Brand Valuation by Price Premium

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One of the accepted methodologies for brand valuation associates the value of the brand with the price premium paid for the branded product, compared to the same product without that brand, i.e., a generic product. In the market, such a generic product is—most of the time—non-existent. Every existing brand has, at least, a minimal brand equity. Therefore, when choosing a low-brand equity competitor as a generic product, the price premium is underestimated. According to consumer utility theory, the price of the unbranded product must make the consumer indifferent between the branded and unbranded product. The conjoint analysis allows us to estimate the price for an unbranded product that gives the consumer the same utility as the branded product, everything else being equal. This paper shows a theoretical explanation of the price premium from a microeconomic perspective, argues why the price premium method should not be combined with the extra volume method when valuing a brand, and applies the conjoint analysis to estimate a theoretically consistent price premium for a brand of seasonings and instant soups.