Category Archives: Brand Valuation

What is Intellectual Property Valuation?

This article is in continuation of my previous article “What is Brand Value and How to enhance it”.

The resources of a business such as technology, copyright, trademarks and other IP are the building blocks of Brand Value. Knowledge of the value contribution of these resources and the linkages between them is essential for business strategy, IP management and IP valuation. In the era of stiff competition amongst brands, the competitive advantage attributes to the development, integration and reconfiguration of intangible resources. Yet, very few companies have the knowledge of potential of value contribution of their IP assets. The prime reason firms acquire intellectual property is not for litigation purposes, but to have legal and transferable proof of ownership to some of their most important intangible assets. Intellectual Property valuation can help you determine the true value of your business and capitalize on assets that you may not have been aware of possessing. It is estimated that approximately two-thirds of businesses in the United States have intangible assets that are potentially eligible for Intellectual Property protections and the advantages they entail.

There is seldom a non linear relationship between the cost of creating IP and its value. It possesses high risk of wasted investment but it can be counter balanced by the high potential that IP assets hold if they are commercialized. A brand is sometimes used in reference of trademarks and associated goodwill or designs, formulae and copyright. At times it is treated as a combined business unit comprising of both- tangible and intangible assets. Ultimately, Wealth is the sum of working capital, fixed capital and intangible assets.

How can we derive Wealth out of IP?

Value from an IP asset is derived through direct exploitation like sale and licensing of the IP or even by not exploiting an IP asset (i.e., by merely owning it), for example, by minimizing the negotiating power of customers, offsetting supplier power, mitigating rivalry, raising barriers to entry by competitors, reducing the threat of substitutes, etc.

 What are the factors that  influences  IP Valuation ?

  1. Standard of value

The most commonly used standards of value are Fair market value and Fair Price Value. It is important when undertaking an IP valuation exercise. Fair market value (Market value) can be defined as the price at which an asset or service passes from a willing seller to a willing buyer. It is assumed that both buyer and seller are rational and have a reasonable knowledge of relevant facts. Fair value (Fair price) is seen as appropriate for use in post transaction purchase price allocation. It is based on the assumptions that market participants would use when pricing the asset. Whereas fair market value is seems to be more appropriate when used in the premise of value in exchange, fair value is often based on premise of value in-use. As mentioned earlier. in common situation, IP valuation is a process to evaluate the fair market value of an IP asset. 

  1. Purpose of valuation

In order to determine the premise for calculation of value, it is necessary to understand the purpose for valuation. For instance, valuation from the perspective of market value and investment would be completely different. In commercial situations, market value is the appropriate premise. International Value Standards define market value as “The estimated amount which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s‐length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion.”[1] 

  1. Valuation method(s)

The methodology applied and assumptions made while applying particular valuation method affects the value of IP assets. Market Method is the ost effective form of valuation. Cost method is usually refrained by companies since it ignores the novel characteristic of IP. This method is helpful for R&D costs.

  1. Nature and strength of IP asset

The competitive strength of an IP asset determines the comparative valuation that it shall hold in the market. The factors such as customer responsiveness and market distribution of a product or availing service determine its IP value. The threat of new entry and substitutes affect the value of IP assets.

 Why do you need to conduct a valuation your IP assets?

  1. Licensing and Franchising

A thorough understanding of the IP Assets ensures an informed negotiation and decision making regarding the terms and conditions at the time of licensing-in or licensing-out of IP especially in determining fair and robust royalty rates. In the case of franchising too, both the franchisor and the franchisee require a thorough understanding of the value of the trademark(s) and trade secrets and know- how of other IP assets. Examples – Mc Donald’s , Pizza Hut, Dominos, Haldiram, Bikanerwala.

  1. Merger & AcquisitionJoint Venture or Strategic Alliance

The primary reason for considering an M & A transaction is the value of the IP assets of the target company. IP valuation enables the parties to take an informed decision on the acceptable cost of capital or deciding on financial leverage strategy to be followed. It also influences positively the resulting company’s value and share price. The strategy of world class companies such as Volkswagen group and Tata group enunciates the IP valuation technique to adopt brands. The Volkswagen Group owns Audi, Bentley, Skoda, Lamborghini, Buggati , Porsche and many other well know brands. Tata group owns Jaguar and Land Rover.

  1. Investment in Research and Development (R&D)

IP valuation helps in budgeting and resource allocation decisions. For example, if a company is spending a significant amount of money on internal R&D but is losing ground to competitors due to slow or late product introductions, it may need to rethink its R&D strategy and processes. IP valuation also provides strategic guidance for new product development, brand-extensions, line-extensions, managing foreign filing and prosecution costs, etc.

