5.1.6 APPLICATIONS OF BRAND EVALUATION External investor relations
Mergers and acquisitions were the original driving force for brand valuation.
Now many successful companies use brand valuation as an ongoing business performance indicator: to help ensure that brand strength is reflected in share value. (And in many markets the relevant accounting standards allow brands to be shown as assets on the balance sheet).
Internal marketing management
Brand valuation is increasingly being used as a management tool in leading organizations. For example: brand valuation figures can be used to evaluate new product and market development opportunities, to set business objectives, allocate budgets and to help measure performance and reward staff.
Internal royalty rates
Across a large organization there may be many affiliates, subsidiaries or divisions that make use of any particular brand. As the profit potential of brands becomes more clearly understood more companies are charging royalties, across their business operations, for the use of these brand assets.
Licensing and franchising
Where companies allow outside organizations to use their brand, on a licensing or franchising basis, a brand valuation can lay the foundation for appropriate charges.
Tax planning
As the management of brands as financial assets becomes more sophisticated, so tax authorities around the world have started to take an interest in how these assets are managed. The result is that more and more international organizations are planning the most cost-effective domicile for their brand portfolios and are organizing their tax affairs with their brands in mind.
Securitized borrowing
Even in the conservative world of banking, the asset value of brands has been recognized. As a result brands have been used to secure loans, especially in the US, where companies such as Disney have borrowed significant amounts of money against their brand name.
Litigation support
Brand valuations have been used to support litigation against the illegal use of a brand name (as a basis for calculating damages, for example) and also in cases of receivership, to prevent the assets of the business being undervalued.
5.1.7 BENEFITS OF BRAND EVALUATION Valuation has various intangible and tangible benefits.
Intangible benefits of brand valuation
1. Enhances Confidence: Brand credibility shows the faith & confidence of public at large in the product, Valuation if reflected in the books of accounts further enhances the public loyalty to the product and hence becomes a force multiplier.
2. Indicator of effective utilization: The value in the brand building is generated in the reverse direction when compared to the capital expenditure. We invest in capital expense today and utilize the proportionate investment every year, which we write off in the form of depreciation or amortization, whereas the expenditure in brand building is incurred in installments and is converted into valuable asset over a period of time. The expenditure is considered as revenue expense due to accounting and taxation provision which really is not so, hence valuation gives us the real effective worth, which we have created over the years through brand building and hence becomes an indicator as to how effectively we have utilized the expenditure.
3. Credibility to the real worth: If you valuate your brand only at the time of disposal it has a lesser influence and will always leave a doubt of its real worth, in the mind of both the buyer as well as the seller where as if the brand is continuously valued has a different impact and gives much more creditability to the real worth.
4. Strategy development: Companies are applying brand valuation
techniques in order to understand and manage their brands better.
Brand valuation involves a detailed examination of a brand from marketing point, a financial and legal prospective. It also examines the brand performance, prospective, market opportunity, and competition.
It thus provides an excellent tool for strategy development.
Tangible benefits of brand valuation
1. Merger & Acquisition: It is of critical importance for an acquirer, as well as for the vender to understand and evaluate their real worth for negotiating the correct price.
2. Disposal: The current focus on brands has led many companies to recognize that they cannot support properly all their brands or certain brands could be worth more to a third party than to their current owner. Brand evaluation technique can be used to judge which brand to dispose of and their possible economic worth to a third party.
3. Licensing: Brand licensing, either to third parties or internally to its own subsidiary, is am increasingly common practice. Brand valuation assists in formulating this strategy.
4. Fund Raising: Brand valuation are playing an increasing prominent role in the area of fund raising, particularly from the public as brand represent robust asset against which to seek funds is much easier.