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Sakshi Sharma, an intern at Khurana & Khurana, Advocates and IP Attorneys looks into the concept of Brand Valuation, its history, evolution and different approaches and methods thereto.


Brands today are not restricted to marketing or profits made by a company, but are a part of our everyday life. In the light of emergence of concepts of consumer awareness and the new world economy, brands have a quintessential role to play. The term brand, infers to names, terms, signs, symbols and logos that identify goods, services and companies; Brand Value is not just a financial number. As put forth by Ajimon Francis, Indian head and CEO for global brand consultancy Brand Finance, “It (Brand Value) is a measure of several factors like loyalty of customers, the ability of a brand to keep offering newer products and technology, and the connect with consumers, who give it a premium.”

Brands have three primary functions – navigation, reassurance and engagement. To explain this further – Navigation is when the brands help customers to select from the bewildering array of alternatives while Reassurance ensures that they communicate the intrinsic quality of the product or service and assure consumers at the point of purchase while Engagement communicates a distinctive imagery and associations that encourage identification of the brand by customers.It is an obvious assumption that the value that brands carry and the process of their valuation is important.

Brand Valuation and Brand Equity:

Brand Valuation can be defined as the process used to calculate the value of a brand or the amount of money another party is willing to pay for it or the financial value of the brand.

The concept of Brand Value, although similarly constructed to that of Brand Equity, is distinct. To put it simply, while brand equity deals with a consumer based perspective, brand value is more of a company based perspective. As early as 1991, Srivastava and Shocker identified brand equity as a multidimensional construct composed of brand strength and brand value. This indicates that brand equity is a concept a lot broader than brand value.

In order to further this discussion of the distinction between the two, let us consider an example. This specific case concerns the $1.7 billion purchase of Snapple by Quaker Oats in 1994. Quaker Oats’ primary distribution strength was confined to supermarkets and drugstores whereas smaller convenience stores and gas stations constituted more than half of Snapple’s sales. But despite the purchase, Quaker Oats was unable to increase supermarket and drugstore sales enough to compensate for lost convenience and gas station sales and was forced to sell Snapple for $ 300 million just three years later. As seen in this case, Snapple’s Brand Value decreased enormously over the three years that Quaker Oats owned it, but this had nothing to do with it brand equity, which could have been constant or increased owing to the additional exposure in supermarkets and drug stores. What can be concluded from this example is that neither a brand’s purchase price nor a dramatic change in its selling price provides information about the magnitude or movement of a brand’s equity. This also means that while a company may have the highest brand value, it is not necessary that it also has high brand equity. For example, Apple’s Brand Value ID ranked #1 is worth $185 billion whereas its equity is #11 and Coca Cola has the highest Brand Equity.

Evaluating Brands:

Before evaluating brands, two essential questions need to be answered i.e. what is being valued, the trademarks, the brand or the branded business and secondly, the purpose for such valuation. This brings us to the answering what the utility of undertaking brand valuation is. The process of brand valuation is of primal importance not only for the brand and the respective owning company to improve upon the same but also for the purposes to increase the market value and ascertain accuracy in instances of mergers and acquisitions. In other words, brand valuation would comprise of technical valuation which can be utilized for balance sheet reporting, tax planning, litigation, securitization, licensing, mergers and acquisitions and investor relations purposes and commercial valuation which is operational for the purpose of brand architecture, portfolio management, market strategy, budget allocation and brand scorecards. Thus, the application of brand valuation would be for strategic brand management and financial transactions.

Prior Approach:

Earlier research with respect to Brand Valuation was limited to two areas: Marketing measurement of brand equity and financial treatment of brands. The former was used by Keller and included subsequent studies by Lassar et al on the measure of brand strength, by Park and Srinivasan on the evaluation of the equity of brand extension, Kamakura and Russell on single source scanner panel data to estimate brand equity and Aaker and Montameni and Shahrokhi on the issue of valuing brand equity across local and global markets. The financial treatment of brands has traditionally stemmed from the recognition of brands on the balance sheet (Barwise, 1989, Oldroyd, 1994, 1998), which presents problems to the accounting profession due to the uncertainty of dealing with the future nature of the benefits associated with brands, and hence the reliability of the information presented. Tollington (1989) has debated the distinction between goodwill and intangible brand assets. Further studies investigated the impact on the stock price of customer perceptions of perceived quality, a component of brand equity (Aaker and Jacobson, 1994), and on the linkage between shareholder value and the financial value of a company’s brands (Kerin and Sethuraman, 1998).