  1. Financial Reporting

The recognition of the increasing share of IP assets in the total market value of enterprises has contributed to the change in the way the accounting community has begun to treat IP assets in financial reporting. The international accounting standards board (IASB) now recognizes acquired and identifiable intangible assets (i.e., IP assets) and requires all acquired IP assets to be recognised as assets, separately from goodwill, on the balance sheet of the business acquiring the IP assets. For instance, when a brand is acquired, IP valuation is done for the initial valuation as well as the periodical impairment tests for the derived values to be included in the balance sheet.

  1. Optimizing Taxation

 In devising ways to optimize the tax to be paid by a company, its assets, including its IP assets, require to be valued. IP assets create numerous opportunities for tax planning in both third party transactions as well as internal strategies such as cross-border transfer pricing and centralizing the ownership of IP assets in IP holding companies. The internal revenue service or other tax authorities would like to know as much as possible about the basis for any value determination used when allocating portions of the purchase price associated with the acquisition of a company. Valuation of IP assets helps in assessing fair transfer prices for the use of IP assets, including brands, to subsidiary companies.

  1. Insurance of IP assets

A completely new market is opening up for the insurance of IP assets with a number of major insurers in the developed countries creating products tied to the capital value of IP assets, especially trademarks/brands. Valuation is of extreme importance as far as Insurance is concerned.

How to determine the value of your Intellectual Property ?

Evaluation of IP can be a challenging process. The most suitable method for IP assets depends upon the premise of purpose to be derived from the result, assets subjected to valuation and the specific section for which the valuation is prepared.

The two effective ways of valuation are:

 Market based  

This is the most commonly used approach, this approach is based on the comparison with the actual price paid for a similar IP asset under comparable circumstances. The calculation would be accurate if there exists appropriate information on the nature and extent of rights transferred, circumstances of transaction for eg; license agreed in litigation settlement. The process initiates with research of an appropriate market to obtain the transaction information about sales, licensing of subject IP. The second step is to select relevant units of comparison such as “per drawing”, “per location”. “per customer” and develop a comparative analysis for the units considering factors such as profitability, risk, Industry, company structure, strength of IP rights, etc.

Income Method

It values the IP on the basis of amount of financial income that IP is expected to generate. In order to evaluate, project the revenue flow over remaining useful life of asset and offset those revenues by the cost related to asset. The risk has to be discounted from the amount of income by using discount rate or capitalization rate. The method is most suitable for capturing value of IP that generates stable cash flows. However, the method does not consider independent risks associated with an IP asset and lumps all the risks together to be adjusted in discount rate.


 Caliban Darklock had said that “The only thing you really own is what you create; and the only thing you can create without needing someone else to give you raw materials first, is intellectual property”.

The result of IP assets in generating finances is not just a short term strategy. The companies with strong IP assets have increased likelihood of success by way of greater investment, lower probability of bankruptcy and better chances of successful exit through initial public offerings.

IP Valuation has never received the importance that it deserves. One of the factors affecting a business’s success or failure is the degree to which it exploits its IP Assets and values it. Valuation is a complex process and requires skilled professionals to evaluate the assets. There are various companies that provide assistance and consultance for it. Khurana & Khurana Advocates and IP Attorneys has a dedicated IP Valuation Team comprising of Chartered Accountants and IPR Specialist having vast experience in valuation. This IP Valuation Exercise usually takes around 2 weeks time. Cost to undertake IP Valuation exercise largely depends upon how big the brand is, how many products does it cover, years of existence,in plain words the amount of data that is needed to be analysed.

In a 2015 study conducted by an International firm Ocean Tomo, data showed that in a span of 20 years, more value has been attributable to intangible assets than to tangible assets – from a market value share of 17% in 1975, it grew to 87% in 2015.[2] This increasing trend in the value of intangible assets suggests that indeed, intangible assets accelerate value, growth and development of an enterprise.

Author: Mr. Shubham Borkar, Senior Associate – Litigation and Business Development  and Neha Rani – Intern, at Khurana & Khurana, Advocates and IP Attorneys. In case of any queries please contact/write back to us at or at


[1] International Valuation Standards, (Seventh Edn.), pg 27.

[2] Intangible Asset Market Study,


What Is Brand Value And How Can One Enhance It?

Everybody wants it! Many Struggle to achieve it! Few attain it!

Brand Value is an enormously important subject matter amongst businesses, marketers, entrepreneurs and companies at large. It is an important issue to be dealt with, especially for the start ups. Brands have become so important for customers that hardly anything unbranded goes directly or indirectly to the market today. Brand Value in layman terms can be understood as the sum of how much extra people would pay or how often people will prefer a particular commodity over the other available alternatives.

