Important factors for brand valuation

Fatores importantes para valorização da marca

Abstract

The present article examines important factors in brand valuation, with a focus on agricultural products in Iran. This article emphasizes the importance of differentiation and branding as tools for gaining a competitive advantage and discusses the role of brand names in guaranteeing quality and encouraging customers to buy products. Brand value is known as one of the key factors in business success, and various models have been introduced to measure this value from the consumer’s point of view. The descriptive-survey and comparative research methods were done based on the approaches of operating profit, market, capital expenditures, branding expenditures, and KPMG frameworks, using customer-oriented and organization-oriented approaches as well as behavioral science. The goal of this approach was to understand the financial value and strength of the brand over time and in comparison to competitors in order to guide branding strategies. The necessity of research, the mutual influence of the brand, and the main drivers of the company’s value have been investigated, and the advantages of having a strong brand, such as less price sensitivity, increased customer loyalty, and pricing power, have been discussed. Also, the positive relationship between brand value, profitability, and stock performance of companies has been shown through various studies. Emphasizing that brands have become an integral part of everyday life and the economy, the article describes the key methods of valuation. At the end, we came to the comparison of two companies with the said methods.

Keywords:
brand; brand valuation; valuation methods

Resumo

O presente artigo examina fatores importantes na avaliação de marcas, com foco em produtos agrícolas no Irã. Este artigo enfatiza a importância da diferenciação e da marca como ferramentas para obter vantagem competitiva, e discute o papel das marcas na garantia da qualidade e no incentivo à compra de produtos pelos clientes. O valor da marca é conhecido como um dos fatores-chave para o sucesso empresarial e vários modelos foram introduzidos para medir esse valor do ponto de vista do consumidor. A pesquisa descritiva e os métodos de pesquisa comparativa foram realizados com base nas abordagens de lucro operacional, mercado, despesas de capital, despesas de marca e estruturas da KPMG, usando abordagens orientadas para o cliente e para a organização, bem como ciência comportamental. O objetivo desta abordagem é compreender o valor financeiro e a força da marca ao longo do tempo e em comparação com os concorrentes, a fim de orientar as estratégias de branding. Foram investigadas a necessidade de pesquisa, a influência mútua da marca e os principais impulsionadores do valor da empresa, e discutidas as vantagens de ter uma marca forte, como menor sensibilidade ao preço, maior fidelidade do cliente e poder de precificação. Além disso, a relação positiva entre valor da marca, rentabilidade e desempenho das ações das empresas foi demonstrada através de vários estudos. Enfatizando que as marcas se tornaram parte integrante da vida cotidiana e da economia, o artigo descreve os principais métodos de avaliação. Ao final, por meio do levantamento e da análise dos aspectos propostos, chegamos à comparação de duas empresas com os referidos métodos, demonstrando sua aplicabilidade e robustez.

Palavras-chave:
marca; valorização da marca; métodos de avaliação

1. Introduction

Many companies seek to attract the attention and opinions of their customers. One of the ways to achieve this goal is through differentiation. The ease of fraud and the difficulty of achieving a sustainable competitive advantage have made differentiation one of the key priorities of today’s companies. In general, companies can differentiate their products from competitors by focusing on physical characteristics such as taste, design, and fit and non-physical characteristics such as price, brand name, and country of origin. Branding is one of the most powerful tools for differentiation. Commercial naming enables the manufacturer to obtain the benefits provided by products with unique and excellent quality and also provides an opportunity to transfer these identifiable relationships to other products and services. A brand name creates a competitive advantage because it reflects the level of quality and commitment to the buyer, which is similar to the special features that encourage consumers to buy branded products and services. Brands are at the heart of marketing and business strategy, and brand value, or strong brands, is one of the key success factors of a business (Aaker, 2006). There are few consumer-based tools for measuring brand equity. Considering that the special value of the brand is derived from the perceptions of customers, it is very important for managers to be able to measure and evaluate this special value at the customer level. Here are two prominent areas: One is how a brand becomes valuable in the customer’s mind, and the other is how to create such value in the mind. Therefore, the sources of special value of the brand should be identified, and the organization should coordinate all its activities, including marketing, influencing the organizational culture, providing human resources, etc., so that these assets are formed in the minds of customers (Kicova and Kramarova, 2018).

1.1. Problem statement and necessity of research

In this article, brand is one of the most important elements of marketing and the success of a company, and it is presented for its introduction. Brand is the heart of a company’s life, and it is attractive both to external users, such as customers, consumers, and financial analysts, and to internal users, such as managers and employees of the marketing, accounting, and agriculture departments (Yasin et al., 2012).