Current Trend/Practices in Brand Evaluation:

However, Brand Valuation is no longer limited to these two areas anymore. International Organization for Standardization (ISO) came up with ISO 10668 – Monetary Brand Valuation in 2010, which laid down principles which should be adopted when valuing any brand and is popularly followed by most firms indulging in valuation of brands like Interbrand, Finance World and Brand Equity Ten. ISO 10668 is a ‘meta standard’ which succinctly specifies the principles to be followed and the types of work to be conducted in any brand valuation. It is a summary of existing best practice and intentionally avoids detailed methodological work steps and requirements. As per ISO 10668, each brand is subjected to an analysis on three levels – Legal analysis, Behavioral analysis and Financial Analysis. Keeping in mind that the nature and concept of value is difficult to grasp on account of being subjective in nature, these three methods of analysis objectify the valuing of brands.

Legal Analysis is the method that draws a distinction between the trademarks, the brands and the intangible assets involved and defines them as separate entities. After the brand valuer has clearly determined the intangible assets and Intellectual Property rights included in the definition of the ‘brand’ in concern, (s)he is required to assess the legal protection afforded to the brand by identifying each of the legal rights that protect it, the legal owner of each relevant legal right and the legal parameters influencing negatively or positively the value of the brand. Extensive Risk analysis and due diligence is required in the legal analysis and the analysis must be segmented by type of IPR, territory and business category. In other words, the valuer needs to observe and assess the legal protection afforded to the brand by identifying each of the legal rights that protect the brand, the legal owner of each of those legal rights and the legal parameters positively or negatively influencing the value of the brand.

Behavioral analysis involves understanding and forming an opinion on likely stakeholder behavior specific to geography, product and customer segments where the brand is operational. For perusal using this method, it is necessary to understand the market size and trends, contribution of the brand to the purchase decision, attitude of all stakeholder groups to the brand and all economic benefits conferred on the branded business by the brand. Here, the brand valuer must also look into why a possible stakeholder would prefer the brand in comparison to that of the competitors’ and the concept of brand strength which is comprised of future sales volumes, revenues and risks.

Financial Analysis is the most frequently used brand valuation method and uses four approaches – Cost, Market, Economic and Formulary approach. Often, a fifth approach is also considered. Special situation approach recognizes that in some instances brand valuation can be related to particular circumstances that are not necessarily consistent with external or internal valuations. Each case has to be evaluated on individual merit, based on how much value the strategic buyer can extract from the market as a result of this purchase, and how much of this value the seller will be able to obtain from this strategic buyer.


Cost Based approach is the approach more often used by Aaker and Keller and is primarily concerned with the cost in creating or replacing the brand. The cost approach can be further divided into the following methods:

  1. Accumulated Cost or Historical cost method:

It aggregates all the historical marketing costs as the value (Keller 1998).In other words, the method involves historical cost of creating the brand as the actual brand value. It is often used at the initial stages of brand creation when specific market application and benefits cannot yet be identified. However, the shortfalls of this method are that there exists difficulties as to what would classify as marketing costs and subsequent amortization of marketing cost as percentage of sales over the brand’s expected life.In addition to that, it is sometimes difficult to recapture all the historical development costs and this method does not consider long term investments that do not involve cash outlay such as quality controls, specific expertise and involvement of personnel, opportunity costs of launching the upgraded products without any price premium over competitors’ prices. The cost of creating the brand might actually have little to do with its present value.Most alternatives suggested suffer from the same shortcomings but there is one as proposed by Reilly and Schweihs which may be effective. They propose to adjust the actual cost of launching the brand by inflation every year where this inflation adjusted launch cost would be the brand’s value.

  1. Replacement Cost Method:

The Replacement Cost Method values the brand considering the expenditures and investments necessary to replace the brand with a new one that has an equivalent utility to the company. Aaker (1991) proposes that the cost of launching a new brand is divided by its probability of success. Although this method is easy in terms of calculation, it neglects the success of an established brand. The first brand in the market has a natural advantage over the other brands as they avoid clutter and with each new attempt, the probability of success diminishes.

  1. Use of Conversion Model:

Using the method here, one estimates the amount of awareness that needs to be generated in order to achieve the current level of sales. This approach would be based on conversion models, i.e., taking the level of awareness that induces trial that further induces regular repurchase (Aaker, 1991). The output so generated can be used for two purposes: to determine the cost of acquiring new customers and would be the replacement cost 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 needed and the conversion ratio between awareness and purchase is higher for an unbranded generic than the branded product and this indicates that awareness is not a key driver of sales.

  1. Customer Preference Model:

Aaker (1991) proposed that the value of the brand can be calculated by observing the increase in awareness and comparing it to the corresponding increase in the market share. But he had identified the problem with this being how much of the increased market share is attributable to the brand’s awareness increase and how much to other factors. A further issue is that one would not expect a linear function between awareness and market share.