The total value of brand ‘Tata’ has surged to $14.2 billion surpassing the total of second and third brand in the list. Yet very few people know that brands such as Jaguar, Land Rover, Titan, Tanishq, Fastrack and Westside are owned by Tata. It is the brand association strategy that the company has adopted to raise its finances. The company raised its Brand Value by becoming the corporate parent of brands that have lasting value in customer’s mind.Around 40% of Company’s value accounts for brand value[1]. Therefore it is very important for a company to inculcate business strategy that equally focuses on brand value. It is mandatory to note that brand value is equally important for small businesses.

You’ll be surprised to learn that 1 out of 2 millennial have discovered and bought a new brand they knew little about by just searching on their phones[2].

Impact of Brand Value

A strong brand influences customer choice and creates brand loyalty, motivates and retains talent and lowers the cost of financing.

Reliance diversified its company in various directions ranging from telecomm, schools to clothing. The brand value was an important factor to promote its subjects. It became easier to establish Reliance Trends- a clothing store which is altogether different from company main businesses because of the brand value that reliance possesses.

Apple is world’s only trillion dollar company and  Apple’s  iPhone has achieved supreme position in smart phones. The reason accredits not only to its product quality but also to the well executed brand message that it resonates. The Apple brand is about Luxury, Eliteness, Lifestyle, simplified use and power to the people.

Finding new customers becomes EASY.

Brand value helps in finding new customers all the time. This is the reason why although brand is not found on a balance sheet but it leads to long run profits to a company. Further, it eventually over the time, reduces the marketing and advertising costs. Most of the small businesses feel that brand valuation and promotion are meant only for the big fishes in the pond and their businesses would not benefit much from brand value. This is an incorrect understanding and business plan that remains void of consumer visibility is not a well executed business plan.

A positive brand value allows you to charge (premium value) for your product or service because people pay not for the product or service but for the loyalty they have towards your company. Brand value also provides with the upper hand in negotiation over goods sold or distributed which reduces the cost of selling.

Just as a positive brand name assists in business prosperity, a negative brand name leads to a major downfall in the profits of a company. When the sale of Maggie was banned, it affected its brand Nestle drastically. However it also act as a counterweight, for eg. heavy brand value that it holds against other noodle brands acted as a defense against all the negative exposures. Despite being an alternative, brands such as Yippee, Sun feast Pasta or Whi Whi could never compete with Maggie and it has continued to dominate the market since 90s. The same had happened with Johnson & Johnson, a few years back, when the product was alleged to cause cancer. Yet, it goes on to rule as the highest earning brand in baby care products. Such is the power of brand value!

Benefits of Having Good Brand Value

Besides recognition, there are various circumstances when valuation of a brand has an impact on the business strategies and its functioning:

  1. Financing- Although the brand valuation does not have a space on balance sheet, it is easier for companies with famous brands to obtain finances regularly than companies with poorer brands.
  2. Mergers and acquisitions- A buyer pays a premium amount over the book value of a business entity due to the goodwill that the entity has obtained. Goodwill determines the value of the business entity above the book value that is not attributable to the tangible assets or liabilities.
  3. Brand Reviews- Brand Valuation assists companies to gauge returns on the brand investment and allows businesses to prepare investment strategies against competing brand portfolios.
  4. Licensing- A licensing agreement for a strong brand is beneficial for both the parties as licensor can abstain from heavy capital investment and licensee is benefitted by lower channels and advertisement costs.

What Strategies should one adopt to promote Brand Value

Steve Jobs once wrote: “To me, marketing is about values. This is a very complicated world, it’s a very noisy world. And we’re not going to get the chance to get people to remember much about us. No company is. So we have to be really clear on what we want them to know about us.”

It is necessary for any brand to understand what it intends the customers to know about the product. This would deliver a message that the brand cares about their customers’ needs. For instance, Apple postulates buyers with lavish and elite lifestyle where Maggie uses the 2 minute recipe message denoting each and everyone out there can cook it

Appealing Policies

Leading shoe-ecommerce, is a market leader in term of policy, it provides a 365 days money back guarantee, it also provides free shipping both ways , as a result they don’t have to work hard to promote it online, things are already getting viral for them.

Creating Open Forum

American Exchange identified the value of online- conversation and have created an open forum and has invited guest authors from varied fields to share their wisdom and created a content rich site lucrative for everyone without paying anything to content contributors.

Word of Mouth Publicity

WOM is a means to promote the brand by spreading product communication through customers. It includes buzz, virals, and other social media advertising. In order to create a successful word to mouth campaign, the company has to give customers something to talk about that highlights its key features. For instance, restaurants use ambience and hospitality, mega marts such as Big Bazaar and Pantaloons use grand free exchange offers to generate word of mouth publicity for the business. A company needs to have smart professionals to analyze the evolution of the entire process and gather data of related behaviors and trends.