The brand and the main drivers of the company’s value have mutual influence (Kicova and Kramarova, 2018). Less sensitivity to competitive prices (Khani and Ebrahimi, 2014), increasing the organization’s maneuvering power in different economic conditions, customer loyalty, and the ability to price or lease brand rights are among the advantages of the high value and brand power of companies (Khani and Ebrahimi, 2014). Several studies show that brand equity brings more profit to products (Kicova and Kramarova, 2018). Brand equity increases the financial return of the company’s stock and reduces its price volatility (Yasin et al., 2012). As a result, awareness of the financial value of the brand provides a better understanding of the strength of its various dimensions.

Today’s brands are not limited to the marketing processes or profitability of companies but have become a part of all of our lives. The economy of today’s world and the increasing awareness of customers have turned brands into vital elements in the business world. The term brand itself is related to several factors, such as names, phrases, signs, and logos that represent goods, services, and companies.

The increasing importance of the brand on the economic value of companies has changed their financial performance. In such a situation, many countries need to include the value of intangible assets in the company’s balance sheet, and the brand is one of the most important of these intangible assets (Kicova and Kramarova, 2018).

In fact, brands are among the productive assets that increasingly expand the economic and strategic value of their owners. The efforts of marketing managers to create and maintain a brand without the necessary planning lead to many problems for companies (Kicova and Kramarova, 2018).

Brand valuation approaches and methods: All the models created for brand valuation use one of the following three valuation approaches (Yasin et al., 2012).

Cost: According to this approach, a brand is valued based on the past costs spent to create it or the cost of re-creating a brand similar to it.

Market: It is sometimes possible to determine the value of a brand by reference to market values that have evidence of similar brands being traded.

Income: This approach is based on the assumption that the future cash flow of the brand represents its value to its owners or potential investors. Therefore, to reach the brand value, the estimated future cash flow related to the brand is discounted to its current value.

Brand alone is considered a complex element. In other words, brand cannot be measured easily with simple tools like other business elements such as profitability. Before evaluating each brand, the element to be evaluated and analyzed must first be determined. In fact, there is a need to know which of the brands or branded businesses we are measuring. Then the purpose of the evaluation should be specified. By answering the mentioned questions (which brand and for what purpose), the right tool for brand evaluation can be found.

The brand evaluation process is very important in business structures. In the first step, the brand and the company that owns it can make improvements in their processes by evaluating. In addition, by evaluating the brand, a more accurate calculation of the market value of the activity can be obtained. In all cases, the value of a brand becomes very important in processes such as acquisitions and mergers.

Therefore, at present, one of the basic problems of the country in the evaluation and handing over of companies in our agricultural sector is to have a formula or model to evaluate the company’s branding, which is solved by this problem (Homburg et al., 2010).

1.2. Theoretical foundations of research

Agricultural products play an important role in the economic development process of the country. Since most farmers can help reduce poverty in the country by increasing the value of the products, there is a need for branding products and brand valuation. In order to brand agricultural products, it is necessary to be able to overcome some problems to reach the markets (Clifton and Maughan, 2000).

Unfortunately, in Iran, they have not yet been able to specify a model for brand valuation specifically and be able to make agricultural products profitable. Brand is an important issue that cannot be expressed simply. In Iran, companies do not pay special attention to the brand. There are different models and different methods for brand valuations, each of which has been used for different businesses and products, but a specific and decisive model for brand valuation, which is an important factor in economic profitability in the market, has not yet been determined. Brand is one of the issues that needs special attention because valuing the brand can help the financial markets from an economic point of view (Salinas and Ambler, 2019).

The brand economy and its valuation are a kind of investment for more profit and more successful financial markets. In consumer marketing, brands have often been the starting point of differentiation between competitive offerings. So that they can be vital to the success of the organization. Therefore, it is very important to manage brands strategically. The brand is the basic asset of the company. Brand equity shows the price difference that a strong brand attracts in its sales compared to an average brand. In addition, the special value of the brand indirectly increases the value of the company by supporting the value of customers (Worm and Srivastava, 2014).

Brand equity and customer value create value for the company by increasing the effectiveness and efficiency of marketing programs, brand loyalty, price and profit margin, brand development, commercial leverage, and competitive advantage. Therefore, the importance and necessity of research can be considered as follows:

1. Attracting the attention of target customers through differentiation

2. Maintaining and improving customer share and market share through brand management

3. Influencing the behavioral components of customers by creating attractiveness in the brand

4. Reducing advertising costs and promotional programs for selling products and services

5. Increasing the profit margin from the location of costs and increasing sales and thus improving profitability) (Sherrington, 2003).

