Brand valuation

Question 1

Concept of valuation:

Answer 1

• What is it that is being valued?
• What is the purpose of the valuation?
• What valuation approach to use?
  – Challenges with different approaches

Question 2

Defining what is being valued

Answer 2

1. “Trademark Valuations” - A name, a logo
   and other associated visual elements
2. “Brand Valuation” - A broader scope of elements including name, logo, other verbal and visual elements, and associated intellectual property rights
3. “Branded business” - A holistic company or organizational brand

Question 3

What is the purpose of the valuation?

Answer 3

• Technical valuations are undertaken for annual reports, tax planning, securitization, litigation, transactions, licensing, mergers, and acquisitions.
• Managerial brand valuations are used for restructuring brand portfolios, budget allocation and performance evaluation.

Question 4

Cost approach to brand valuation

Answer 4

Valuing a brand on the basis of what it cost to create or what it theoretically would cost to recreate

Example methods:

• Historical cost of creation
• Reproduction/replacement cost

(Rarely appropriate for brand valuation)

Question 5

Pros & Cons cost approach

Answer 5

PROS
- Complies with standard accounting practice for valuin
assets
- An investor would not pay more for a brand than the cost to recreate, replace or reproduce an asset of similar
utility.
- Can be used in cases of easily replaceable or embryonic assets
- Can provide a floor minimum value for the brand

CONS
• The cost of developing the brand usually bears little
relationship to the brand’s income-generating potential
•It does not capture the value added by brand
management, i.e. the brand’s competitive position
• Difficult to recapture all the historic brand development
costs

Question 6

Market approach to brand valuation

Answer 6

Valuing a brand on the basis of comparing it with another brand with available market
transaction information

Example methods:

• Sales transactions comparison
• Royalty relief (mixed market/income)

(Rarely appropriate for brand valuation)

Question 7

Pros & cons market approach

Answer 7

PROS
• Give useful brand value estimations when there is enough comparable data
• Takes into account the context of the brand, i.e. industry specific role of the brand

CONS
•Brands are unique and it is often hard to find relevant comparables
• Value depends on the synergies and objectives of the buyer
-Often scarce data

Question 8

Income approach to brand valuation

Answer 8

Valuing a brand on the basis of what it contributes to revenues and earnings discounted back to a NPV

Example methods:

• Price premium or Volume premium
• Royalty relief (mixed market/income)

Common approach for valuing a brand!

Question 9

Pros & Cons for income approach

Answer 9

• Measures value by reference to the economic benefits expected to be received over the remaining useful economic life of the brand
• Takes into account future of the brand
• Relatively easy to find good numbers as a basis for the valuation
  -A large number of methods make it suitable for different
  valuation purposes

CONS
• Requires insight into importance of brand - not all branded products have unbranded equivalents that permit a comparison
• Discount rate and future earnings can be difficult to
estimate
•Many different models with individual disadvantages
such as finding comparables to derive data from,
determining royalty rates, “black box” algorithms etc.