Easy Accessibility

Making your accessibility easy anytime anywhere also plays a key role in creating a big brand value. Dominos launched a campaign “Dominos Anywhere” which gained much publicity. This campaign of dominos focuses on making it convenient for a customer to order Pizza anytime and anywhere.

Social Media is the Key Factor

Now is the time of social media be it Instagram, Facebook, Twitter. Airbnb completely transformed the way we travel by providing homely accommodations, their strategy of digital media mainly focuses on Instagram and Facebook and other such popular site, results are clearly in front of us.

In order to use the social media effectively, involve the company’s network, create some interesting content and discuss by listening and responding to your customers. Furthermore, promote your company to raise awareness and track and monitor product or service users to find out the most effective ways to increase the social media network and capture the market. People want to connect with brands on social media. They like it more if brands are responsive. Besides, social media is a big traffic referral source. When you optimize your social profiles and posts on social media, you become more visible and searchable on social media. Social sites like Facebook and Twitter are the new search engines. People are no longer looking for keywords just on Google. They are using Twitter, Facebook, Reddit, Pinterest, LinkedIn and many other social sites.

Digital Promotions over social media via advertisement videos and promotion through movies are few trending methods to promote a brand effectively. Haldiram had a tie up with movie Prem Ratan Dhan Paayo to promote its delicacies. Zivame has a tie up with a number of website to appear as a pop up box on their web pages. Platforms such as LinkedIn, Quora and Plaxo have emerged as professional networking platforms for brand value promotion of firms and individuals

Public Relation Agencies

Another way to build brand is through Public Relation Agencies. Public Relation is a planned and sustained way for organizations, companies and persons to enhance their reputation. It captures a very small portion of marketing budget but has a much stronger impact on customers than an advertisement. PR professionals use various tools to bring the brand into news; events organization, publicity, advertisement, promotion are some of these tools. The aim of public relations is to influence and in some cases, change people’s knowledge and feelings regarding a company and its offerings, including its identity and image. PR agencies are hired for communicating the company with the media. They create frequent press clippings, increases website traffic and make the brand visible on social media mentions etc.

You can be build brand recognition that your target audiences is craving and cater to their moments of need. You can become their PREFERRED brand. But, for this to happen, you need to optimize your content marketing and brand image. Optimization brings our focus back to user experience because that’s what Google cares for

So, how do you cater to both the search engines as well your potential customers?

It is done through inbound methodology. Instead of calling out to prospects, the inbound methodology draws them in by giving them what they need during different stages of their buying journey.

A whopping 84% of small business owners use the inbound methodology predominantly. By adopting the inbound methodology, 92.7% companies saw increased leads.[3] If you want to build strong brand recognition using the inbound methodology, you need to work on your SEO, content marketing, networking, social networks and other such things.

Traffic, leads, engagement — these are the lifeblood of a building brand.

In order to build your brand and enhance SEO, it is pertinent to choose the right social media platform. For instance, you run a law firm and your target audiences are companies, law students and law graduates, LinkedIn would be a beneficial platform for it. In order to improve visibility and boost engagement, it is necessary to optimize the posts through right hash tags and mentions. Google shared in a study how 55% of millennials ignore brands that have poor reviews[4]. In another research study from BrightLocal, 88% of consumers stated that they trusted online reviews as much as personal recommendations[5].


To sum it up, creating a brand and enhancing its value is critically important for every business today as customers prefer to purchase products or avail services from a business that has been consistent and effective in its services. Brand value works as a back bone to the sustainability of any company. Therefore, it has become a pertinent business strategy for proliferating business to analyze the valuation that the brand holds in the market. According to Interbrand[6], Brand Valuation comprises of three main factors: the financial performance of products or services (return to investors), role of brand in purchasing decisions and brand’s competitive strength. Another method is known as ‘part-worth’ analysis determines how much extra a buyer is willing to pay for the brand. The awareness-attractiveness-availability (3A) analysis determines the extra market share that is captured by the brand[7]. It has been a cumbersome job to calculate the exact valuation of brand in the market. There exists various factors that add up in its valuation. One of such ingredients is the Intellectual Property Assets that a business beholds. The second part of this article focuses on methodologies and ways to identify a company’s IP Assets and the role that it plays in Brand valuation.

Author: Mr. Shubham Borkar, Senior Associate – Litigation and Business Development  and Neha Rani – Intern, at Khurana & Khurana, Advocates and IP Attorneys. In case of any queries please contact/write back to us at or at


[1] Dr. Gerhard Hrebicek, Brands are more valuable than ever! Why brand value is more important than ever?


[3] Ryan Ghods, ROI Report by Hubspot,




[7] Ryan Erskin, What is a Brand Really Worth?


