Various models for accounting brand value
Every brand has a certain value that we can see in the company’s balance sheets, as well as on the market. Thus, every time an organisation decides to acquire a brand, they pay huge goodwill or premium for it. However, how to account for that brand and calculate its brand value is still a debatable topic.
There’s not a doubt in our mind that accountants would just love to give every asset a company owns a tangible value and calculate the brand value that has been paid in order to get a specific brand. In fact, in that case, the business itself is a tangible asset. Thus, the UK uses a few systems that prove useful for this sort of process. One of them focuses on capitalising the entire value paid by the organisation to acquire a business. However, that value is depreciated over a certain period of time
Given these issues, Interbrand, which is a branding company, has decided to propose a different kind of method for accounting for the brand value. Their method, as well as some other methods that are being tossed around, focus on the future sales potential of a brand. Furthermore, they take into account the current market share as well in order to get the final figure that shows the amount of brand power or brand equity that the brand has.
So how do organisations get clear figures? Well, the industry follows one model that takes into account the value of the net profit that the brand earned in the last three consecutive years. To that figure, they add a score that derives from their measuring of certain factors. Those factors have to relate to the brand. For example, brand leadership, trends, loyalty, market share, etc. After adding a certain weight to these factors, they then take the total score and convert it into a value. For that, they use a multiple provided by a market study of a specific sector.
Of course, experts have proposed other models and methods as well. However, all of them combine certain qualitative and quantitative factors to get a measurable value for brand equity. Some of the most famous are:
- Consumer Brand Equity Brand Asset (Leo Burnett and Longman Moran)
- Brand Equity Index
- Conversion Model Equity Monitor.
Nevertheless, these methods have used various factors, including brand quality, attitude, market share, price, perception, durability, etc.
Why it’s important to have a good model for measuring brand value?
Having a good model with which we can measure brand equity is not only important to accountants. Businesses and organisations also need these models so that they can evaluate whether or not they should buy a brand. In order to assess a brand and get the right price or a premium for it, we need proven methods and models so that we don’t base our decisions on abstract thoughts.
However, there’s no such thing as a perfect model. Neither one can actually satisfy both the financial sector and the accountants, as well as business managers. Everyone has a different perception and purpose, so their evaluations are different.
Furthermore, if the brands are absolutely essential in order for the organisations to grow and strategise properly, strong and proven models are indispensable. Moreover, apart from using those models, brand equity has to be analysed from other points of view as well. For example, we have to consider it through the product portfolio and growth potential so that we could make the right choice.
Lastly, we have to consider the buyers as well. If the brand and the buyer’s business share a strategic synergy, then the brand value will vary over time. Thus, the buyer might realise that they have to pay more than what the brand value currently is. That could lead to certain issues, because the buyers then have to think about whether acquiring a certain brand is the right move for them at that moment. Luckily, brand value models can help them reach the right decision.
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