].
Financial approach includes planning mergers and acquisitions, tax planning, accounting and reporting, licensing and franchising, providing loans, developing investor relations. Non-financial approach deals with brand management, brand
portfolio formation, strategic marketing planning, internal communications, marketing budget, preparing legal documents.
Evaluation of brand is made with the help of various techniques. The choice of valuation directly depends on the goals. In some situations, the above mentioned approach will work, in others it won't.
All methods of assessing the cost of the brand can be divided into three groups, as follows:
1. Cost approach. It involves a brand's monetary value can be calculated as a set of marketing expenses incurred by the brand owner in the entire history of its existence, taking into account discounting. This approach takes into account costs of research and development, artistic solutions and packaging, legal registration and protection, investments in advertising, promotion and public relations. The advantage of this approach is the possibility of direct use by the company, since it is quite simple to calculate all the costs. The disadvantage is in the possibility to use it only within the company, since the result of such an assessment is not responsible for the actual market value. In practice, this approach is used to determine the lower boundary of the brand value. If the brand value calculated by another method is less than the cost using the cost-effective method, this indicates that the funds were used inefficiently.
2. Market approach (comparative). It means that the brand value is estimated on the basis of information about the sale of similar, comparative brands on the market. In practice, this approach is one of the most common. It offers a definition of the difference between the price of goods, the consumer pays for the goods of the company, and the price of a similar product without a brand on the market and multiplying this difference by the sales volume of this product of the company. The complexity of the approach is in the fact that for an objective determination of value, an actively functioning market for buying and selling brands is needed. Such transactions are not made so often and information about them is not always available. However, the method is convenient as it makes it possible to calculate the brand value in a certain field or area, for example, when signing a
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franchising agreement or when obtaining an exclusive right to sell a particular product.
3. Income approach. It supposes that a valuation is made on the calculation of how much money an exact brand will be able to generate income in the future. Scientists consider this approach the most effective and objective, since the ability to make a profit directly affects the cost. In the framework of the approach, a number of specific techniques are distinguished, the main parameters of which are following: the amount of cash flow, duration and risks associated with its receiving. A significant drawback of brand assessment by the methods of this approach is that it does not take into account the costs of its formation and promotion, which reduce the brand value [3]. Similar to this approach we have Interbrand discounted cash flow method (ranking of the world's leading brands, brand value is calculated as the net present value of the income that the brand can bring in the future).
4. Expert approach. It is based on expert findings of seasonal specialists. Today it is the most expensive approach that can only be carried out with high quality experts.
5. A combined approach. It means that within the framework of an integrated approach, a number of methods of international valuation companies are distinguished:
• the methodology of the Brand Finance company (the approach is based on the analysis of three main blocks describing the brand: the financial condition of the enterprise, data on the market in which the company operates, data on the target audience that uses the brand);
• the methodology of the Young & Rubicam company (determines the brand value by the brand power level, which is formed by such factors of its development as differentiation, relevance, respect and understanding);
• the method of the company "Total Research" (based on the assessment of three general indicators of brand value: visibility, perception of quality and pleasure).
The article by Gabriela Sahlins considers the most complete typology of evaluation [4].
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In practice, turning to the mix of assessment methods, it does not specify one. The most effective method is considered to be an expert opinion: an appeal to upscale independent experts for evaluation. This method is the most expensive.
Also, there are some combined methods. They accept a brand evaluation, which involves a hiring a special company, for example, Interbrand, Brand Finance, Young Rubicam, Total Research. Meanwhile, these methods have a significant disadvantage: the inaccuracy of selecting indicators or subjectivism. Such methods may be subjective and imprecise in the selection of indicators, as well as the estimates themselves. However, these methods can meet various objectives of the analysis, the information needs of users. The example of the company L'Oreal provides the information concerning the brand influences on the activity of the company.
World leader in beauty segment, L'Oréal is presented in 130 countries on five continents. Group's mission is to provide the best in cosmetic innovations for women and men throughout the world. The company's brand occupies a stable position in the beauty industry. According to Interbrand, L'Oréal rating ranks in the top 100 most valuable brands [5] where it takes 48th place. Since 2002, the brand has had a positive trend. The company's brand value is increasing annually by almost 4%. The reason for the rapid growth of the brand can be justified by the following factors: relevance and authenticity of the offered products' rapid response to market changes.
In theory, companies must constantly evaluate their brand to:
- assess the impact of policy decisions (both negative and positive);
- consider how efficiently operational expenditures in the short-term and long-term results are used;
- form the right decisions while planning the budget;
- assess the effectiveness of marketing;
- focus on the unique methods of increasing the value of the brand in order not to reduce costs and increase sales;
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- charge a fair price at the franchise;
- optimize a distribution of a budget when drawing up the brand portfolio;
- determine the market value of the business [6]. Conclusion
For many companies today, brand value assessment is a fairly new and significant practice. There are many different methods for calculating the brand value, each of which has a number of advantages and disadvantages compared to others, it is quite difficult to choose a reference model. The lack of a unified measurement system and the existence of many assessment models are associated, first of all, with the unique nature of intangible assets and different interpretations of the brand essence, as well as with the problems of determining the required data and verification of results. Selling a brand in the absence of a formalized market will not provide the necessary information.
It's hardly possible to say that there is any particular brand value, because a brand is a unique asset and the determination of its value is also special in connection with the existence of many goals and methods. Therefore, no one can say for
sure that one brand value is correct, and the other is not.
Companies need to create a sustainable brand platform. A company hedges itself against many risks. Engaged in this procedure, the company not only meets the needs of the market, but competently builds a development strategy for the company as a whole.
References
1. Marketing power [electronic resource] - Access mode: http: //www. marketingpower.com/ (09.03.2019)
2. Ilyina V.A. Development of brand concept: Author. Dis. on soisk. uchen.step. cand. ehkon. Sciences: specialty <Economy and exercise. bunks. DHW-tion> / Ilina Victoria Alexandrovna [Moscow State University]. - Moscow: 2017. P 11-23.
3. Brand finance [electronic resource] - Access mode: http://brandfinance.com/ (03.11.2019)
4. Salinas G. A taxonomy of brand valuation practice: Methodologies and purposes // Brand Management. - 2017. - Vol. 17, № 1. - P. 42-49.
5. Interbrand [electronic resource] - Access mode: https://www.interbrand.com/best-brands/best-global-brands/2018/ranking/ (09.03.2019)
6. Shaipov S.A. Formation of the market value of the business on the basis of brand management model // Russian Entrepreneurship. - 2008. - Vol 9. - № 7. - P. 80-84.
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