Sakshi Sharma, an intern at Khurana & Khurana, Advocates and IP Attorneys looks into the concept of Brand Valuation, its history, evolution and different approaches and methods thereto.


Brands today are not restricted to marketing or profits made by a company, but are a part of our everyday life. In the light of emergence of concepts of consumer awareness and the new world economy, brands have a quintessential role to play. The term brand, infers to names, terms, signs, symbols and logos that identify goods, services and companies; Brand Value is not just a financial number. As put forth by Ajimon Francis, Indian head and CEO for global brand consultancy Brand Finance, “It (Brand Value) is a measure of several factors like loyalty of customers, the ability of a brand to keep offering newer products and technology, and the connect with consumers, who give it a premium.”

Brands have three primary functions – navigation, reassurance and engagement. To explain this further – Navigation is when the brands help customers to select from the bewildering array of alternatives while Reassurance ensures that they communicate the intrinsic quality of the product or service and assure consumers at the point of purchase while Engagement communicates a distinctive imagery and associations that encourage identification of the brand by customers.It is an obvious assumption that the value that brands carry and the process of their valuation is important.

Brand Valuation and Brand Equity:

Brand Valuation can be defined as the process used to calculate the value of a brand or the amount of money another party is willing to pay for it or the financial value of the brand.

The concept of Brand Value, although similarly constructed to that of Brand Equity, is distinct. To put it simply, while brand equity deals with a consumer based perspective, brand value is more of a company based perspective. As early as 1991, Srivastava and Shocker identified brand equity as a multidimensional construct composed of brand strength and brand value. This indicates that brand equity is a concept a lot broader than brand value.

In order to further this discussion of the distinction between the two, let us consider an example. This specific case concerns the $1.7 billion purchase of Snapple by Quaker Oats in 1994. Quaker Oats’ primary distribution strength was confined to supermarkets and drugstores whereas smaller convenience stores and gas stations constituted more than half of Snapple’s sales. But despite the purchase, Quaker Oats was unable to increase supermarket and drugstore sales enough to compensate for lost convenience and gas station sales and was forced to sell Snapple for $ 300 million just three years later. As seen in this case, Snapple’s Brand Value decreased enormously over the three years that Quaker Oats owned it, but this had nothing to do with it brand equity, which could have been constant or increased owing to the additional exposure in supermarkets and drug stores. What can be concluded from this example is that neither a brand’s purchase price nor a dramatic change in its selling price provides information about the magnitude or movement of a brand’s equity. This also means that while a company may have the highest brand value, it is not necessary that it also has high brand equity. For example, Apple’s Brand Value ID ranked #1 is worth $185 billion whereas its equity is #11 and Coca Cola has the highest Brand Equity.

Evaluating Brands:

Before evaluating brands, two essential questions need to be answered i.e. what is being valued, the trademarks, the brand or the branded business and secondly, the purpose for such valuation. This brings us to the answering what the utility of undertaking brand valuation is. The process of brand valuation is of primal importance not only for the brand and the respective owning company to improve upon the same but also for the purposes to increase the market value and ascertain accuracy in instances of mergers and acquisitions. In other words, brand valuation would comprise of technical valuation which can be utilized for balance sheet reporting, tax planning, litigation, securitization, licensing, mergers and acquisitions and investor relations purposes and commercial valuation which is operational for the purpose of brand architecture, portfolio management, market strategy, budget allocation and brand scorecards. Thus, the application of brand valuation would be for strategic brand management and financial transactions.

Prior Approach:

Earlier research with respect to Brand Valuation was limited to two areas: Marketing measurement of brand equity and financial treatment of brands. The former was used by Keller and included subsequent studies by Lassar et al on the measure of brand strength, by Park and Srinivasan on the evaluation of the equity of brand extension, Kamakura and Russell on single source scanner panel data to estimate brand equity and Aaker and Montameni and Shahrokhi on the issue of valuing brand equity across local and global markets. The financial treatment of brands has traditionally stemmed from the recognition of brands on the balance sheet (Barwise, 1989, Oldroyd, 1994, 1998), which presents problems to the accounting profession due to the uncertainty of dealing with the future nature of the benefits associated with brands, and hence the reliability of the information presented. Tollington (1989) has debated the distinction between goodwill and intangible brand assets. Further studies investigated the impact on the stock price of customer perceptions of perceived quality, a component of brand equity (Aaker and Jacobson, 1994), and on the linkage between shareholder value and the financial value of a company’s brands (Kerin and Sethuraman, 1998).

