A Research On Brand Equity Value Assessment Method Based On Real Options And Case Study

With the deepening of economic globalization and the advent of knowledge economy,the brand is not only a guarantee of quality and service, a embody of culture andpersonality and a symbol of social status and assets, but also as the core competitivenessof the enterprise and even the whole country, becomes more and more important. Inaddition, because of the increasing of brand mergers and acquisitions, brand valuation isgradually valued by people. Brand valuation not only helps to improve the reputation ofthe brand and the company and the management effectiveness, but also inspires theconfidence of the employees and investors of the companies.In this context, based on the definition that the brand equity value is the sum of thepresent value of the existing income and the potential benefits which the brand generatesfor its holders, we have done the following things: Firstly, we studied and analyzed a lot ofliteratures, then summarized the theory of brand equity value and real options methods.Secondly, according to the conclusion that the brand is a kind of real options and thedeficiencies of the existing brand valuation methods, the paper introduced the method ofreal options and built a brand value evaluation model based on real options method.Finally, we used the new model to evaluate the brand equity value of Midea, whichprovides a new idea and method on brand evaluation for other companies.Through our research, the paper draws three conclusions: The first is that the brandaccords with the characteristics of real options. The brand has the features of excessprofitability, uncertainty and full of risk, which meet the real options’ conditions.Therefore, holding a brand is a permanent investment for the company to a certain extent,the company has the right to decide whether to continue the investment, extend theinvestment or withdraw the investment depend on the market conditions. The secondachievement is that we build a new brand value evaluation model based on the real optionsmethod. The model divides brand equity value into current market value and option value.The current market value is the present value of the company’s earnings in the evaluationperiod, which can be calculated through present earning value method. Besides, the option value can be explained as the potential value of the brand in the future, we can usebinomial model to get it. In the end, we use the new model to evaluate Media’s brandequity value and get a reasonable result.