2. Material and Methods

This is descriptive-survey research of a comparative type. Surveying the statistical community was based on three simultaneous approaches based on the comparison of kpmg frameworks using the “outside-in” (customer-oriented) approach and the “inside-out” (organization-oriented) approach, including operating profit, market, capital expenditures, and branding expenditures that help to place the brand’s purpose at the core of your company’s identity.

To guide any brand strategy, you must fully understand the financial value and strength of your brand, how it has changed over time, and how it is compared to your competitors. Using a behavioral science approach, its performance was assessed both historically and against competitors to identify the position of the brand in the market. In this research, the mentioned factors were examined (Kirk et al., 2019).

All the data and information about the companies have been extracted from the website of the Iran Stock Exchange Organization.

2.1. Assessment approaches and methods

In this chapter, the evaluation of the relevant brand has been estimated using the approaches of operating profit, market, capital expenditure, branding expenditure, and KPMG.

1. Operating profit approach

In this approach, the value of the brand is based on the present value of the expected future benefits resulting from the value of the brand during its remaining economic useful life.

Operating profit = operating income minus cost of goods sold minus operating expenses minus depreciation

2.1.1. Determining the type of discount rate

First, you must determine what type of discount rate you want to use. Usually, in this case, the weighted discount rate (weighed average cost of capital, or WACC) is used. WACC includes the company’s marginal capital cost (including credit cost and stock cost), which should be determined according to the company’s financial structure.

2.1.2. Determining the discount rate

After determining the type of discount rate, you must calculate its amount. For this purpose, you need to calculate the company’s marginal cost of capital and then combine it with different financial weights of capital sources (credit and equity). The WACC formula is as follows (Formula 1) (Rapp et al., 2014):

$$WACC=\left(E/V\right)*Re+\left(D/V\right)*Rd*\left(1-Tc\right)$$ (1)

In wich:

E: The value of the company’s shares

V: total value of the company (E + D)

Re: Expected rate of return for stocks

D: Company debt

Rd: debt interest rate

Tc: Company tax rate

2.1.3. Calculating brand value

Now that the discount rate (WACC) exists, you can use it to calculate brand value based on operating profit. This brand value is usually calculated as follows (Formula 2) (Rapp et al., 2014):

$$Brandvalue=futureoperatingprofit/WWACC$$ (2)

The operating profit approach to brand valuation means focusing on achieving direct financial benefit from the brand in the brand valuation process. This approach tries to consider the financial effects and financial performance of the brand as one of the main factors in determining the value of the brand. In fact, operating profit represents the ability of the brand to generate more income and profit for the company (Rapp et al., 2014).

To carry out the valuation based on the operating profit approach, the following steps can be followed:

1. Goal definition: First, you need to determine what your brand valuation goal is. Is your goal to increase operating profit or create shareholder value?

2. Measurement of operating profit: Operating profit means profit from sales and the daily operations of the company. To evaluate the impact of brand on operating profit, you should compare the amount of profit before the implementation of strategies and brand changes with the amount of profit after them (Keller, 2018).

3. Analyzing the relationship between brand and operating profit: To determine the role of brand in increasing operating profit, you need to analyze how different brand elements, including brand recognition, brand trust, and customer loyalty, affect sales and operating costs.

4. Evaluation of scenarios: In order to estimate brand value based on operating profit, you can consider different scenarios. For example, the scenario of increasing sales as a result of strengthening the brand or reducing operating costs by increasing customer loyalty.

5. Assessing risks: You should also consider the risks associated with brand strategies and increasing operating profit. These risks can include changes in the market, competitors, and customers’ attitudes towards the brand.

6. Determining brand value: By combining the above information and using financial valuation methods such as discounted cash flow (DCF), you can determine brand value based on operating profit (Ruenrom and Pattaratanakun, 2017).

Finally, combining this approach with other brand valuation approaches can help you make better decisions about your brand strategies and future investments (Homburg et al., 2010).

2.2. Market approach

The market approach to brand valuation means determining the value of a brand based on the relationship between the brand and the market. This approach pays attention to market information, the needs and preferences of customers, and determines the value of the brand as a result of the brand’s influence on the market and sales. In this approach, factors such as brand recognition, customer loyalty, brand pricing power, and brand market share are considered. The main steps of this approach are as follows:

1. Determining the key factors of the market: First, you must determine the factors that determine the value of the brand in the relevant market. These factors may include brand recognition by customers, customer loyalty to the brand, brand market share, brand impact on pricing and profitability, and the like.