Current Trend/Practices in Brand Evaluation:

However, Brand Valuation is no longer limited to these two areas anymore. International Organization for Standardization (ISO) came up with ISO 10668 – Monetary Brand Valuation in 2010, which laid down principles which should be adopted when valuing any brand and is popularly followed by most firms indulging in valuation of brands like Interbrand, Finance World and Brand Equity Ten. ISO 10668 is a ‘meta standard’ which succinctly specifies the principles to be followed and the types of work to be conducted in any brand valuation. It is a summary of existing best practice and intentionally avoids detailed methodological work steps and requirements. As per ISO 10668, each brand is subjected to an analysis on three levels – Legal analysis, Behavioral analysis and Financial Analysis. Keeping in mind that the nature and concept of value is difficult to grasp on account of being subjective in nature, these three methods of analysis objectify the valuing of brands.

Legal Analysis is the method that draws a distinction between the trademarks, the brands and the intangible assets involved and defines them as separate entities. After the brand valuer has clearly determined the intangible assets and Intellectual Property rights included in the definition of the ‘brand’ in concern, (s)he is required to assess the legal protection afforded to the brand by identifying each of the legal rights that protect it, the legal owner of each relevant legal right and the legal parameters influencing negatively or positively the value of the brand. Extensive Risk analysis and due diligence is required in the legal analysis and the analysis must be segmented by type of IPR, territory and business category. In other words, the valuer needs to observe and assess the legal protection afforded to the brand by identifying each of the legal rights that protect the brand, the legal owner of each of those legal rights and the legal parameters positively or negatively influencing the value of the brand.

Behavioral analysis involves understanding and forming an opinion on likely stakeholder behavior specific to geography, product and customer segments where the brand is operational. For perusal using this method, it is necessary to understand the market size and trends, contribution of the brand to the purchase decision, attitude of all stakeholder groups to the brand and all economic benefits conferred on the branded business by the brand. Here, the brand valuer must also look into why a possible stakeholder would prefer the brand in comparison to that of the competitors’ and the concept of brand strength which is comprised of future sales volumes, revenues and risks.

Financial Analysis is the most frequently used brand valuation method and uses four approaches – Cost, Market, Economic and Formulary approach. Often, a fifth approach is also considered. Special situation approach recognizes that in some instances brand valuation can be related to particular circumstances that are not necessarily consistent with external or internal valuations. Each case has to be evaluated on individual merit, based on how much value the strategic buyer can extract from the market as a result of this purchase, and how much of this value the seller will be able to obtain from this strategic buyer.


Cost Based approach is the approach more often used by Aaker and Keller and is primarily concerned with the cost in creating or replacing the brand. The cost approach can be further divided into the following methods:

  1. Accumulated Cost or Historical cost method:

It aggregates all the historical marketing costs as the value (Keller 1998).In other words, the method involves historical cost of creating the brand as the actual brand value. It is often used at the initial stages of brand creation when specific market application and benefits cannot yet be identified. However, the shortfalls of this method are that there exists difficulties as to what would classify as marketing costs and subsequent amortization of marketing cost as percentage of sales over the brand’s expected life.In addition to that, it is sometimes difficult to recapture all the historical development costs and this method does not consider long term investments that do not involve cash outlay such as quality controls, specific expertise and involvement of personnel, opportunity costs of launching the upgraded products without any price premium over competitors’ prices. The cost of creating the brand might actually have little to do with its present value.Most alternatives suggested suffer from the same shortcomings but there is one as proposed by Reilly and Schweihs which may be effective. They propose to adjust the actual cost of launching the brand by inflation every year where this inflation adjusted launch cost would be the brand’s value.

  1. Replacement Cost Method:

The Replacement Cost Method values the brand considering the expenditures and investments necessary to replace the brand with a new one that has an equivalent utility to the company. Aaker (1991) proposes that the cost of launching a new brand is divided by its probability of success. Although this method is easy in terms of calculation, it neglects the success of an established brand. The first brand in the market has a natural advantage over the other brands as they avoid clutter and with each new attempt, the probability of success diminishes.

  1. Use of Conversion Model:

Using the method here, one estimates the amount of awareness that needs to be generated in order to achieve the current level of sales. This approach would be based on conversion models, i.e., taking the level of awareness that induces trial that further induces regular repurchase (Aaker, 1991). The output so generated can be used for two purposes: to determine the cost of acquiring new customers and would be the replacement cost of brand equity. The major flaw in this system is that the differential in the purchase patterns of a generic and a branded product is needed and the conversion ratio between awareness and purchase is higher for an unbranded generic than the branded product and this indicates that awareness is not a key driver of sales.

  1. Customer Preference Model:

Aaker (1991) proposed that the value of the brand can be calculated by observing the increase in awareness and comparing it to the corresponding increase in the market share. But he had identified the problem with this being how much of the increased market share is attributable to the brand’s awareness increase and how much to other factors. A further issue is that one would not expect a linear function between awareness and market share.

