“Qantas is an iconic Australian brand. Despite its loss in value, the brand has the resilience to recover from the current trauma. However, all stakeholders should be acutely aware that the dispute is eroding a cornerstone of the business.”
Tim Heberden, Managing Director of Brand Finance Australia.
With a value of $1.1 billion, the Qantas brand was in 13th position on Brand Finance’s table of Australia’s most valuable brands at the beginning of 2011. Even then, it was noted as the biggest loser of brand value since our 2008 study.
Strong brands shift the demand curve by increasing sales volumes and generating a price premium. In addition to influencing consumers, strong brands have a favourable impact on other stakeholders such as staff, investors and joint venture partners.
Brand Finance has estimated that the value of the Qantas brand has declined by $100 million since January. The 9 per cent decline places it precariously close to the $1 billion mark.
The goodwill towards a brand can be considered as a ‘stock’ which rises and falls according to public perceptions. The current industrial dispute will have eroded the stock of goodwill towards Qantas, and this will continue to damage performance long after peace has been declared between management and unions.
Considerable attention has focussed on whether management or unions are to blame for the disruptions in Qantas’ service over recent months. From a passenger perspective this is of little relevance. Loss of trust in the brand results in lost revenue - no matter who is to blame.
Sensitivity to reputational damage increases following a serious event which has reduced people’s trust in a brand. In these conditions, the value impact of future negative events is magnified as they reinforce prevailing negative views. Tim Heberden, managing director of Brand Finance Australia, said that “Qantas has faced a number of negative headlines in the last few years and should evaluate the cumulative effect of reputational risk when considering future actions and statements.”
Brand Finance is the world’s leading brand valuation consultancy. Bridging the gap between marketing and finance, Brand Finance evaluates the strength of brands and quantifies their financial value to help organisations of all kinds make strategic decisions.
Headquartered in London, Brand Finance has offices in over 20 countries, offering services on all continents. Every year, Brand Finance conducts more than 5,000 brand valuations, supported by original market research, and publishes over 100 reports which rank brands across all sectors and countries.
Brand Finance is a regulated accountancy firm, leading the standardisation of the brand valuation industry. Brand Finance was the first to be certified by independent auditors as compliant with both ISO 10668 and ISO 20671, and has received the official endorsement of the Marketing Accountability Standards Board (MASB) in the United States.
Brand is defined as a marketing-related intangible asset including, but not limited to, names, terms, signs, symbols, logos, and designs, intended to identify goods, services, or entities, creating distinctive images and associations in the minds of stakeholders, thereby generating economic benefits.
Brand strength is the efficacy of a brand’s performance on intangible measures relative to its competitors. Brand Finance evaluates brand strength in a process compliant with ISO 20671, looking at Marketing Investment, Stakeholder Equity, and the impact of those on Business Performance. The data used is derived from Brand Finance’s proprietary market research programme and from publicly available sources.
Each brand is assigned a Brand Strength Index (BSI) score out of 100, which feeds into the brand value calculation. Based on the score, each brand is assigned a corresponding Brand Rating up to AAA+ in a format similar to a credit rating.
Brand Finance calculates the values of brands in its rankings using the Royalty Relief approach – a brand valuation method compliant with the industry standards set in ISO 10668. It involves estimating the likely future revenues that are attributable to a brand by calculating a royalty rate that would be charged for its use, to arrive at a ‘brand value’ understood as a net economic benefit that a brand owner would achieve by licensing the brand in the open market.
The steps in this process are as follows:
1 Calculate brand strength using a balanced scorecard of metrics assessing Marketing Investment, Stakeholder Equity, and Business Performance. Brand strength is expressed as a Brand Strength Index (BSI) score on a scale of 0 to 100.
2 Determine royalty range for each industry, reflecting the importance of brand to purchasing decisions. In luxury, the maximum percentage is high, while in extractive industry, where goods are often commoditised, it is lower. This is done by reviewing comparable licensing agreements sourced from Brand Finance’s extensive database.
3 Calculate royalty rate. The BSI score is applied to the royalty range to arrive at a royalty rate. For example, if the royalty range in a sector is 0-5% and a brand has a BSI score of 80 out of 100, then an appropriate royalty rate for the use of this brand in the given sector will be 4%.
4 Determine brand-specific revenues by estimating a proportion of parent company revenues attributable to a brand.
5 Determine forecast revenues using a function of historic revenues, equity analyst forecasts, and economic growth rates.
6 Apply the royalty rate to the forecast revenues to derive brand revenues.
7 Discount post-tax brand revenues to a net present value which equals the brand value.
Brand Finance has produced this study with an independent and unbiased analysis. The values derived and opinions presented in this study are based on publicly available information and certain assumptions that Brand Finance used where such data was deficient or unclear. Brand Finance accepts no responsibility and will not be liable in the event that the publicly available information relied upon is subsequently found to be inaccurate. The opinions and financial analysis expressed in the study are not to be construed as providing investment or business advice. Brand Finance does not intend the study to be relied upon for any reason and excludes all liability to any body, government, or organisation.
The data presented in this study form part of Brand Finance's proprietary database, are provided for the benefit of the media, and are not to be used in part or in full for any commercial or technical purpose without written permission from Brand Finance.