2. Market data collection: To assess key market factors, you need to collect brand- and market-related data. This data can include customer surveys, market analysis, competitor evaluations, and financial data.

3. Market analysis: Using the collected data, conduct market analysis to determine the relationship between the brand and market factors. For example, to value a brand, you may need to estimate the effect of customer brand recognition on sales or the effect of customer loyalty on pricing.

4. Modeling brand value: After conducting market analysis, you can create a model that shows the relationship between market factors and brand value. This model is usually mathematical or statistical and can help you estimate brand value.

5. Evaluation of risks and uncertainty: In the market approach, the risks and uncertainties related to the market should also be evaluated. These factors may have a direct impact on brand value.

6. Determining brand value: By combining the mentioned information and using appropriate valuation models, you can determine the value of your brand based on market factors. Formula 3 (Gamba and Triantis, 2008):

   $$Marketvalue=pricepershare*numberofshares$$(3)

Finally, the market approach to brand valuation helps you consider the relationship between the brand and the market and make better decisions about brand development and management. This approach is particularly useful for companies where customer markets and brand influence are very important (Gamba and Triantis, 2008).

The main steps of this approach are as follows:

1. Identification and analysis of the target market: In this step, the target market for the brand is identified, and the factors of the target market are analyzed.

2. Analysis of competitors and competing products: In this stage, the competitors and competing products of the brand are examined in order to determine the best competitive strategy for the brand.

3. Analysis of customers and their needs and preferences: In this stage, the brand’s target customers are identified, and their needs and preferences are examined.

4. Analyzing the competitive advantages of the brand: In this step, the competitive advantages of the brand compared to its competitors are examined in order to determine a suitable strategy for the brand.

5. Determining the brand’s position in the market: In this step, the brand’s position in the market is examined, and an appropriate strategy is determined to strengthen the brand’s position.

6. Determining the brand marketing strategy: In this step, the brand marketing strategy is determined so that the best strategies can be chosen for advertising and selling the brand.

7. Evaluation and measurement of brand performance: In this stage, brand performance is evaluated and measured so that the necessary improvements can be made.

8. Determining the value of the brand: In this step, the value of the brand is determined based on all the previous steps, and the brand is considered a valuable asset.

By using the market approach in brand valuation, brands can choose the best strategies to strengthen their brand and increase their sales. This approach generally pays attention to the influence of the brand on the market and customers and is used as an important tool in marketing and brand management (Azizi et al., 2010).

2.3. Capital expenditure approach

The capital expenditure approach to brand valuation means determining the value of a brand based on the capital expenditure required to create and maintain that brand. This approach tries to consider the impact of costs and investments related to the brand on the value of that brand as one of the key factors in brand valuation (Majerova and Kliestik, 2015).

Capital expenditures may include brand advertising and promotion costs, brand product research and development, brand management, and other brand-related costs (Calboli, 2005). Formulas 4, 5, and 6 (Calboli, 2005):

$$Brandvalue=netvalueoffuturecashflow-tangibleassets$$ (4)

$$brandvalue=\left(brandsharexbrandcoefficient\right)-tangibleassets$$ (5)

$$brandvalue=\left(brandincomexbrandcoefficient\right)-tangibleassets$$ (6)

To carry out brand valuation based on the capital expenditure approach, the following steps can be followed:

1. Identification of brand-related expenses: First, you must identify all brand-related expenses and costs. This may include brand advertising and promotion costs, brand product research and development, brand product production and distribution, brand management, and other brand-related costs.

2. Calculation of future capital expenditures: Based on the company’s plans and strategies for brand development and management in the future, you should calculate future capital expenditures. This includes projected costs for advertising, research and development, and brand management.

3. Linking Expenditures to Brand Value: Next, you need to determine how these capital expenditures contribute to building and maintaining brand value. For example, advertising expenses may increase brand awareness and increase sales.

4. Analysis of the impact of investments on brand value: Considering future capital expenditures and their relationship with brand value, you should analyze how different investments affect the brand. This analysis may include comparing the impact of investments in different areas, such as advertising and research and development.

5. Calculation of brand value: By combining the mentioned information and using appropriate valuation models, you can determine the value of the brand based on capital expenditures. This value indicates the impact of capital expenditures on brand value.

The capital expenditure approach in brand valuation helps you evaluate the impact of different investments in the brand and make better decisions about brand management and development. This approach is particularly useful when managers need to consider brand investments within financial constraints and management costs (Azizi et al., 2010).

2.4. Branding cost approach (costs)

The branding costs approach to brand valuation means determining the value of a brand based on the costs and expenses that are spent to create and maintain that brand over time. This approach means a detailed analysis of costs and investments related to the brand and the value of that brand in financial terms. In fact, this approach attempts to quantitatively measure the impact of branding expenditures on brand value (Belo et al., 2014).