 In alternative, another method is the Recreation method which is similar to the replacement method but involves costs involved in creating the brand again, rather than simply the costs of replacement. Another distinction that exists between the two is that the value computed through the replacement cost method excludes obsolescent intangible assets.Another method is the residual value method states that the value of the brand is the discounted residual value obtained subtracting the cumulative brand costs from cumulative revenues attributable to the brand.


 Market based approach basically deals with the amount at which a brand is sold and is related to highest value that a “willing buyer & seller” are prepared to pay for an asset. This approach is most commonly used when one wishes to sell the brand and consists of methods herein stated:

  1. Comparable Approach or the Brand Sale Comparison Method

This method involves valuation of the brand by looking at recent transactions involving similar brands in the same industry and referring to comparable multiples.In other words, this method takes the premium (or some other measure) that has been paid for similar brands and applies this to brands that the company owns. The advantage of this approach is that it looks at a third party perspective that is, what the third party is willing to pay and is easy to calculate but the flaw in this method is that the data for comparable brands is rare and the price paid for a similar brand includes the synergies and the specific objectives of the buyer and it may not be applicable to the value of the brand at issue.

  1. Brand Equity based on Equity Evaluation method

Simon and Sullivan (1993) believe that brand equity can be divided into two parts:

  • The “demand-enhancing” component, which includes advertising and results in price premium profits,
  • The cost advantage component, which is obtained due to the brand during new product introductions and through economies of scale in distribution.

Hence, they basically estimated the value of brand equity using the financial market value and the advantage of this approach is that it is based on empirical evidence but shortfalls of this approach is that it assumes a very strong state of efficient market hypothesis and that all information is included in the share price.

  1. Residual Method

Keller has proposed the valuation of the brand by means of residual value which would be when the market capitalization is subtracted from the net asset value. It would be the value of the “intangibles” one of which is the brand.

Another alternative approach that is suggested is that of usage of real options as proposed by Damodaran (1996). The variables that need to be calculated are: risk free interest rate, implied volatility (variance) of the underlying asset, the current exercise price, the value of the underlying asset and the time of expiration of the option. This method is useful in calculating the potential value of line extensions but the inherent assumptions in this approach make any practical application difficult.

Income Based Approach:

Income Based or Economic Use approach is the valuation of future net earnings directly attributable to the brand to determine the value of the brand in its current use (Keller, 1998; Reilly and Schweihs, 1999; Cravens and Guilding, 1999). This method is extremely effective as it shows the future potential of a brand that the owner currently enjoys and the value is useful when compared to the open market valuation as the owner can determine the benefit foregone by pursuing the current course of action.

The methods used under the approach are as follows:

  1. Royalty Relief Method:

The Royalty Relief method is the most popular in practice. It is premised on the royalty that a company would have to pay for the use of the trademark if they had to license it (Aaker 1991).

The methodology that needs to be followed here is that the valuer must firstly determine the underlining base for the calculation (percentage of turnover, net sales or another base, or number of units), determine the appropriate royalty rate and determine a growth rate, expected life and discount rate for the brand. Valuers usually rely on databases that publish international royalty rates for the specific industry and the product. This investigation results in a variety and range of appropriate royalty rates and the final royalty rate is decided after looking at the qualitative aspects around the brand, like strength of the brand team and management. This method has an edge of being industry specific and accepted by tax authorities but this method loses out as there are really few brands that are truly comparable and usually the royalty rate encompasses more than just the brand.

  1. Differential of Price to sale ratios method:

The Differential of Price to Sale ratios Method calculates brand value as the difference between the estimated price to sales ratio for a branded company and the price to sales ratio for an unbranded company and multiplies it by the sales of the branded company. Why this method can be used is because information is readily available and it is easy to conceptualize but the drawback is that the comparable firms are a limited few and there exists no distinction between the brand and other intangible assets such as good customer relationships.

  1. Price Premium Method

The premise of the price premium approach is that a branded product should sell for a premium over a generic product (Aaker, 1991). The Price Premium Method calculates the brand value by multiplying the price differential of the branded product with respect to a generic product by the total volume of branded sales. It assumes that the brand generates an additional benefit for consumers, for which they are willing to pay a little extra.The fault in this method is that where a branded product does not command a price premium, the benefit arises on the cost and market share dimensions.

  1. Brand Equity based on discounted cash flow:

The problem faced by this method is the same as when trying to determine the cash flows(profit) attributable to the brand. From a pure finance perspective it is better to use Free Cash Flows as this is not affected by accounting anomalies; cash flow is ultimately the key variable in determining the value of any asset (Reilly and Schweihs, 1999). Furthermore Discounted Cash Flow do not adequately consider assets that do not produce cash flows currently (an option pricing approach will need to be followed) (Damodaran, 1996). The advantage of this model is that it takes increased working capital and fixed asset investments into account.

