Courtesy: ISO 10668:2010 Brand valuation
Brand valuation is the process of estimating the total financial value of a brand. A conflict of interest exists if those who value a brand were also involved in its creation. The ISO 10668 standard specifies six key requirements for the process of valuing brands, which are transparency, validity, reliability, sufficiency, objectivity; and financial, behavioral, and legal parameters.
Brand valuation is distinct from brand equity.
Brand value
Traditional marketing methods examine the price/value relationship in terms of dollars paid. Some marketers believe customers perceive the value to mean the lowest price. While this may be true for commodities, some branding techniques are moving beyond this evaluation.
Brand valuation emerged in the 1980s. Early pioneers in brand valuations included the British branding agency, Interbrand, led by John Murphy and Michael Birkin, which is credited with leading the concept’s development. Millward Brown was also a leading brand valuer.
Both companies maintained “Top 100” lists of companies by valuation. In 1989, Murphy edited a seminal work on the subject: Brand Valuation – Establishing a true and fair view; and in 1991, Birkin laid out a brand earnings multiple models of brand valuation in the book, Understanding Brands. A 2009 paper identified “at least 52” brand valuation companies.
Valuation methodologies
There are three main types of brand valuation methods:
The cost approach
This is based on the cost of creating the brand. The fundamental premise of the cost approach is that it should not be worth more than it would cost to build an equivalent. The cost of building a brand minus any expenses is reflective of market value.
The market approach
In this approach, the market price is compared. This valuation method relies on the estimation of value based on similar market transactions (e.g. similar license agreements) of comparable brand rights. Given that often the asset undervaluation is unique, the comparison is performed in terms of utility, technological specificity and property, considering the asset’s perception by the market. Since the market approach relies on comparisons to similar assets, it is most useful when there is substantial data available regarding recent sales of comparable assets. Data on comparable or similar transactions may be accessed through the following sources:
- Company annual reports.
- Specialized royalty rate databases and publications.
- Court decisions concerning damages.