In this approach, branding costs refer to the total costs and investments that are spent to create and maintain the brand. These costs can include direct branding costs and indirect branding costs. Direct branding costs include costs such as advertising, marketing, logo design, and brand packaging. Indirect branding costs include costs such as research and development, employee training, and customer experience creation (Simon and Solivan, 1993).

Brand value refers to the financial value of the brand based on branding expenses. Brand investment return also shows the ratio between brand value and branding expenses. This ratio shows how much investment in branding returns to financial returns (Salinas and Ambler, 2019).

The branding cost approach to brand valuation has advantages and disadvantages. Among the advantages, we can mention the accurate measurement of the impact of branding expenses on brand value, providing quantitative financial information, and direct communication with investors and shareholders. On the other hand, this approach does not consider non-financial factors, and it is complicated in determining branding expenses and requires accurate and reliable data.

For practical examples, it is possible to calculate branding expenses and brand value for a specific company and analyze the return on brand investment over time.

As a result, the approach of branding costs is very important in brand valuation and can help strategic decisions related to the brand. Using this approach, it is possible to accurately measure the impact of branding expenses on brand value and make better decisions about investing in branding (Tauber, 1988).

The importance of branding costs in brand valuation

Key points in using this approach: To perform brand valuation based on the approach of branding expenses, the following steps can be followed:

1. Identification of branding costs: First, you need to identify all the costs related to branding. This may include advertising costs, product research and development, online advertising, customer loyalty programs, and other brand-related costs.

2. Division of expenses based on time: expenses and investments for the brand are usually made for several years. You need to divide the costs based on different years so that you can calculate their time effect on brand value.

3. Estimating the impact of branding: To evaluate the impact of branding on brand value, you must determine how costs and investments over time contribute to the creation and increase of brand value. This may include the effects of brand recognition, increased customer loyalty, increased sales, and product pricing.

4. Calculating brand value: By combining the mentioned information and using appropriate valuation models, you can determine the brand value based on branding expenses. This value indicates the return on branding investment for the company.

5. Assessing risks: In this approach, you should also assess the risks and uncertainties associated with branding expenses. Some branding expenses may not have definite results, and there are risks regarding competitors and market changes (Arabi, 2009).

By using the branding expenditure approach, you can quantitatively evaluate the impact of branding expenditure and make better decisions about brand investment and management. This approach is particularly useful when managers need to evaluate brand investments against financial constraints and their actual impact on brand value (Salinas and Ambler, 2019).

2.5. KPMG approach

One of the new methodologies in the field of the valuation of intangible assets is research conducted by KPMG’s Global Valuation Institute in recent years. In order to improve the estimations of this method, the institute has conducted continuous research on reputable brands in various industries, the results of which have led to the formation of the KPMG valuation model. In this regard, the KPMG model for brand valuation is described below. Franchise payments can be interpreted as a profit-sharing mechanism. In other words, by earning income from the sale of franchise rights, the assignor of the right and the main creator of the technology participate in the process of making profits resulting from the use and commercialization of the franchise rights registered by the buyer (holder) of the franchise rights. The franchise rate is defined in most of the related agreements based on a percentage of the sales amount or payment for each product unit. However, the profitability of the product produced or the service provided, which creates the exclusive technology and trademark, plays a fundamental role in determining the franchise rights. According to the results of the survey published by Deegan and Horton (Aaker and Jacobson, 2001), when the participants in the survey were asked what financial criteria they use in determining the amount of royalties, more than half of them answered discounted cash flows or profit sharing analysis, while nearly a quarter used the 25% rule as a starting point. Along with the growth and special importance of finding intellectual property in today’s advanced societies, this is a vital issue for experts to be able to determine the appropriate value of intellectual property. In the article, Jack Leo and Jonathan E. Kimmerer carefully examined the 25% rule in the franchise market to determine the franchise rate and the relationship between the franchise rate and profitability. Goldscheider defined the 25% rule as follows: “The amount that the copyright holder pays as a franchise is equal to 25% of the expected profit from the product created by the intellectual property.” The authors found that reported franchise rates in industries do not converge to the rates established by the 25% rule, although they tend to be between 25% of gross margins and 25% of operating margins. Finally, it was found that there is a kind of linear relationship between the amount of reported privilege and various profitability indicators, and the 25% rule is a special case of this relationship.

