Brand and Its value How Important are they?
Brand name as we all know plays an important role in the success of any business. We are willing to take the risk of buying an expensive product if we are very sure that it comes from reliable source and we trust the manufacturer. Along with a brand name a logo or symbol to help people recognize 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 there have been legal fights over one company creating a trade mark similar to another company as it could confuse the consumer and may rob the good will of the owner.
What do trade mark and brand name do ?
They help the consumer make the decisions faster because the consumer has faith in some brands than others.
A good brand name keeps the product on sale for many years.
It will help the company get a good market share if the company’s brand is well recognized.
It will help the company produce more products under the same name and thus 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 therefore clear that company’s work hard to create strong brands and nurture them carefully. Brands thus created generate revenue for 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 public. Therefore, it is necessary that brands should be valued like other assets of the company. If the company were to go for sale the price of the shares will be based on the brand value .
Brand valuation helps in accounting in areas like balance sheet reporting, tax planning, licensing and franchising, mergers and acquisitions, litigations, investor relations and securitized borrowing
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 allows top management to communicate to the mangers within the organization, on company’s performance 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.
The most commonly used brand valuation methods are -
Different approaches have been used to determine the brand value. There are some wel l known professionals like Deloitte and Interbrand , who compute the brand values and publish them in Business magazines. For example a list of top 100 brands is published every year in Business week.
1 The Market Transactions method-study 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- where 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 - where 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 ingredients of this method are the company’s sales 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’ competence to gain market dominance, remain stable in the market and the possibility of the brand breaking into international markets.
Who would be Interested in Brand Valuation?
Apart from the list of top 100 global brands published each year, very often, the advertising agencies or chambers of commerce of some of the countries are interested in getting the brand with in their countries valued. It is also a prestige issue for the countries to know that they host the most valuable global brands
Among the top global brands, brands like Coco Cola, IBM, GE, Mc Donald’s are very prominent.
The global brand list is dominated by American brands, brands of Japan, Germany, Switzerland, France, Sweden, Britain and Netherlands. It is rare to see the Chinese brands despite growth and market size. The Chinese brands have not been able to take hold of the global market though their presence is increasing. In ASEAN markets the brands from China have a respectable presence.
In markets like Malaysia where public sector is dominant brands like Petronas (Oil company), Malaysian Airlines, May Bank are some brands that come out on the top. It is possible that many private limited brands are not included due to lack of reliable and accurate data.
In Singapore some brands like Sing Tel, UOB, DBS Bank, Asia Pacific Breweries, Shangri-la , Singapore air lines dominate the list frequently.
In India Reliance, Tatas, HUL, Wipro, Procter and Gamble. Reckit Coleman, Colgate Palmolive are brand that dominate. State Bank of India is also among top brands.
Value of the Brand Valuations skills
Brands key assets of a company. Brands just cannot be associated with costs alone but must also be valued from the intangible perspective.
In the final analysis the company value is dependent on the intangible component more than the value of tangible assets when acquisition or merger takes place . In share markets, even for speculators and especially those who look at the stock market from long term perspective brand values become very important.
Therefore, all MBAs in finance and Chartered Accountants and Certified Public Accountants and Financial Analysts will need to develop this skill if they have not done so. Brand Valuation, should have enough demand in the future .
