Brand Valuation Benefits

Valuing a brand has the distinct advantage of converting a brand from being an expense on the P & L statement to an asset on the Balance Sheet.

There are several reasons for valuing a brand, ranging from the purely technical (Balance Sheet requirements, Tax planning, Litigation, Licensing, Mergers & Acquisitions, point in time valuations) to the commercial e.g. internal brand management, budget allocations and measurements on the balanced scorecard.

Most firms in the market place operate in conditions of fierce competition. Resources are scarce and need to be optimally husbanded and employed. Valuing a brand may well be the best way of optimising investments that are undertaken to develop a brand, or a branded business.

A number of CEOs of large public firms know this well and have either gone down this route already, or have probably given serious thought to putting the value of their brands on the balance sheet at the earliest opportune moment.

For other companies (usually medium-large) and as yet in the process of building their brands (sometimes from scratch), valuing the brand is recognised as a necessary but daunting and expensive process that typically lies in the too-hard basket of their senior managers.

Part of the problem is because brand valuations are typically undertaken by top-tier consulting firms, as the credibility of the valuer is critical to the valuation. This in turn creates the perception that brand valuation is an expensive process and easier said than done.

Whilst it is undoubtedly true (and sometimes critical) that the firm employs a good top-tier firm to value its brand, CEOs of mid-sized firms rarely address the issue of credibility from the systems point of view. Brand value systems that capture the key value drivers of the brand actually form the largest portion of the expense in the brand valuation process.

A brand valuation has little credibility, however competent the valuer, if the firm cannot provide a recorded history of capturing the key marketing and financial value drivers that are critical to the value of the brand. This therefore reiterates the requirement for good internal brand management systems.

The concept of valuing the brand for internal brand management (or as part of the performance management measures of a balanced scorecard) has considerable value, particularly if the valuation technique used internally is the same economic value and marketing metric approach used by the larger top-tier firms.

Key benefits of this approach to brand management are…

  • It changes the mindset of the firm and creates management systems that first identify and then measure the key drivers of brand value in the firm, from both the marketing and the finance (shareholder value) point of view.
  • It develops the systems that capture a history of these brand value drivers and therefore lends credibility to the valuation process at a later date, whilst reducing the expense.
  • It enables the brand to be managed against the same criteria as other investments in the firm.

Companies should bear in mind that the selection of a a valuation technique is critical, as it must use the same marketing and financial metrics that are currently in use in the marketplace at large.

See Brand Management Valuations ยป

Allan Rodrigues is a specialist in brand valuations of all types. You can contact him at allan@theBusinessBinnacle.co.nz [no spam]


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