There is always the question of whether the franchise market is efficient enough to show the franchise rate, cost, and profitability of the industries. The analyses show that the franchise rates reported by industries do not converge with the rate established by the 25% rule, while they tend to be between 25% of the gross profit ratio and 25% of the operating profit ratio. Regression analysis shows the existence of a linear relationship between the reported interest rates and various profitability indicators. This indicates that the franchise market is efficient, and the cost structure and profitability of the company are factors that should be considered in the franchise rate negotiations. Therefore, the 25% rule is a simple special case of such a general linear relationship. A further review of the data of Keller et al. (2008) shows that the application of the linear fit apparently declares the average franchise rate equal to 23% of the average operating profit ratio, which somehow confirms the 25% rule. Finally, three important results have been achieved:

First: The franchise rate reported in the company does not converge with the rates created by the 25% rule at the company level, although in total they are between 25% of the gross profit ratio and 25% of the operating profit ratio. Also, it seems that EBITDA is a more reasonable basis for applying the 25% rule than the ratio of gross profit and EBIT.

EBITDA is actually net income, which is calculated with interest, tax, and depreciation. These criteria are used to analyze and compare the profitability of different companies because the effects of financing and investment expenses are completely eliminated.

EBIT is a measure of the company’s profit that excludes interest and tax expenses. Operating income is the result of subtracting operating income and operating expenses.

Second, there is a linear relationship between the reported franchise rates and three profitability indicators. As shown, the reported franchise rates are 15, 41, and 53 percent of gross profit, EBITDA, and EBIT, respectively.

Such a linear relationship shows that the franchise market is efficient, and the cost structure and profitability of the company are considered factors in the franchise exchange rate. Therefore, as an estimate, the 25% rule is a special and simple case of such a general linear relationship.

Third: In order to further explain and compare, the authors performed further analysis on the data published by Keller et al. (2008). In using the linear proportionality between the amount of reported royalties and the operating profit ratio, the coefficient of the operating profit ratio is around 23%, which partially confirms the 25% rule.

3. Results and Discussion

A company’s brand value has a great impact on its performance and success. There are various methods for evaluating brand value, which include examining operating profit, capital market volatility, research and development costs, branding costs, and research methods. These valuations need to consider the confidence factor for each of the approaches in order to correctly calculate the final value of the brand and help the company identify the appropriate strategies to strengthen the brand and increase its value.

A detailed examination of the factors that cause the difference in brand value between two companies requires the analysis of various economic factors, marketing, and the performance of the companies.

Here are several important general factors that may explain differences in brand value. It is better to use all the above methods to get the value of a company for accurate estimation and comparison of companies.

All the models created for brand valuation use one of the following three valuation approaches (Salinas and Ambler, 2019):

• 1- Cost

• 2- Market

• 3- Income

By using the combined method and all methods, the main factors for brand valuation can be checked, and by using the five calculation methods mentioned in the research, an accurate and comparable understanding can be achieved between companies.

3.1. Comparison of two case examples

3.1.1. History of the Q-Kour company

Kour Food Industry is one of the subsidiary companies of Golrang Industrial Group, which started working in 2010 under the name Golbarg Baharan Cultivation and Industry with the aim of developing business and entering the field of the food industry. Since the establishment of the company, the production of various products such as edible oils, olive seeds, olive oil, tomato paste, tuna, preserves, jams, pickles, etc. with the Oila, Famila, and Kimbal brands has been included in the work plan. At the beginning of the work, the production of products was started as outsourcing, using the empty capacity of the country’s factories. The first factory was bought and set up in Heydarieh industrial town in Qazvin province in 2012, and a year later, the construction project of the Kour food industry factory in Eshtehard industrial town was started. At present, the company’s production is carried out in two factories, Eshtehard and Takestan. Also, with the aim of completing the supply chain and other qualitative and economic goals, oil storage tanks of Kour Food Industry Company with a capacity of 36,000 tons were opened in Imam Khomeini Port (RA) in 2016.

Since the beginning of 2016, the field of oil products has been separated from Golbarg Baharan Cultivation and Industry Company, and its administration has been concentrated in Kour Food Industry Company. At the beginning of 2017, Kour Food Industry continued to be present and produce in the field of the food industry with about 500 employees.

Among the special achievements of this presence, in line with the company’s innovative and health-oriented approach, is the production of special oils such as palm-free frying oil, which was offered to Iranian consumers for the first time.

3.1.2. History of Z-Kousa Company

Kousa Agricultural Investment Company was established in 1963 as a private limited company and is one of the parent investment companies affiliated with Kousa Economic Organization. The subject of the main activity of the company is investment and participation in production plans for agriculture and animal husbandry, poultry farming, breeding and fishing, livestock and poultry feed, and the production and processing of raw materials, intermediate products, and final products related to these activities, which were carried out by 24 subsidiary companies.

