Brand Strength explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Strength is not a description in this framework. It is the input that sets the discount rate.
The three components
According to one of the leading brand valuation firm, brand value is attributable to three components — financial performance, the role of the brand, and brand strength.
- Financial Factors — the future expected revenue/profits to be earned out of the brand name is the first factor that impacts the brand value.
- Role of Brand — determined from the fact that whether the purchase of the product is based more on an emotional decision or a rational one. For e.g.: electricity and petrol are some of the products wherein the role of brand is very low while luxury items like Gucci or Dior belongs to a very high role of brand category as 75% of its sale is impacted by the brand itself. So higher the role of a brand, higher is the premium that can be charged against the same.
- The Strength of brand vis-à-vis competition — there are 10 internal and external factors that are investigated to determine the strength of a brand against its competition. Higher the strength of brand means lower risk associated with the brand. Hence a high strength score reduces the discounting rate in brand valuation.
The three components are not three separate valuations. They multiply through one model.
Financial performance supplies the earnings. Role of brand decides what share of those earnings the brand is responsible for — this is the same discipline as splitting a franchise royalty into its Service part and Brand part, or netting off the return an equivalent unbranded product would earn. Brand strength then sets the rate at which the resulting stream is discounted.
That third step is where the framework does something unusual: it converts qualitative assessment directly into the discount rate. Higher the strength of brand means lower risk associated with the brand. Hence a high strength score reduces the discounting rate.
Apply it to Kingfisher and the scoring fails on both sides of the sheet. Internally, direction — with no CEO from 2006 to 2010 — and alignment, with unpaid staff on strike. Externally, coherence, once a premium name also sold no-frills seats, and trust, once salaries, TDS and PF went unpaid.
Apply it to the role-of-brand factor and a second problem appears. Air travel is closer to petrol than to Gucci — a rational purchase with a low role of brand. That caps the premium regardless of how strong the brand is.
Note the last observation the case makes, quoting Michael Eisner: "Brand is a living business asset that can either be enriched or killed everyday by thousands of small gestures by the business." Every unpaid salary was one of those gestures.
The four internal factors
| Factor | What it tests |
|---|---|
| Direction | Whether the management is clear about the future direction for the company |
| Alignment | Are all the stakeholders and internal decision makers aligned and pulling the entity in the same direction |
| Empathy | How good is business in listening and responding to customer's requirements and also their unspoken needs |
| Agility | How quickly an Organisation can respond to changing customer needs and also how proactive it is in leading the change in customer perception |
The six external factors
| Factor | What it tests |
|---|---|
| Distinctiveness | How distinct is the customer experience for the brand in comparison to the competitors — the example given is Apple |
| Coherence | How coherent/consistent is customer experience under different markets and channels |
| Participation | Is there a one-way communication or a two-way dialogue between the customers and the brand — gaining importance as customers are using brands to build up their own individual brands |
| Presence | Not just physical presence but how top of mind is the product in customer's everyday conversation, is there a positive buzz — the example given is electric vehicles |
| Trust | The most basic criteria: does the customer trust the brand to deliver its promise? |
| Affinity | Does a customer feel that the brand plays a positive and meaningful role in their life |
Using the framework honestly
- Score each of the ten factors with evidence, not impression.
- State how the score maps to the discount rate adjustment.
- Cap the premium by the role of brand in that category.
- Re-score periodically — a living asset changes between valuation dates.
Common mistakes assessing brand strength
- Scoring strength on recognition alone and ignoring trust and coherence.
- Applying a luxury role-of-brand premium to a commodity or utility purchase.
- Reducing the discount rate without documenting which factors justified it.
- Treating the score as fixed between valuation dates.