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The economic potential of a specific brand can be found in the features it stands for. Such features may include brand recognition, prestige, high product quality and traceability to a given social/consumer target. Possessing these features translates to higher sale figures of branded products, as well as contributes to gaining a higher price margin compared to competitive products that lack such features.
In the process of brand valuation it is most important to accurately identify the brand's features and the scope of its impact on your business. Another significant issue, conditioning the possibility of performing a reliable valuation, is obtaining relevant comparative data that accurately reflect current market conditions. Both factors described above mean that brand valuation required a highly customised approach and is subject to relatively high risk. It is the valuating consultant's knowledge and competence that constitute a significant factor in that risk, and therefore in the whole valuation process.
Brand valuation is usually necessary in the following situations:
- The brand is going to become the subject of a purchase/sale transaction;
- A company valuation is performed using a method from the group of asset-based valuation methods;
- For reporting purposes (testing for loss of value, purchase price allocation);
- Measures are being taken to manage value and effectiveness of the current brand portfolio;
- The company is planning to conclude a licensed trademark operator agreement);
- The company is planning to apply its trademarks in optimising the value of its own tax liabilities (this is possible depending on current tax regulations and relevant interpretations thereof).
In brand valuation the methods applied may be divided into the following:
- Income-based valuation methods – the basis of establishing the brand's value is the potential future cash flow the brand may generate;
- Comparative methods – the brand's value is assessed based on information about previous transactions and on the prices achieved as a result of these transactions in relation to key economic and financial variables (license fee, generated income from branded products etc.);
- Combined-approach valuation methods – combining characteristic elements of both the income-based method and the comparative method;
- Cost-based valuation methods – less frequently applied, however in some circumstances it seems reasonable to assess brand value based on outlays that would be necessary in order to replace the brand.
Economic practice and observation of the ongoing changes in the functioning of companies reveal that non-material elements comprising broadly defined business assets are of increasing importance. The market success of today's companies is less and less determined by tangible assets. At the same time an increasing role can be ascribed to organisational competence, human resources, relationships with business partners, patents and brands (trademarks).
