How to do brand valuation?

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How To DoBrand Valuation?

• Brand Valuation Services

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The business valuation process is a challenging
task. While the valuation of a brand may seem
simple and appealing, they offer proper financial
techniques, the truth is the bigger a brand is,
the more complex and challenging the task
of brand valuation is. A lot of factors should be
taken into account and the valuation of
trademarks, patents, goodwill, etc. also play a
major role in the process.   Brand
Valuation refers to the process that is used to
calculate the value of a brand or the amount of
money a third party is willing to pay for it or
the financial value of the brand.
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COST-BASED APPROACH OF BRAND VALUATION
The techniques under this method are
concerned with the costs that are used in
creating or replacing the brand. It is further
subdivided into the following methods   Historica
l Cost Method - The approach includes the
historical cost of making the brand as the actual
brand value. It is regularly used on the
preliminary levels of brand creation when
specific market applications and advantages
cannot yet be identified. However, the shortfalls
of this approach are that there exist
difficulties as to what could classify as
marketing costs and the next amortization of
marketing cost as a percent of sales over the
brand's expected life. Replacement Cost Method -
This method states that the brand
valuation should be done by taking into account
all the expenditures and investments that are
required to replace the brand with a new one that
has equivalent value to the company. The drawback
for this method is that though it makes the
calculation convenient and easy, however, it
looks over the success of an established
brand. Conversion Model - Using the approach
here, one estimates the quantity of awareness
that needs to be generated to attain the
modern-day level of sales. This technique could
be based on conversion models, i.e., taking the
level of awareness that induces trial that in
addition induces ordinary repurchase. The output
so generated may be used for 2 purposes to
decide the cost of obtaining new clients and
would be the replacement fee of brand equity. The
major flaw in this system is that the
differential in the purchase patterns of a
generic and a branded product is required and the
conversion ratio among awareness and purchase is
better for an unbranded generic than the branded
product and this indicates that awareness isn't
always a key driving force of sales.
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MARKET-BASED APPROACH OF BRAND VALUATION
The market-based method essentially offers the
amount at which a brand is bought and is
associated with the maximum value that a "willing
consumer seller" are prepared to pay for an
asset. This method is most typically used when
one needs to sell the brand and consists of
methods herein stated   Comparable Approach or
the Brand Sale Comparison Method - This approach
entails the valuation of the brand by observing
current transactions concerning similar brands in
a similar industry and referring to similar
multiples. In other words, this approach takes
the premium (or some other measure) that has
beenpaid for similar brands and applies this to
brands that the company owns. The benefit of this
method is thatit appears at a 3rd party angle
that is, what the third party is willing to pay
and is easy to calculate however the flaw in this
approach is that the information for similar
brands is rare and the price paid for the same
brand consists of the synergies and the specific
goals of the buyer and it may not be relevant to
the value of the brand at issue. Brand Equity
based on Equity Evaluation method - Brand equity
may be divided into components The demand
enhancing component, which incorporates
advertising and results in rate premium profits,
The cost-benefit component, which is acquired due
to the brand during new product introductions and
through economies of scale in distribution.
Hence, they essentially anticipated the price of
brand equity using the financial market value and
the benefit of this method is that it is based on
empirical proof however shortfalls of this method
are that it assumes a very sturdy state of
efficient marketplace hypothesis and that all
information is covered in the share price.
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INCOME-BASED APPROACH OF BRAND VALUATION
The income-Based or Economic Use method is
the valuation of future net income directly due
to the brand to decide the value of the brand in
its modern-day use. This approach is extremely
effective because it suggests the future ability
of a brand that the owner presently enjoys and
the value is useful when compared to the open
market valuation as the owner can decide the
advantage foregone by pursuing the modern course
of action. The strategies used under the method
are as follows   Royalty Relief Method - The
Royalty Relief approach is the most popular in
practice. It is premised on the royalty that a
company would need to pay for using the trademark
if they needed to license it. The technique that
needs to be observed right here is that the
valuer should first decide the underlining base
for the calculation (percent of turnover, net
sales or another base, or quantity of units),
determine the correct royalty rate and determine
a growth rate, predicted life and discount price
for the brand. This approach has an edge of being
industry-specific and accepted by tax authorities
however this approach loses out as there are
actually few brands that might be genuinely
similar and generally the royalty rate
encompasses more than just the brand. The
differential of Price to sale ratios approach
- The Differential of Price to Sale ratios Method
calculates brand value as the distinction between
the expected price to sales ratio for a branded
corporation and the price to sales ratio for an
unbranded organization and multiplies it by the
sales of the branded organization. The reason why
this approach may be used is due to the fact
information is readily available and it is easy
to conceptualize however the disadvantage is that
the similar companies are a limited few and there
exists no difference among the brand and
different intangible assets including good
customer relationships.
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FORMULARY APPROACH OF BRAND VALUATION
The Formulary techniques are those that are
significantly used commercially by consulting
other organizations. This method is similar to
the income or economic use approach differing in
the magnitude of commercial usage and employing
multiple criteria to decide the value of the
brand. As we mentioned various techniques above,
it is clear that a valuation of a brand is a
challenging and tricky task no matter where brand
valuation is done. Each brand may require a
different technique. Some firms follow the Income
approach for brand valuation in Mumbai, on the
other hand, various firms use a combination of
cost and formulary approach for brand valuation
in Gurugram. It is on the will and analysis of
the analyser, what approach they think is the
best for them.   Resurgent India is a trusted and
leading financial advisory that specializes in
brand valuation in Gurgaon and Mumbai. The firm
holds rich experience in the field and has a
panel of experts that develop tailor-made
solutions for their clients.
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