Auto 100 2017 The annual report on the world’s most valuable automobile brands February 2017 Foreword Contents wasted resources and a negative impact on the Foreword 2 bottom line. Definitions 4 Brand Finance bridges the gap between the Methodology 6 marketing and financial worlds. Our teams have experience across a wide range of disciplines Executive Summary - Auto 100 8 from market research and visual identity to tax and accounting. We understand the importance Executive Summary - SUVs 12 of design, advertising and marketing, but we also believe that the ultimate and overriding Executive Summary - Tyres 10 14 purpose of brands is to make money. That is Executive Summary - Auto Portolios 10 16 why we connect brands to the bottom line. By valuing brands, we provide a mutually intelligible Full Table - Auto 100 (USDm) 18 language for marketers and finance teams. Marketers then have the ability to communicate Understand Your Brand’s Value 20 the significance of what they do and boards can David Haigh, CEO, Brand Finance use the information to chart a course that How We Can Help 22 maximises profits. Without knowing the precise, What is the purpose of a strong brand; to attract Contact Details 23 customers, to build loyalty, to motivate staff? All financial value of an asset, how can you know if true, but for a commercial brand at least, the first you are maximising your returns? If you are answer must always be ‘to make money’. Huge intending to license a brand, how can you know investments are made in the design, launch and you are getting a fair price? If you are intending ongoing promotion of brands. Given their to sell, how do you know what the right time is? potential financial value, this makes sense. How do you decide which brands to discontinue, Unfortunately, most organisations fail to go whether to rebrand and how to arrange your beyond that, missing huge opportunities to brand architecture? Brand Finance has effectively make use of what are often their most conducted thousands of brand and branded important assets. Monitoring of brand business valuations to help answer these performance should be the next step, but is questions. often sporadic. Where it does take place it frequently lacks financial rigour and is heavily Brand Finance’s recently conducted share price reliant on qualitative measures poorly study revealed the compelling link between understood by non-marketers. As a result, strong brands and stock market performance. It marketing teams struggle to communicate the was found that investing in the most highly value of their work and boards then branded companies would lead to a return underestimate the significance of their brands to almost double that of the average for the S&P the business. Skeptical finance teams, 500 as a whole. Acknowledging and managing a unconvinced by what they perceive as marketing company’s intangible assets taps into the hidden mumbo jumbo may fail to agree necessary value that lies within it. The following report is a investments. What marketing spend there is can first step to understanding more about brands, end up poorly directed as marketers are left to how to value them and how to use that operate with insufficient financial guidance or information to benefit the business. The team accountability. The end result can be a slow but and I look forward to continuing the conversation steady downward spiral of poor communication, with you. 2. Brand Finance AustraliaGlobalAirlinesAuto 100 500 30 100& 30FebruaryTyres MarchFebruary 10 2016February2016 2015 2017 Brand Finance Auto 100 & Tyres 10 February 2017 3. Definitions Effect of a Brand on Stakeholders E.g. Definitions Volkswagen + Enterprise Value – the value of the Group entire enterprise, made up of Directors Potential Middle ‘Branded‘Branded multiple branded businesses Customers Managers Enterprise’Enterprise’ Existing All Other ‘Branded‘Branded + Branded Business Value – the Customers Employees Business’ E.g. Business’ Porsche value of a single branded business operating under the subject brand ‘Brand’ Contribution’ Influencers Production + Brand Contribution– The total e.g. Media Brand E.g. economic benefit derived by a Porsche business from its brand ‘Brand Value’ Trade Sales Channels E.g. + Brand Value – the value of the Porsche trade marks (and relating Strategic marketing IP and ‘goodwill’ Debt Allies & providers attached to it) within the branded Suppliers Investors business Branded Business Value Brand Contribution Brand Value Brand Strength A brand should be viewed in the context of the The brand values contained in our league In the very broadest sense, a brand is the focus Brand Strength is the part of our analysis most business in which it operates. For this reason tables are those of the potentially transferable for all the expectations and opinions held by directly and easily influenced by those Brand Finance always conducts a Branded brand asset only, but for marketers and customers, staff and other stakeholders about responsible for marketing and