Published by MBA Skool Team, Last Updated: May 15, 2020
What is Brand Valuation?
Brand Valuation as a concept is the net value of all a business' tangible as well as intangible assets. Brand valuation is a method to estimate of the overall value of the brand. Brand valuation is a technique to evaluate the brand value based on financial performance, brand equity, customer perception etc.
In the past, brand valuation was based only on the value of Tangible assets but in 2005, after the International Financial Reporting Standards (IFRS), accepted that along with the tangible assets the intangible assets like brands and other acquired intangible assets would also be valued on the balance sheet of the company. This comes after the backdrop of 1988, wherein the proper brand valuation measures came into existence and with time a popular saying came into picture which said, if a company was divided and one person had all the land, brick and mortar and the other had the brand name, trademark etc. then the later would be more beneficial. As a part of brand management, brand valuation helps understand the overall brand equity of a company.
Brand Valuation Approaches
Brand valuation are three main approaches for brand evaluation and brand evaluation models are the same as the models for measuring Tangible assets. They are:
1. Cost Approach
2. Market Approach
3. Income Approach
These are the models/methods by which the brand is valued and in today’s market a brand value carries great importance and there should be proper experienced people doing the brand valuation as that would talk about the Total Asset Value of the company.
Importance of Brand Valuation
Brand valuation has been by far used for many purposes by companies.
1. Mergers and Acquisitions: Usually, a company or an organization does not pay the book value while acquiring another business entity. Now the difference between the paid acquisition price and book value is known as Goodwill. Goodwill can be defined as the value of a business entity which is not directly attributable to its tangible assets and liabilities. Estimating the financial value using brand valuation of a brand helps us to determine the premium over book value that a buyer should be paying.
2. Licensing: One of the approaches to take advantage of the value of a solid brand is by broadening or permitting the brand. It is feasible for both the licensor and the licensee to profit financially from an authorizing course of action. The licensor profits by another wellspring of income that requires minimal capital speculation. The licensee benefits by having a lower channel, publicizing and client obtaining costs.
3. Financing: While companies don't convey marks on their monetary records as long-term resources, money related markets perceive the commitment brands have on investor esteem. Organizations with solid brands consistently acquire preferable budgetary terms over organizations with poor brands. The higher the estimation of the brand through brand valuation, the better the terms.
4. Brand Reviews: Usually, brand investment reviews entail the comparison, across brands and against competitors of hard measures, such as sales and market share, and soft measures, such as reputation and awareness. For some brands, it is also important to determine financial value. Brand valuations allow companies to gauge their return on brand investment and to develop appropriate investment strategies across a portfolio of brands.
5. Budget Allocations: The marketing mix is utilized by advertisers who must settle on choices about the assignment of spending plan and assets. Organizations can now more precisely gauge the blend of promoting vehicles required to expand both spending proficiency and advertising viability. For a few organizations, brand valuations are a basic component of the marketing mix.
Advantages of Brand Valuation
Certain benefits of Brand Valuation for companies are:
1. Brand valuation changes the outlook of the firm and makes the executive's frameworks that initially recognize and afterward measure the key drivers of brand an incentive in the firm, from both the advertising and the money (investor esteem) perspective.
2. It builds up the frameworks that catch a past filled with these brand esteem drivers and hence loans validity to the valuation procedure sometime in the future while decreasing the cost.
3. It empowers the brand to be overseen against indistinguishable criteria from different interests in the firm.
Disadvantages of Brand Valuation
The drawbacks of brand Valuation are:
1. Nearly all models don't meet prerequisites, for example, dependability, undeniable nature and objectivity.
2. All buyer situated models don't think about money related qualities and accordingly are not appropriate for merger and securing, outside announcing, spending arranging, brand authorizing and encroachment of brand rights. Conversely, all monetary arranged models don't consider brand planning and brand the executives.
3. Only the brand valuation models consolidating both buyers arranged and budgetary situated perspectives think about money related angles just as non-fiscal viewpoints. Subsequently, the brand assessment is very abstract concerning the change of non-fiscal qualities into money-related qualities by utilizing, for example, none experimentally tried scoring-models. Moreover, they are not straightforward because of their business foundation.
4. An unlimited, acknowledged model does not exist.
5. An extra and frequently ignored point is the comprehensive thought of the organization and it's few corporate assessment approaches.
Example of Brand Valuation
Some examples of brand valuation are:
1. Brand value of Amazon in 2018 is $150.8 billion. In terms of market capitalization and revenue, Amazon is the largest online business.
2. Brand value of Apple in 2018 is $146.3 billion making it rank 2 in terms of brand value with a 37% change from last year.
This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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