What’s the value of my brand?

This past week I had a lunch meeting at the Rutherford Grill with Joe Orlando,  a Senior Valuation Expert with the Frank, Rimerman + Co. LLP Wine Business Service Group. Our conversation centered on the recent acquisition of the Inglenook brand trademark by Francis Ford Coppola. Coincidentally the original Inglenook Estate sits just across Hwy. 29 from the restaurant. I mentioned a comment that I had just read in the June 2nd
Decanter article on the changes at this iconic estate winery. In the story, Mr. Coppola is quoted as saying that the extended brand negotiations with The Wine Group “ended in his paying more for the trademark than (he) did for the entire estate.”  This launched an hour long discussion focused on the question that we’ve both frequently fielded from winery owners, GMs, CMOs and senior brand managers: ‘what’s the value of my brand?’

There are two unique concepts that merge in this question, ‘value‘ and ‘brand‘. The idea of products (brands) creating value has continued to change since it was first formalized by Adam Smith
(the production theory of value), followed by David Ricardo (the labor theory of value). Both of these theories were further defined and differentiated by Karl Marx as use value and exchange value. These 19th Century constructs, conceived during the Industrial Revolution, are based on the tangible and identifiable costs (human and capital) of product production forming the basis of price, demand and profit as primary determinants of product value.

The idea and practice of brand is thought to have originated in Old Norse times (Old Norse ‘brandr‘ – to burn) with the branding of livestock that established the concept of individual ownership. Wealth and value were based on the size and/or on the perceived desirability  of the herd. Seen through the lens of current valuation best practices, branded products are now viewed through the prism of globalization layered with the idea of intellectual property and sifted through the filter of consumer choice.

The definitions of both brand and value have and will continue to significantly evolve. The terms iconic (Hanzell, Screaming Eagle, Scarecrow) and meaningful (Paul Dolan, Benziger, Humanitas) are two words currently associated with ‘brand‘, which I would define as a ‘promise of perceived and/or actual deliverables transferred through commerce from a producer to a consumer.’ Today’s valuation professionals now focus on the terms tangible (fixed or physical assets, and products or services that provide a flow of revenues and/or profits) and intangible (goodwill, patents, trademarks, intellectual property). So, any answer to this popular question has to take into account the idea of the qualitative and quantitative attributes of a winery’s branded products. Based on his 25 years of valuation experience, Joe agreed to take on this complex issue and share his knowledge of determining wine brand value with the readers/viewers of the AoD blog.

Brand Value (click on video to play)

Joe Orlando’s Brand Value Bullet Points

Every brand marketer’s key function should be to focus on creating, building and driving brand value, as the foundation of any successful wine business venture. After more than 25 years of valuing business and individual intangible assets, I always come back to the following key “nuggets” that drive the value of a brand:

1.     Qualitative Differences– What makes your brand different from others?  If 5 wineries source grapes from the same vineyard, what drives the brand value for each winery?

  • Winemaking?
  • Label?  Art driven?
  • Story?  Family heritage?
  • Buzz (social networking sites)?  Good old-fashioned word of mouth?
  • Something else?

2.     Quantitative Differences– Similar to the qualitative side of the equation, how do these differences translate into real numbers on how your brand compares to others.

  • Price point?
  • Wine scores?
  • Market share?
  • Visitors?
  • Percentage of sales per distribution channel?

3.     Real Value– While a real dollar value is difficult to conclude on, the key drivers include:

  • Profitability – Does your brand make money on a stand-alone basis?
  • Premium Built into the Price per Bottle – Using the scenario above with 5 wineries sourcing the same grapes, what is your price point over the other brands?  Does that price point come at a cost?  If so, see above.
  • Premium over Generic – Fundamentally, as I talk through in my “Bayer” aspirin example, are people willing to pay a premium over what they consider a generic brand or, as a wine example, another brand of similar quality that lacks any brand awareness?
  • Cost of Marketing – See above regarding profitability?
  • Method of Distribution – Also related to profitability based on blended revenue per bottle (not price but revenue generated on average for each distribution channel).
  • Inventory – While a bit counter-intuitive, a sold-out brand is worth more than one that has inventory to sell.  Iconic wines have the ability to increase their direct to consumer sales and as a result, their average revenue per bottle and up-front cash flows.

4.     What We Know but Can’t Quantify – There is a somewhat dated but very pertinent book called I Know it When I See It.  It was originally written in 1985 and updated in 1991, and has the subtitle of “A Modern Fable about Quality.”  In a very simple way, the book deals with what we all know about something in terms of its impact on value but can’t put into words or numbers.

Copyright© 2011 Agents of Disruption Blog All rights reserved.

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About Agents Of Disruption

I'm the founder & CMO at Think Wine Marketing, a one person shop that assists family winecos in developing revenue enhancing multi-platform brand marketing strategies & programs. I've written/blogged about marketing & marketers from a social journalism POV .... I'm also actively seeking new challenges and opportunities.
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5 Responses to What’s the value of my brand?

  1. Vic Motto says:

    Cork, if you want to know the financial value of a wine brand in practice, ask an investment banker. The factors that Joe mentions are good background reasons, but the financial value of a brand is based simply on what can be done with it. In other words, economically speaking, it’s the present value of “excess earnings”, or earnings over and above average. We determine this by evaluating the market potential in economic terms for the brand going forward, then compare that with “normal”. Easy to explain; a little harder to do.

  2. JM says:

    The excess earnings method has been widely discontinued (see Paschal “Business Valuation Review” September 2001) by most investment banks. The IRS doesn’t accept it, nor do the courts. Also, buyers do not use this method, they use a discounted cash flow model, thus I do not see the utility of the EEM….?

    • A point of order re. the intent of this post. It is written from the POV of a wine marketer, and meant to inform wine brand marketers of those key consumer facing touch points involving both the idea of brand and the idea of value as it relates to the fundamental role of any CPG marketer… that is to create/build brand value through a specific set of actions/behaviors. Though it involved the collaboration of Joe Orlando, a valuation professional, the discussion is keyed towards marketers and not CFOs or iBankers. As is my practice, I’ve included a number of links relating to the concept and development of the idea of value and brand. This post was not intended to be based on the idea of transactional value, either from a technical POV or in practice. As an aside from a marketer and not from a financial services perspective, it my observation that brand value (separate from the value of a business entity) can be approached just not via a multiple of EBITDA, discounted cash flow or unrealized value (unexploited channel opportunities/growth) but from a variety of factors relating to a longer tail view of value… i.e., the Inglenook example re the cost of an intangible asset (trademark) where value was perhaps perceived through the lens of a (as Jess Jackson once said) 200 year view.

  3. Vic Motto says:

    Cork, You’re right that the comment about the excess earning method is technical and perhaps misdirected, but nerds aside, the principles behind it are in fact how brands are valued. Your topic was inspired by a transaction that had a financial calculation applied rather than a theoretical one. Intangible factors are the marketing key and they do explain the reason there are “excess earings” or above normal earnings.

    One might buy a brand because they love it, but it will likely be valued based on it’s financial earnings potential. Often, both will apply. Most decisions are made emotionally, then justified by logic.

    For the technocrati, the discounted cash flow method in fact encompasses the excess earnings method, but we’ll debate that esoterica on a different stage.

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