  1. Brand Equity based on differences in return on investment, return on assets and economic value added.

These models are based on the premise that branded products deliver superior returns, therefore if we value the “excess” returns into the future we would derive a value for the brand (Aaker, 1991). This method is easy to apply and the information is readily available, but there is no separation between brand and other intangible assets and does not adjust, by their volatility, the earnings of the two companies compared, including discount rate.

Other methods also include conjoint analysis, income split method, brand value based on future earnings, competitive equilibrium analysis model, etc. The very fact that there are so many methods worth discussing under the income or economic approach show how accurate and sought after this approach is.


 The Formulary approaches are those that are extensively used commercially by consulting other organizations. This approach is similar to the income or economic use approach differing in the magnitude of commercial usage and employing multiple criteria to determine the value of the brand. Within formulary approaches are the following approaches:

  1. Interbrand Approach

Interbrand is a brand consultancy firm, specializing in areas such as brand strategy, brand analytics, brand valuation, etc. It determines the earning from the brand and capitalizes them by making suitable adjustments. (Keller, 1998) The firm bases its brand valuation on financial analysis, role of the brand and brand strength.

The firm attempts at determination of brand earnings by means of using a brand index which is based on 7 factors namely –leadership, internationalization/geography, stability, market, trend, support and protection in the descending order of weightage. This approach is popular and widely appreciated because of its ability to take all aspects of branding into account. The difficulty in this approach is that it is difficult to determine the appropriate discount rate because parts of the risks usually included in the discount rate factored into the Brand Index score. In addition to that, even the capital charge is difficult to ascertain. Aaker reveals that “…the Interbrand system does not consider the potential of the brand to support extensions into other product classes. Brand support may be ineffective; spending money on advertising does not necessarily indicate effective brand building. Trademark protection, although necessary, does not of itself create brand value.”

  1. Finance World Method

The Financial World magazine method utilizes the “brand index”, comprising the same seven factors and weightings. The premium profit attributable to the brand is calculated differently.  This premium is determined by estimating the operating profit attributable to a brand, and then deducting the earnings of a comparable unbranded product from this. This latter value could be determined, for example, by assuming that a generic version of the product would generate a 5% net return on capital employed (Keller, 1998). The resulting premium profit is adjusted for taxes, and multiplied by the brand strength multiplier.

  1. Brand Equity Ten

As stated by Aaker, the Brand Equity Ten Method measures brand equity through 5 dimensions – loyalty, perceived quality or leadership measures, other customer oriented association or differentiation measure like brand personality, awareness measures and market behavior measures like market share, market price and distribution coverage. Brand Equity ten, thus, looks at the customer loyalty dimension of brand equity and the measures to create a measurement instrument.

  1. Brand Finance Ltd.

Brand Finance Ltd. is a UK based consulting organization which undertakes brand valuation by means of identifying the position of the brand in the competitive marketplace, the total business earnings from the brand, the added value of total earnings attributed specifically to the brand and beta risk factor associated with the earnings. On the value so obtained, it discounts the brand added value after tax at a rate that reflects the brand risk profile.


Having looked at the above mentioned methods and approaches, it is clear that brands and the process of valuing them is essential for marketing purposes and profits for the firm that owns them and that the developed literature in this arena is indicative of interest taken by various stakeholders and academicians. However, despite the variety of methods available and their respective comprehensibility, the prominent problem that emerges time and again is the lack of uniformity in the methods adopted and the results so achieved as there exists large amounts of variations in the valuation amount obtained. This can be clearly understood upon considering the case of Kingfisher Airlines and their valuation as when the brand was evaluated by Grant Thornton LLP in 2011, the amount was Rs. 4,100 Crores but when SBI, after obtaining the brand as collateral had evaluated the brand after acquiring it as a collateral against the loan of over Rs 9,000 Crores, the brand was valued at a mere Rs. 160 Crores.This case is indicative not only of the lack of uniformity in valuation but factors like time, market reputation or adverse circumstances like the company declaring bankruptcy being variable and affecting the process of brand valuation. Depending on the method adopted for brand valuation, these factors may or may not affect the value. It is true that this process of evaluating concerns only the firm owning the brand or the one acquiring it, the existence of a supervising authority would evade the variation and subsequent disputes that arise in addition to preventing companies from alleging inflated cost of the brand. ISO 10668 has provided a uniform standard for brand valuation but the lack of administrative or controlling authority to not only decide disputes but scrutinize and approve of the brand valuation done by the firm would go miles to reduce the problem of ambiguity attached to the resultant amount. Hence, though there has been a lot of progress in the field of brand valuation, there is still scope for more. After all, what is a product, if the consumers don’t relate and recognize it; Brands are here to stay and certainly are assets worth encashing in.