Brand plays a strategic role in the success of any business. Relative brand values can be of significant in determining the acquisition values. Brands increase consumer willingness to take the risk of buying even premium products if they are convinced that it is from a credible source and they trust the manufacturer. Along with a brand name a logo or symbol also help people to recognize the product. It is for this reason that the brand is often registered. Once registered it becomes the property of the company. The trade mark is a very valuable asset of a company and companies spend valuable resources in legal fights to protect themselves when competitors create confusing symbols and trade marks
Consumer decision making is made simpler when the consumer is familiar with the brand because the consumer develops confidence and faith in such brands
A good brand name prolongs the life of the product on sale for many years. It will also help the company get a good market share if the company’s brand is well recognized. Further, the company can produce more products under the same name and reduce the time and promotion expenditure in selling the new products.It gives a legal right for the company, making the company beneficiary of all the positive effects and also makes the company responsible for any damages or any negative effects that the brand may have caused.
Brand Valuation and its Importance
It is important that organizations work hard to create strong brands and nurture them carefully. Brands thus created generate revenue for a number years in the form of sales and also have some intangible name associated with them due to the “good will” generated by them in the market. For these reasons, the brands should be valued like any other assets of the company. If the company were to go for sale the price of the shares will naturally be based on the brand image and the value associated with it.
Valuation of the brands helps in accounting in areas like balance sheet reporting, tax planning, licensing and franchising, mergers and acquisitions, investor relations,borrowing and legal protection.
From a marketing perspective brand valuation is useful to determine budget and allocate resources on high priority, track performance and see if the marketing teams are able to value or not and also to examine if the strategies need change.
Brand value increases the credibility of the top management to motivate the line managers within the organization, on the performance of the company and increase their confidence levels and loyalty. It helps to plan the new products and see what extensions should be added especially to make best use of the high value brand names.
Brand valuation methods used by different evaluators
Different approaches have been used to determine the brand value. There are some well known professionals like Deloitte and Interbrand, who determine the brand values and publish them in Business magazines. A list of top 100 brands is published every year in Business week. Some major variations in approach to brand valuation are mentioned here.
1 The Market Transactions method-studies the transactions comparable to the brand being valued provided there are enough transactions and there is no tie up between the transactions and other assets
2 Cost Method- Here the cost of obtaining brand recognition through advertising and marketing is taken into consideration. This method cannot be easily used for established brands where the cost of advertising and brand recognition are less compared to new brands.
3 Income Method- In this method the relief from royalty is estimated to assess the brand value. This implies that the cost of renting the brand is assessed by the valuator. That is, how much will some other company pay to rent this brand name? This can be done by finding the licensing value of comparative brands in the market and the specific features of the brand being valued. The main elements of this method are the sales by the company and future growth, the expected life of the brand, how the brand value will decline with time and the taxes.
4. The Interbrand method consist of assessing the future earnings of the brand, discount the future earnings to present value, deduct the cost of owning the tangible assets to arrive at the value added by the intangible factors and finally assess the risk associated with these earnings. The risk is dependent on the brand’s competence to gain market dominance, remain stable in the market and the possibility of the brand breaking into international markets.
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