In alternative, another method is the Recreation method which is similar to the replacement method but involves costs involved in creating the brand again, rather than simply the costs of replacement. Another distinction that exists between the two is that the value computed through the replacement cost method excludes obsolescent intangible assets.Another method is the residual value method states that the value of the brand is the discounted residual value obtained subtracting the cumulative brand costs from cumulative revenues attributable to the brand.


Market based approach basically deals with the amount at which a brand is sold and is related to highest value that a “willing buyer & seller” are prepared to pay for an asset. This approach is most commonly used when one wishes to sell the brand and consists of methods herein stated:

  1. Comparable Approach or the Brand Sale Comparison Method

This method involves valuation of the brand by looking at recent transactions involving similar brands in the same industry and referring to comparable multiples.In other words, this method takes the premium (or some other measure) that has been paid for similar brands and applies this to brands that the company owns. The advantage of this approach is that it looks at a third party perspective that is, what the third party is willing to pay and is easy to calculate but the flaw in this method is that the data for comparable brands is rare and the price paid for a similar brand includes the synergies and the specific objectives of the buyer and it may not be applicable to the value of the brand at issue.

  1. Brand Equity based on Equity Evaluation method

Simon and Sullivan (1993) believe that brand equity can be divided into two parts:

  • The “demand-enhancing” component, which includes advertising and results in price premium profits,
  • The cost advantage component, which is obtained due to the brand during new product introductions and through economies of scale in distribution.

Hence, they basically estimated the value of brand equity using the financial market value and the advantage of this approach is that it is based on empirical evidence but shortfalls of this approach is that it assumes a very strong state of efficient market hypothesis and that all information is included in the share price.

  1. Residual Method

Keller has proposed the valuation of the brand by means of residual value which would be when the market capitalization is subtracted from the net asset value. It would be the value of the “intangibles” one of which is the brand.

Another alternative approach that is suggested is that of usage of real options as proposed by Damodaran (1996). The variables that need to be calculated are: risk free interest rate, implied volatility (variance) of the underlying asset, the current exercise price, the value of the underlying asset and the time of expiration of the option. This method is useful in calculating the potential value of line extensions but the inherent assumptions in this approach make any practical application difficult.

Income Based Approach:

Income Based or Economic Use approach is the valuation of future net earnings directly attributable to the brand to determine the value of the brand in its current use (Keller, 1998; Reilly and Schweihs, 1999; Cravens and Guilding, 1999). This method is extremely effective as it shows the future potential of a brand that the owner currently enjoys and the value is useful when compared to the open market valuation as the owner can determine the benefit foregone by pursuing the current course of action.

The methods used under the approach are as follows:

  1. Royalty Relief Method:

The Royalty Relief method is the most popular in practice. It is premised on the royalty that a company would have to pay for the use of the trademark if they had to license it (Aaker 1991).

The methodology that needs to be followed here is that the valuer must firstly determine the underlining base for the calculation (percentage of turnover, net sales or another base, or number of units), determine the appropriate royalty rate and determine a growth rate, expected life and discount rate for the brand. Valuers usually rely on databases that publish international royalty rates for the specific industry and the product. This investigation results in a variety and range of appropriate royalty rates and the final royalty rate is decided after looking at the qualitative aspects around the brand, like strength of the brand team and management. This method has an edge of being industry specific and accepted by tax authorities but this method loses out as there are really few brands that are truly comparable and usually the royalty rate encompasses more than just the brand.

  1. Differential of Price to sale ratios method:

The Differential of Price to Sale ratios Method calculates brand value as the difference between the estimated price to sales ratio for a branded company and the price to sales ratio for an unbranded company and multiplies it by the sales of the branded company. Why this method can be used is because information is readily available and it is easy to conceptualize but the drawback is that the comparable firms are a limited few and there exists no distinction between the brand and other intangible assets such as good customer relationships.

  1. Price Premium Method

The premise of the price premium approach is that a branded product should sell for a premium over a generic product (Aaker, 1991). The Price Premium Method calculates the brand value by multiplying the price differential of the branded product with respect to a generic product by the total volume of branded sales. It assumes that the brand generates an additional benefit for consumers, for which they are willing to pay a little extra.The fault in this method is that where a branded product does not command a price premium, the benefit arises on the cost and market share dimensions.

  1. Brand Equity based on discounted cash flow:

The problem faced by this method is the same as when trying to determine the cash flows(profit) attributable to the brand. From a pure finance perspective it is better to use Free Cash Flows as this is not affected by accounting anomalies; cash flow is ultimately the key variable in determining the value of any asset (Reilly and Schweihs, 1999). Furthermore Discounted Cash Flow do not adequately consider assets that do not produce cash flows currently (an option pricing approach will need to be followed) (Damodaran, 1996). The advantage of this model is that it takes increased working capital and fixed asset investments into account.

