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Gabi1Gabriela Salinas – Expert in brands and appraisal of intangibles

The growing importance of intangible assets and brands in the creation of value has been extensively documented. Brand Finance estimates that 72% of the value of US corporations is explained through the value of intangible assets.

With the phenomenon of the collaborative economy and its intensive business models in intangible assets, we can only expect that the role of intangible assets in the creation of value will become increasingly relevant. At the beginning of 2014, Uber, the platform that provides transportation in private cars, was valued at $18 billion, and Airbnb, the platform that provides accommodation in private homes, at $10 billion. And the value of these companies in the new collaborative economy is based fundamentally on their intangible assets. They have managed to create value using a base of tangible assets that is far smaller than their traditional rivals.

The growing importance of intangible assets and the brand as sources of value creation has led to a debate in terms of the optimum methodologies of valuation, as well as the variables to be taken into consideration when it comes to appraising this kind of asset.

There is no single methodology to value brand, and in fact numerous brand valuation models and providers have proliferated in the last 30 years. Many of these publish brand value rankings and their divergent results have not only led to a certain scepticism surrounding the tool but also many doubts as regards the optimum methodology or the variables or factors to be taken into consideration when valuing a brand.

Figure 1 shows the divergent results from different classifications published in 2014 by several branding consultants.

Figure 1. Comparison of the valuations of Brand Finance, Interbrand and Millward Brown Optimor of Apple, Google, Microsoft and IBM for 2014 (in billions of dollars)

figura 1

Source: Own, based on figures from the rankings published in 2014 by Brand Finance (Global 500), Interbrand (Best Global Brands) and Millward Brown Optimor (Brand Z)

The brands included in the Figure 1 chart correspond to the only four brands that fall within the top 10 of the three rankings in 2014. This figure shows that Millward Brown Optimor allocates values that are consistently higher to the four brands selected, while Brand Finance seems to give the most conservative valuations (with the exception of the Microsoft brand). But these are not small differences. In the case of Google, the difference between the estimate of Millward Brown Optimor and Brand Finance totals $90 billion ($51 billion if we compare the estimate of Millward Brown Optimor with the estimate of Interbrand).

The situation has led many authors and academics to question the tool, arguing that it seeks to quantify the unquantifiable and that it is impossible to segregate cash flows attributable to the brand from those generated by other business assets. In 2008, the famous professor of Strategic Brand Management, Kevin Lane Keller, wrote that “calculating brand value can be as difficult as quantifying the impact a trainer has on the team’s results”.

Faced with this scenario, we need to understand the variables to be taken into consideration when choosing a brand valuation model or services provider. In this article we shall attempt to clear up these aspects, reviewing the principles of brand value that we, as users of these estimates, should consider and which any valuation model should observe. The principles that we submit will not be exhaustive or detailed, rather they attempt to be didactic and easy to understand: A kind of basic pocket dictionary for understanding the fundamentals of this tool.

Principle #1: Brand valuation is an opinion

It is important to understand that the valuation of brands is an expert opinion, not a scientific finding. In a recently published article, Mark Ritson defends the method of Millward Brown Optimor in comparison with that of Interbrand, stating that “Interbrand estimates; Millward Brown Optimor measures”[1]. Evidently, this statement conceals profound ignorance of what an economic valuation actually represents, irrespective of the asset valued. The Prophet website includes the following statement from Tim Neale, the Boeing spokesman: “we considered carrying out a brand valuation several years ago, but we have been unable to justify the use of one methodology over another. It’s not a science.”[2] No result of a valuation has any status other than being an expert opinion. In this regard, the brand valuation is no different to a valuation of financial assets, real estate or works of art.

Principle #2: Brand value is a function of profitability and risk

So, the valuer will form an opinion on the value of that asset in accordance with the expected profitability and risk associated to the asset. In other words, brand value – just as with the value of any other kind of asset – is determined in accordance with the profitability and the risk of said asset.

To determine brand profitability and risk, the ISO 10668, a standard published in 2010 and which specifies the principles to be observed in the procedure to perform any brand valuation, proposes the following:

  • A behavioural analysis, which includes the assessment of the brand equity in terms of the main associations, attitudes and behaviour that clients display towards the brand, in each of the relevant regions and segments in which the brand operates.
  • financial analysis, which includes the analysis of relevant financial information associated with the brand, such as sales forecasts and margins.
  • A legal analysis, which includes assessing the legal protection of the brand in each relevant jurisdiction, as well as the legal parameters that have an impact on brand value

Principle #3:   Brand value is a function of brand equity

The behavioural analysis proposed by the ISO 10668 rightly assumes that brand value is a function of brand equity. In other words, to value a brand you need to evaluate it. Brand equity is defined as the set of associations, attitudes and behaviour that clients display towards a specific brand. The commonly used methods to measure brand equity include brand recognition, the consideration and likelihood of recommendation, among other measures.

