Measuring the value of any brand is a huge challenge. Even the best methodology available is far from perfect (and many would argue I’m being too generous in that assessment). There are, however, a number of significant potential benefits if you know the value of your brand. Most obviously you have a better idea of your firm’s value. Furthermore, understanding the value of a brand can potentially allow for better informed investment decisions. The basic idea being that you need to estimate how much brand value you will create in order to assess whether investments in creating brand value make sense.
There is relatively little work on understanding how managers actually value brands and why. Gunther and Kriegbaum-Kling (2001) surveyed managers at 132 German companies to understand how they treated brand valuation. It won’t come as a huge surprise to learn that many saw valuing brands as very challenging.
The researchers also asked why brand valuations were completed. Of the 47 companies that attempted to value brands 61.7% said that this was for internal control purposes. This makes sense, to control an asset effectively it helps to have an idea of what the asset is worth. 59.6% used the valuations in budgeting decisions, again this makes sense, it helps when considering whether investing in a brand makes sense. 29.8% used valuations in acquisitions and spinoffs. Others (36.2%) used the valuations in negotiations with dealers. Assisting with the fixing of license fees rounding off the top five reasons (14.9%).
Overall the authors found, “…a gap between the perception of brand as an intangible asset that represents a long term investment and the actual management of brands in practice. Brand management predominantly focused on short-term, tactical, single period targets.” (Gunther and Kriegbaum-Kling, 2001, page 292). There is lots of work to do on brand valuation, it is really hard, but estimating the value of brands more accurately might allow for better informed investment decisions.
Read: Gunther, Thomas, and Catharina Kriegbaum-Kling (2001) “Brand valuation and control: an empirical study.” Schmalenbach Business Review: ZFBF 53, no. 4, 263-294.