What is brand value and what are the main factors that influence your brand value?

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  • Brand valuation is the process of estimating the total financial value of a brand. It is simply the sale or replacement value of a brand. Brand valuation as a concept emerged in the 1980s. 

    Since then there has been a lot of controversy around the process of brand valuation and the parties held responsible for that considering that a conflict of interest exists if those who value a brand were also involved in its creation. 

    Below is a quick and short explanation of the major steps involved in the brand valuation process.

    Brand valuation process:

    1) Assign a Valuator and Decide the level of valuation – A valuator prepares different levels of reports ranging from basic to highly detailed.  

    2) Get Business Information – you can get this market information from numerous sources including the following: 

    • Financial statements for the past 3 to 5 years – to evaluate financial performance and situation
    • The prior year’s tax return 
    • Business location, square footage and ownership or rental status of facilities
    • Number of employees 
    • Patents, bylaws, and shareholder agreements 
    • A sales breakdown by the customer for the past 3 to 5 years – in order to determine customer concentration
    • Information on supplier concentration 
    • Information on competitors and the brand’s competitive strength in the market 
    • Independent research on market conditions, business trends and risk factors 

    3) Apply the appropriate Valuation Method 

    There are three main valuation methods for companies and the valuator chooses the method or a combination of methods that best suits the type of business and according to the information available to them. 

    Cost Based Method 

    Cost-based valuation is similar to saying that a home is worth the amount of money it took to build and furnish it. This method values a brand using the costs that have been incurred to build the brand since its beginning. 

    Items you would include when evaluating costs are historical advertising, promotion expenditures, cost of campaign creation, licensing and registration costs, and cost of any trademarks. 

    Using cost-based valuation requires you to evaluate the cost of the brand and restate the actual expenditures in current cost terms. You can use this method of the brand valuation if you have just launched or if you’re going through the process of re-developing your brand.

    Market Based Method 

    Market-based valuation is similar to researching the prices of houses in your neighbourhood before you set a price for selling your home. It uses one or more points of comparison between your business and similar brands that have been sold. 

    The points of comparison can be the specific sale of a brand, comparable company transactions, or stock market quotations. Market-based brand valuation is the amount for which a brand can be sold, and is equal to a market transaction price, bid, or offer for identical or reasonably similar brands.

    Income Based Method 

    The income approach to brand valuation is similar to looking at a house’s potential earnings as a rental property and using that to estimate its current value. This method is often referred to as the “in-use” approach. 

    To calculate the brand value, the income approach uses future net earnings that can be attributed directly to the brand to determine its current value. 

    The brand value using this method is equal to the value of income, cash flow, or cost savings due to the reputation or recognition of the brand. This method values a brand using the costs that have been incurred to build the brand since its beginning.

    So why is it important to know your brand’s value?

    There are many common purposes for determining the brand value that and below are three major usage categories: 

    • Financial applications (e.g. mergers and acquisitions, balance sheet valuation, investor relations, raising funds)
    • Brand management applications (e.g. brand portfolio management, resource allocation)
    • Strategic / Business case applications (e.g. brand architecture, brand repositioning, investor’s presentation)

    Brand Value requires an Investment Philosophy. An international MBA will provide you with a deeper understanding of brand management tactics and will introduce you to strategies for brand building and positioning. This will guide you in effectively utilizing your marketing and operational resources to strengthen your brand equity value.   

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