  1. Brand Equity based on differences in return on investment, return on assets and economic value added.

These models are based on the premise that branded products deliver superior returns, therefore if we value the “excess” returns into the future we would derive a value for the brand (Aaker, 1991). This method is easy to apply and the information is readily available, but there is no separation between brand and other intangible assets and does not adjust, by their volatility, the earnings of the two companies compared, including discount rate.

Other methods also include conjoint analysis, income split method, brand value based on future earnings, competitive equilibrium analysis model, etc. The very fact that there are so many methods worth discussing under the income or economic approach show how accurate and sought after this approach is.


The Formulary approaches are those that are extensively used commercially by consulting other organizations. This approach is similar to the income or economic use approach differing in the magnitude of commercial usage and employing multiple criteria to determine the value of the brand. Within formulary approaches are the following approaches:

  1. Interbrand Approach

Interbrand is a brand consultancy firm, specializing in areas such as brand strategy, brand analytics, brand valuation, etc. It determines the earning from the brand and capitalizes them by making suitable adjustments. (Keller, 1998) The firm bases its brand valuation on financial analysis, role of the brand and brand strength.

The firm attempts at determination of brand earnings by means of using a brand index which is based on 7 factors namely –leadership, internationalization/geography, stability, market, trend, support and protection in the descending order of weightage. This approach is popular and widely appreciated because of its ability to take all aspects of branding into account. The difficulty in this approach is that it is difficult to determine the appropriate discount rate because parts of the risks usually included in the discount rate factored into the Brand Index score. In addition to that, even the capital charge is difficult to ascertain. Aaker reveals that “…the Interbrand system does not consider the potential of the brand to support extensions into other product classes. Brand support may be ineffective; spending money on advertising does not necessarily indicate effective brand building. Trademark protection, although necessary, does not of itself create brand value.”

  1. Finance World Method

The Financial World magazine method utilizes the “brand index”, comprising the same seven factors and weightings. The premium profit attributable to the brand is calculated differently. This premium is determined by estimating the operating profit attributable to a brand, and then deducting the earnings of a comparable unbranded product from this. This latter value could be determined, for example, by assuming that a generic version of the product would generate a 5% net return on capital employed (Keller, 1998). The resulting premium profit is adjusted for taxes, and multiplied by the brand strength multiplier.

  1. Brand Equity Ten

As stated by Aaker, the Brand Equity Ten Method measures brand equity through 5 dimensions – loyalty, perceived quality or leadership measures, other customer oriented association or differentiation measure like brand personality, awareness measures and market behavior measures like market share, market price and distribution coverage. Brand Equity ten, thus, looks at the customer loyalty dimension of brand equity and the measures to create a measurement instrument.

  1. Brand Finance Ltd.

Brand Finance Ltd. is a UK based consulting organization which undertakes brand valuation by means of identifying the position of the brand in the competitive marketplace, the total business earnings from the brand, the added value of total earnings attributed specifically to the brand and beta risk factor associated with the earnings. On the value so obtained, it discounts the brand added value after tax at a rate that reflects the brand risk profile.


Having looked at the above mentioned methods and approaches, it is clear that brands and the process of valuing them is essential for marketing purposes and profits for the firm that owns them and that the developed literature in this arena is indicative of interest taken by various stakeholders and academicians. However, despite the variety of methods available and their respective comprehensibility, the prominent problem that emerges time and again is the lack of uniformity in the methods adopted and the results so achieved as there exists large amounts of variations in the valuation amount obtained. This can be clearly understood upon considering the case of Kingfisher Airlines and their valuation as when the brand was evaluated by Grant Thornton LLP in 2011, the amount was Rs. 4,100 Crores but when SBI, after obtaining the brand as collateral had evaluated the brand after acquiring it as a collateral against the loan of over Rs 9,000 Crores, the brand was valued at a mere Rs. 160 Crores.This case is indicative not only of the lack of uniformity in valuation but factors like time, market reputation or adverse circumstances like the company declaring bankruptcy being variable and affecting the process of brand valuation. Depending on the method adopted for brand valuation, these factors may or may not affect the value. It is true that this process of evaluating concerns only the firm owning the brand or the one acquiring it, the existence of a supervising authority would evade the variation and subsequent disputes that arise in addition to preventing companies from alleging inflated cost of the brand. ISO 10668 has provided a uniform standard for brand valuation but the lack of administrative or controlling authority to not only decide disputes but scrutinize and approve of the brand valuation done by the firm would go miles to reduce the problem of ambiguity attached to the resultant amount. Hence, though there has been a lot of progress in the field of brand valuation, there is still scope for more. After all, what is a product, if the consumers don’t relate and recognize it; Brands are here to stay and certainly are assets worth encashing in.

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