This company is one of the largest Iranian companies that has taken great steps in implementing the supply chain. Currently, it supplies about 80% of day-old broiler chickens, more than 50% of day-old egg-laying chickens, the production of hundreds of thousands of tons of livestock, poultry, and aquatic feed, and more than 50% of day-old commercial laying chickens, as well as the tools, equipment, and machinery needed by the livestock, poultry, and aquatic industries in the country. In addition, tens of millions of day-old broiler chickens, tens of thousands of tons of chicken meat, raw milk and dairy products, and considerable amounts of grain and fodder are produced in the subsidiaries. Exporting significant amounts of the above products is another part of the activities of these companies. In addition to what was mentioned, the company pays great attention to aquaculture, medicinal products, agriculture, horticulture, extraterrestrial cultivation, and greenhouse products. Publication of books and scientific publications related to the poultry industry and training of managers and experts in management with the aim of increasing the level of promotion of the holding are done through the development and Research Company. Along with the production companies under the group, Kousa’s specialized laboratory has also been built with the aim of meeting the needs of the country’s animal husbandry industry.

3.2. Brand valuation process at different times

The operating profit of Q-Kour compared to Z-Kousa was displayed in the table, and finally, the numbers obtained for the brand value from this method were written in order.

Factors that had a direct impact on this valuation have been investigated using different methods, and a general average of brand valuation, which was relative in some cases between companies in its field, has been examined and calculated.

According to the risk caused by the deviation of the real value of the company’s brand from the estimated value in each of the valuation approaches, based on the following reasons, for each of the approaches, the confidence coefficient was taken into account and the final value of the brand was estimated based on the sum of the adjusted values:

• Because in the first approach, the operating profit was affected by the management of the company in terms of the cost of goods sold, and finally, the brand value (as a part of the profit) was affected by it, the reliability coefficient of this approach was 25%.

• Due to the unpredictable fluctuations of the capital market, the reliability coefficient of the market approach was included in the brand evaluation at 10%.

• Due to the possibility of deviation in estimating the replacement values of assets with their real value, the reliability coefficient of the capital expenditure approach was considered to be 10%.

• Due to the fact that the expenses incurred in the field of research and development and advertising in previous years had a direct effect on the value of the brand, the coefficient of reliability of the approach of branding expenses equal to 15% has been taken into account.

• Due to the research support of the KPMG method, the reliability coefficient of the mentioned approach was 40%.

The best way to check the brand value was to take the average information of the most important factors affecting the companies and compare similar examples side by side.

In this value, the two companies were compared to each other based on important factors. And it was shown in general as below (Tables 1, 2).

Table 1
Q-Kour (rials).

Approach		value	Reliability Coefficient	Modified Equity
First	Operating Profit	36.956.060.520.800	25%	9.239.015.130.200
Second	Market	12.844.186.000.000	10%	1.284.418.600.000
Third	Capital Expenditure	37.500.036.869.628	10%	3.750.003.686.96
Fourth	Branding Expenses (Cost)	41.465.800.465.000	15%	6.219.870.069.750
Fifth	KPMG	52.652.950.050.000	40%	21.061.180.020.000
Brand Value			37.831.599.350.394.2
			Mean
			7.566.319.870.078.84

Table 2
Z-Kousa (rials).

Approach		value	Reliability Coefficient	Modified Equity
First	Operating Profit	8576162903000	25%	2.144.540.725.750
Second	Market	756116260000	10%	756.116.260.000
Third	Capital Expenditure	7500010580379	10%	750.001.058.037
Fourth	Branding Expenses (Cost)	10755849000000	15%	1.613.377.350.000
Fifth	KPMG	15031541000000	40%	6.012.616.400.000
Brand Value			11.651.652.322.806
			Mean
			2.330.330.464.561.2

According to the investigations carried out and the issues raised in the previous sections of this report, as well as considering the company’s status in the industry, the variety of products, the market share of the products in the future, and the special advantages of the industry after applying the effects of the restrictions, the brand value of the companies is taken as a general average based on the reliability coefficient of the models and the values determined based on the above approaches.

The best way to check the brand value was to take the average information of the most important factors affecting the companies and compare similar examples side by side.

The main issue that was to be solved was the deficiency of existing approaches to brand valuation, which were often evaluated in an insular and one-dimensional way, focusing on operational profit or market criteria. Meanwhile, the valuation of a company’s brand was complex and multifaceted.

