Excerpt of further issues topics: Brand Equity and Brand Strategy, Brand Equity and Brand Diffusion, Brand Equity and Company Success, Brand Equity and Sales and Acquisition of Brands or Companies, Brand Equity and Marketing Investment

Sale and Lease Back

Nowadays in many cases brands are „the most valuable asset of a company“. What Kapferer stated in 1992 in his book „Strategic Brand Management“ has been substantiated by a series of first-hand studies. For instance, the study “The practice of brand assessment and brand management in German companies”¹, compiled by the auditing and consulting firm PricewaterhouseCoopers in cooperation with partners in 2007 shows, that brands are becoming increasingly more important also for German companies. According to this study, respondents assessed the percentage of the brand equity on the total company value at 67 percent in 2005. While in 1999 it was assessed at 53%. The significance of brands becomes even more visible, if you look at the assessment of the influence of a brand on corporate success. The study shows, that the assessment of the influence of the brand on corporate success in the years from 1999 till 2005 increased from 27% to 46%.

The kind of significance brands can unfold on the development of a company becomes evident regularly during company takeovers. A purchase price that stands in no relation to the capital resources on the balance sheet can often be attributed to the brands acquired during takeover. How high the price for brands can go becomes visible if the purchase price is relatively high in comparison to traditional operational figures.

Kapferer dates the year 1985 as the year where a change in the appreciation of brands took place. Before that date it was customary that at fusions and acquisitions the yearly turnover was paid out seven to eight times increased. After 1985 it has been acknowledged that the growth of this multiplier has increased manifold. For instance, when Nestlé acquired Rowntree Mackintosh this took place at three times the stock exchange value and twenty-six times the return value. Or take the case of the Belgian beer conglomerate Interbrew, which paid 1.8 billion Euro in the summer of 2001 for Beck’s Brewery out of Bremen, even though the capital assets of the German brewery were valued at approximately 500 million Euro less.

In the past years there have undoubtedly been a series of organizational systems in brand leadership that take into account the increasing significance of a brand for the company success and the corporate value, also in view of the monetary value. However, last but not least they are often not very sustainable because in times of increased competition, benchmarking and the tendency to use the competition as role models, those in charge of companies and brands are “forced” to think in terms of quarterly earnings. Long-term brand leadership is getting more and more under pressure. The financial pressure, shifting of distribution channels and a missing customer oriented brand development based on actual data deprive brand leadership of additional funds and influence. The above mentioned survey of PricewaterhouseCoopers shows, that the commitment to the brand is strong at the management level of businesses, at least according to own proclamations, in practice one can determine distinct weak points in the organizational principle of brand leadership. For instance, the survey of the ZMM (Center for Brand Management and Marketing) in co-operation with the GfK in regard to relevancy to practice of market research topics shows that a lot less significance is attached to the organizational framework of brand leadership (50%) than is the case with the successful implementation of brand strategies (90.9%) or the appropriate investment into brands (70.3%).

With the divestment of brands into legally independent companies and their further utilization via the sale and lease back method a totally new type of organizational brand management framework has surfaced in recent history. Undoubtedly, the sale and rent-back leasing are a challenging task, predominantly due to the evaluation of brands.

Should you apply the asset value and accept that future growth potential and cash flow are not taken into account? Or should you choose the liquidation value and forgo incorporation of future brand developments? Should you concentrate on profitability and risk the possible dangers of manipulation? Should you agree on a group average method, knowing that this is in general not an objective value? Or should you choose a combination of a financial and behavioral theory that brings about an intensive co-operation between the people from research and development and those responsible for finances, marketing and distribution?

With the SchmidPreissler Brand Equity+Performance©Program we have developed a program that can calculate the monetary brand equity in the sense of a ‘working capital’, that aims at achieving an interest yield. If you should have questions in regard to this program, we are at your disposal.

¹Menninger, Jutta: Markenführung und Markenwert, 2005