Big gs analysts look at such factors as the brands

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Unformatted text preview: way to measure brand value and advertising effectiveness. Big G’s analysts look at such factors as the brand’s historical performance, market research on previous advertising effectiveness, and growth versus the competition. Then the company determines how much money to allocate to brand-specific advertising. “We look at each specific brand to determine the income for each,” says Keith Woodward, vice president of finance. “There has to be an opportunity for growth, or else we won’t invest.” After the ad campaigns start, revenue and market data are tracked to measure performance. The consulting firm Interbrand offers its clients proprietary ROI techniques that use net present value (NPV) analysis to value brands on the basis of their future earning power. After determining what percentage of overall revenues the brand generates, Interbrand develops earnings projections for that business segment and subtracts a charge that represents the cost of tangible assets. 439 In Practice The remaining income is the economic value derived from intangibles (patents, customer lists, the brand). Interbrand uses qualitative techniques such as market research and interviews to separate the brand’s value from the other intangibles. Finally, Interbrand considers seven factors— among them market leadership, stability, and global and cross-cultural reach—to develop a riskadjusted discount rate to calculate the NPV of the brand’s projected earnings stream. Sources: Adapted from “Best Global Brands: The 100 Top Brands,” Business Week (August 6, 2001), p. 60; and Kris Frieswick, “ROI: New Brand Day,” CFO.com (November 28, 2001), downloaded from www.cfo.com. to do it for them. And investors can diversify more readily—they can make transactions more easily and at a lower cost because of the greater availability of information and trading mechanisms. Of course, if a firm acquires a new line of business and its cash flows tend to respond more to changing economic conditions (that is, greater nondiversifiable risk), greater returns would be expected. If, for the additional risk,...
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This document was uploaded on 01/19/2014.

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