The term brand is used in practice to refer to many different things, not necessarily just a product or service or a name or trademark. A relevant brand valuation needs to encompass exactly what is required in the circumstances.
The role of brands in business and marketing communications
In the context of business and marketing communications, a consumer brand is often seen as a collection of intangible values, as perceived by a consumer, which are attributed to a name, symbol or design used to identify a product or group of products and services.
A strong brand is a combination of physical, functional and emotional attributes. It is the complete package of these attributes which becomes the essence of a particular brand and provides the basis for differentiation from its competitors. In different sectors the importance of each element varies in degree but they can all be part of a brand, summarised as follows:
Physical: names, colours, descriptors, smells/tastes, symbols, packaging, logotypes, straplines, sounds, advertising
Functional: ensure recognition, simplify selection, guarantee origin, confirm quality
Emotional: association, reassurance, aspiration, self-expression
Why brands are valuable
A brand is a promise that lives in the minds of customers and stakeholders (including staff) before, during and after purchase. It sets expectations. The entire product or service experience then determines whether the promise is met, exceeded or broken.
Brands are frequently acknowledged as being amongst the most valuable assets of a business. Brands are valuable for two key, and linked, reasons: for the benefits they give customers; and for the value they generate for the businesses which own them.
Customer benefits: for the customer, brands distil information, ease the decision making process, confirm aspirations and support a sense of belonging. They can be strong symbols of trust and enable customers to associate themselves with the values the brands represent.
Owner benefits: for businesses, brands are frequently their most valuable asset because they are the primary vehicle for their relationships with customers and therefore generate business. Who owns the brand is often irrelevant; it is the brand that is important.
Another reason brands are valuable is because they cost so much to build and maintain. And one of the largest expenses associated with building and maintaining brands is advertising and promotion.
Profit: brands enable businesses to charge a premium and generate volume and growth for their product or service. This is often indicated in licensing arrangements where a royalty can represent a charge for use of a brand.
Market share: brands enable businesses to increase their market share which increases turnover, margin and profitability through economies of scale.
Widely adopted brand valuation approaches
When carrying out a brand valuation, Intangible Business adopts widely accepted approaches based on a combination of the income, market and cost approaches. These approaches have much in common with those used for intangible asset valuation, business valuation, and intellectual property valuation.
- The income approach uses estimates of future estimated economic benefits or cash flows and discounts them, for the associated time and risks involved, to a present value.
- The market approach uses market based indicators of value. For brands this can be transactions involving selling, buying, franchising or licensing brands, which are often in practice bundled with other deals.
- There are two general considerations to the cost approach: 1) the historic cost of creating the brand; and 2) the estimated cost and time that would be required to create an equivalent or replacement brand.
Focus of Intangible Business
The application of these approaches benefits from Intangible Business’s specific focus on forecasts, with research and analysis of market transactions for different but comparable assets where relevant information is difficult to obtain. Intangible Business adopts a thorough approach based on good knowledge and experience of how to find, analyse and present information in a way which better informs a brand valuation.
Intangible Business also ensures that the approaches used, and conclusions reached, are commercially balanced, realistic and consistent with analyses required for all the different reasons brand valuations are required and carried out in practice.
Support to legal services
If brand value is at stake, it will be a significant issue. Intangible Business is experienced in providing expert independent brand valuation services for brand management, owners and their legal or other advisers in particular for: dispute resolution; corporate deals; brand management; and supporting other legal services.