brand Business Valuation as part of any brand managers alike, an assessment of overall an organisation and its products and services. management. In order to determine the valuation. Where a company has a purely mono- brand contribution to a business provides However, when looking at brands as business strength of a brand we have developed the branded architecture, the business value is the powerful insights to help optimise performance. assets that can be bought, sold and licensed, a Brand Strength Index (BSI). We analyse same as the overall company value or more technical definition is required. marketing investment, brand equity (the ‘enterprise value’. Brand Contribution represents the overall uplift goodwill accumulated with customers, staff and in shareholder value that the business derives Brand Finance helped to craft the internationally other stakeholders) and finally the impact of In the more usual situation where a company from owning the brand rather than operating a recognised standard on Brand Valuation, ISO those on business performance. owns multiple brands, business value refers to generic brand. 10668. That defines a brand as “a marketing- the value of the assets and revenue stream of related intangible asset including, but not limited Following this analysis, each brand is assigned the business line attached to that brand Brands affect a variety of stakeholders, not just to, names, terms, signs, symbols, logos and a BSI score out of 100, which is fed into the specifically. We evaluate the full brand value customers but also staff, strategic partners, designs, or a combination of these, intended to brand value calculation. Based on the score, chain in order to understand the links between regulators, investors and more, having a identify goods, services or entities, or a each brand in the league table is assigned a marketing investment, brand tracking data, significant impact on financial value beyond combination of these, creating distinctive rating between AAA+ and D in a format similar stakeholder behaviour and business value to what can be bought or sold in a transaction. images and associations in the minds of to a credit rating. AAA+ brands are maximise the returns business owners can stakeholders, thereby generating economic exceptionally strong and well managed while a obtain from their brands. benefits/value” failing brand would be assigned a D grade. 4. Brand Finance Auto 100 & Tyres 10 February 2017 Brand Finance Auto 100 & Tyres 10 February 2017 5. Methodology League Table Valuation Methodology Brand Finance Typical Project Approach Brand Finance calculates the values of the 2 Determine the royalty rate range for the respective brands in its league tables using the brand sectors. This is done by reviewing ‘Royalty Relief approach’. This approach comparable licensing agreements sourced from involves estimating the likely future sales that are Brand Finance’s extensive database of license attributable to a brand and calculating a royalty agreements and other online databases. Brand Equity Stakeholder Brand Inputs Performance rate that would be charged for the use of the 3 Calculate royalty rate. The brand strength score is Value Drivers Behaviour Contribution brand, i.e. what the owner would have to pay for applied to the royalty rate range to arrive at a royalty the use of the brand—assuming it were not rate. For example, if the royalty rate range in a already owned. brand’s sector is 1-5% and a brand has a brand The steps in this process are as follows: strength score of 80 out of 100, then an appropriate 1 2 3 4 royalty rate for the use of this brand in the given Brand Audit Trial & Preference Acquisition & Valuation Modelling 1 Calculate brand strength on a scale of 0 to 100 sector will be 4.2%. Retention based on a number of attributes such as emotional 4 Determine brand specific revenues estimating a connection, financial performance and sustainability, proportion of parent company revenues attributable Audit the impact Run analytics to Link stakeholder Model the impact of behaviour on to a specific brand. of brand understand how behaviour with core financial performance and among others. This score is known as the Brand key financial isolating the value of the brand 5 Determine forecast brand specific revenues using a management and perceptions link to Strength Index, and is calculated using brand data investment on behaviour value drivers contribution from the BrandAsset® Valuator database, the function of historic revenues, equity analyst brand equity world’s largest database of brands, which measures forecasts and economic growth rates. brand equity, consideration and emotional imagery 6 Apply the royalty rate to the forecast revenues to attributes to assess brand personality in a category derive brand revenues. agnostic manner. 7 Brand revenues are discounted post tax to a net present value which equals the brand value. Brand strength Brand Brand revenues Brand value index ‘Royalty rate’ How We Help to Maximise Value (BSI) 6.