Brand valuation shot into prominence in the late 1980s when a number of acquisitions by food companies resulted in brands being assessed and valued.
The advantages of brand valuation are as follows :
The valuation of a brand becomes important when a company wishes to assess his assets and brand.
The existence of the brand in the balance sheet of the company shows the actual return from assets.
Brand management becomes more effective if the brand is valued.
By valuing the brand like any other asset the company becomes less affordable to people making hostile bids for the company.
Brand valuation is especially suitable for service industries where there are few assets but a large number of customers.
The methods of brand valuation are as follows :
This approach is based on the premise that a branded product will sell more than an unbranded product. The difference in price between the branded product and the unbranded product is known as premium. This premium when multiplied by forecast of the annual sales of the product results in a cumulative amount known as annual price premium the sum of which is the value of the brand.
his method involves deduction of the profitability of the branded product that is accredited to tangible assets and other factors leaving behind the value of the brand. In practice however it is difficult to attribute profitability to tangible assets and other factors.
THE RELIEF FROM ROYALTY METHOD
This method calculates the value of the brand by determining how much a third party would pay for using the brand or how much the owner saves by not paying for using the brand.