New Standards For Brand Valuation And Evaluation

New Standards For Brand Valuation And Evaluation

Brands are inarguably among the largest assets a company owns, but they are difficult to value accurately. Thus, it is surprising that most marketing professionals, and managers more generally, are unaware of the emerging international standards for measuring, monitoring and reporting brand valuation, the monetary worth of a brand, and brand evaluation, the health of a brand. Even as U.S. accountants continue to avoid the creation of standards for measuring and reporting on one of a firm’s most important assets, brand, international bodies have been busy developing standards that investors should demand, and firm’s should implement. In 2019, the International Organization for Standardization (ISO) adopted a set of standard for the continuous monitoring of brand health: ISO 20671:2019, Brand evaluation — Principles and fundamentals. These recent standards complement an earlier ISO statement regarding the valuation of brands: ISO 10668:2010: Brand valuation — Requirements for monetary brand valuation.

How Monetary Value Is Assigned To A Brand

The ISO brand valuation standards are quite specific about how a monetary value should be assigned to a brand, though there are a few alternatives. This standard identifies three broad approaches for determining the value of a brand: (1) the cost approach, (2) the market approach, and (3) the income approach. The cost approach values a brand based on what it would cost to replicate the brand at the time of the valuation. Past expenditures on brand development can inform the cost of reproducing the brand, but the current value of a brand may be more or less than past expenditures. The market approach bases the value of a brand on what a purchaser of the brand might reasonably be expected to pay to acquire the brand. The market approach is based on information about the sales of similar brands. Finally, there is the income approach, which values a brand based on the income it is expected to generate over the life of the brand. In other words, this approach seeks to estimate the net present value (NPV) of the cash flows generated by the brand.

Factors That Influence Brand Health

The value of a brand at any point in time and the change in that value over time are important indicia of the success, or failure, of brand management. They represent the “ultimate metric” of success because they are stated in terms that firms must report, financial performance. Such metrics are incomplete, however. Hence, the development of the ISO measures of brand evaluation. Marketers will be well acquainted with such measures because they are common measures of brand health. Such measures include awareness, attitudes, preference, intentions, and satisfaction, among others. These measures often serve as leading indicators of problems or opportunities in the future, even if they do not have strong, immediate predictive power with respect to sales and revenue. For this reason, it is important to monitor them on an ongoing basis in the context of a systematic brand management process. The ISO Brand Evaluation Standards emphasize that  brand management involves a continuous process of improvement. In addition, the customer-centric and market based  measures are not the only factors that influence the health of a brand. Changes in the legal, economic, political, and financial environment, among others, can also influence the health of a brand. Thus, the ISO standards call for evaluation of the effects of these factors as well.

Marketing’s Golden Ticket To Greater Organizational Influence

Marketing professionals would do well to become familiar with the ISO standards and use them as part of the justification for actions and resources. Much of the credibility and organizational power of accounting, finance, and operations grows from the existence of standards for performance to which these disciplines point as justification for their command of resources. Marketing has lacked such external justification, but this is no longer the case. If used wisely, the ISO standards for brand evaluation and brand valuation are the marketing disciplines “golden ticket” to greater organizational influence and better performance by the firms that employ them.

Contributed to Branding Strategy Insider by: David Stewart, President’s Professor of Marketing and Business Law, Loyola Marymount University, Author, Financial Dimensions Of Marketing Decisions.

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