The stronger the brand equity, as long as the remaining variables stay constant, the greater the value of the brand.

Principle #4: Imperfect laws reduce brand value

In the ISO 10668 this aspect is addressed by requiring all valuation models to include a “legal analysis”. The valuer must take into consideration the legal parameters which positively or negatively affect brand value. These include the risk of popularisation and expiry through popularisation, its degree of distinctiveness, the scope of protection in territorial terms and categories, and whether it is a reputable or well-known brand, among other factors. So, for example, if the conclusion of the legal analysis is that the brand is popularised and the brand owner has no activity targeted at protecting its distinctive value, the valuer should “discount” the brand value. Why? Because the legal consequence of brand popularisation is the declaration of expiry. In other words, we are faced with a weak situation of legal protection, through an “imperfect law”.

Principle #5: Brand value is contextual

We must never forget that brand value is a value within the context of a business. Yet there is certain confusion surrounding this principle. Pablo Fernández (2001) exemplifies this confusion when he makes reference to a sentence attributed to a prestigious marketing professor, published in 2000 by a national newspaper: “Brand value can triple stock market capitalisation”. The value of a brand can never exceed the value of the business or businesses to which it is associated. The brand is one of the assets with which businesses operate, and its value in use can never exceed the aggregate of the values in use of each of the assets exploited by the business or businesses with which it is associated. The financial analysis proposed by ISO 10668 should avoid this kind of mistake.

Principle #6: The proper valuation methodology depends on the objective of the valuation

The determination of the economic profit attributable to the brand is a focal element in the valuation process. The brand-attributable economic profit may be determined in different ways, but the most common methodologies are the “saving of royalties” and “analysis of demand routers”.

The “saving of royalties” methodology estimates the brand value as the present value of the royalties flow that the company would have to pay for use of the brand if it were not the owner and therefore needed to license it from a third party.

The “analysis of demand routers” considers the effects of brand equity on demand, to determine the brand influence on the purchase decision process. This may be a statistical analysis or one based on the personal opinion of an expert.

The choice of the appropriate methodology is tied to the use that will be made of the result. In general there are three major groups that apply brand valuation:

  • Accounting purposes: to include the brand on the balance sheet for financial reporting
  • Transactional: sale of brands, licenses and franchises
  • Management: remuneration of senior management, allocation of the marketing budget, streamlining of brand portfolio, etc.

For technical valuations (accounting and transactional), the most widely applied methodology and the most defended from the academic standpoint is the “saving of royalties” methodology. For management valuations, the user will have a greater level of freedom to choose the methodology and he will choose the method that enables him to reflect his business model with greater reliability, or which enables him to prove a specific hypothesis. In other words the variety of choice criteria in this field gives rise to the possibility of there being a multiplicity of optimum models for different management situations.

Principle #7: Brand valuation requires the participation of a multi-disciplinary team

Brand valuation is no different to a valuation of businesses in the sense that it depends on many variables. To understand these variables in depth and to provide a solid opinion on brand value, we need to know the business strategy, the legal protection of the brand, the brand-extension plans, etc. This requires help from the marketing department, as well as the corporate development and legal departments. The proper valuation should always be a multidisciplinary exercise.

Table 1 summarises the seven principles.

Table 1: Keys to brand valuation

Principle #1: Brand valuation is an opinion

Principle #2: Brand value is a function of profitability and risk

Principle #3: Brand value is a function of brand equity

Principle #4: Imperfect laws reduce brand value

Principle #5: Brand value is contextual

Principle #6: The proper valuation methodology depends on the objective of the valuation

Principle #7: Brand valuation requires the participation of a multi-disciplinary team

7 principles to guide you through a confused and uncertain panorama

Although these principles are not and do not attempt to be exhaustive, they represent a useful guide when it comes to understanding, interpreting and putting into perspective the different brand value estimates that we find in the media rankings, as well as avoiding frequent errors in interpreting results and managing these types of projects and estimates.

Nathan West is said to have come up with the phrase “numbers represent the only universal language.” But if we do not understand their nature and how they work, “the numbers” of brand valuation could become a huge “Tower of Babel”, a trap for us to fall into. And this is partly what has happened to us thus far.

Bibliografía y recursos de consulta

  • Brand Finance (2014), Global 500 2014:
  • Brand Finance (2014), “Brand Finance US 500: The Billion Dollar US Club”:
  • Fernández, P. (2001), “Valoración de empresas: Cómo medir y gestionar la creación de valor,” Gestión 2000, Barcelona, España
  • Interbrand (2014), “Best Global Brands 2014”:
  • ISO 10668 (2010), “Brand evaluation – Requirements for monetary brand valuation”
  • Keller, K. (2008), “Strategic brand management: building, measuring, and managing brand equity”, Pearson Prentice Hall, New Jersey, p. 421
  • Mark Ritson (2006), “Mark Ritson on branding: Getting to bottom line of brand equity”, Marketing Magazine. Puede descargarse de:


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