There was a need for a combined approach, and to solve this problem, it was tried to invent a combined method that takes into account multiple factors affecting the valuation of a brand. The analysis of the influencing factors here was as follows:

The five main factors involved in the valuation of a brand include operating profit, market conditions, capital expenditures, branding costs, and KPMG standards.

To expand and develop the hybrid model, by understanding and analyzing the differences between the models, a hybrid and complementary model for valuing brands was proposed, which led to a more comprehensive and accurate measurement of the value of a brand.

The importance of customers and their preferences in this model emphasizes that the factors affecting customers’ decisions and their preferences, even against cheaper alternative goods, should be identified and included in the valuation.

The suggested strategy was a suggested complementary method to provide a multi-dimensional view of the value of a brand that went beyond trading profit and the market by considering these important factors.

With this step-by-step analysis, the problem can be briefly and conceptually criticized using one-dimensional brand valuation methods and a comprehensive and combined solution. This combined approach seeks to provide a better reflection of the real value of brands by considering various and important factors in valuation.

The results of hypothesis testing in the document reveal several significant findings regarding the efficiency of the franchise market and the relationship between franchise rates and profitability indicators:

1. Franchise Rate Comparison: The analysis indicates that the franchise rates reported by industries do not align with the rates established by the 25% rule. Instead, these rates tend to fall between 25% of the gross profit ratio and 25% of the operating profit ratio. This suggests that while the 25% rule serves as a guideline, actual franchise rates may vary based on specific company circumstances.

2. Linear Relationship: Regression analysis demonstrates a linear relationship between reported interest rates and various profitability indicators. This finding supports the hypothesis that the franchise market is efficient, with the cost structure and profitability of companies being critical factors in franchise rate negotiations.

3. Confirmation of the 25% Rule: Further examination of data from Keller et al. (2008) shows that the average franchise rate is approximately 23% of the average operating profit ratio, which partially confirms the 25% rule. This indicates that while the rule is a useful benchmark, it may not fully capture the complexities of individual franchise agreements.

4. Reliability Coefficients: The study also assessed the reliability coefficients for various valuation approaches. For instance, the reliability coefficient for the operating profit approach was found to be 25%, while the market approach had a reliability coefficient of 10%. These coefficients reflect the potential deviations in estimating brand value based on different methodologies.

4. Suggestions

• Identifying the range of brand valuation: multiple factors should all be examined in line with each other. Create valuation standards to determine brand value and check all the factors in line.

• Understanding the factors that contribute to brand value and ways to increase brand value: It is suggested that after discovering the identified factors, the methods and factors that can increase or decrease the resulting number be identified.

• Valuation Range: Identify the brand valuation range and set standards. Determine the monetary value of the brand and ways to increase it, and have a framework for evaluating costs, time, and activities for brand valuation. It is suggested that you examine various factors.

• Understand the factors affecting brand value. Creating a strategy to create a balanced brand value by combining different valuation methods.

• Check the value of a brand compared to the value of a similar brand in the same sub-category, and do not check it alone.

Here are some practical suggestions of how these approaches can be improved or can be achieved.

1. Establish Valuation Standards: It is essential to create standardized metrics for brand valuation that can be consistently applied across different products and markets. This will help in benchmarking and comparing brand performance effectively.

2. Identify Key Factors: Conduct a thorough analysis to identify the multiple factors that contribute to brand value. Understanding these factors will allow companies to develop strategies that can enhance or mitigate their impact on brand valuation.

3. Implement a Combined Valuation Approach: Utilize a combined approach to brand valuation that considers both financial and non-financial factors. This method should integrate various valuation techniques to provide a more comprehensive view of brand value, moving beyond one-dimensional assessments.

4. Monitor Customer Preferences: Regularly assess customer preferences and behaviors, as these are critical in determining brand value. Incorporating customer insights into the valuation process can lead to more accurate assessments and better strategic decisions.

5. Evaluate Brand Performance Over Time: Continuously monitor the financial value and strength of the brand over time, comparing it against competitors. This historical analysis will help in understanding the brand’s market position and guide future branding strategies.

6. Focus on Branding Costs: Analyze the impact of branding expenses on brand value. While this approach provides quantitative financial information, it is also important to consider qualitative factors that may influence brand perception and value.

7. Create a Balanced Brand Strategy: Develop a strategy that balances different valuation methods to create a holistic view of brand value. This should include comparing the brand’s value to similar brands within the same sub-category to ensure a more accurate assessment.

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Publication Dates

• Publication in this collection
  14 Feb 2025
• Date of issue
  2024

History

• Received
  04 Apr 2024
• Accepted
  10 Oct 2024