brand value occurs when this equity translates into financial gains for the
company that owns the brand.
Brand value in the simplest of terms is the financial benefit that a company
receives as a result of the strength of its brand. This financial benefit is repre-
sented in the company’s financial report or balance sheet as a part of its
assets, specifically as an intangible asset. It oftentimes contributes substan-
tially to the worth of a company. A high brand value is sometimes the sole
reason that some companies are valued at more than ten times their net worth
assets. Also it explains why certain companies sometimes generate up to five
hundred percent of their actual book price, when they are sold.
The brand value is often represented on a company’s balance sheet as a
part of its ‘goodwill’. The goodwill is the difference between a company’s
tangible assets and its actual worth, and goodwill often represents a statement
of the confidence in the company’s current strength and of assured forecast
earnings and growth. It is this goodwill that translates into an intangible asset
for the company. A major source of goodwill is the brand value. Goodwill
could also comprise of other elements such as technology and patents.
Consequently, companies with powerful brands have a high intangible asset
base, which becomes the brand value when translated into financial worth.
The intangible asset is arguably the most important asset for luxury fashion
brands because a large proportion of the business value of luxury brands orig-
inates from the brand value.
For a long time, the concept of brand valuation as a business aspect has
been controversial. This is because a company’s asset source was viewed as
tangibles such as land, machinery, capital and human resources. Although
there was a general awareness that intangible aspects existed in business,
there were no methods to measure or quantify these and to directly link them
with the benefits that they provided. This was until the wave of mergers and
acquisitions of the 1980s and 1990s led to the questions that has been contin-
uously asked in the stock market valuation of companies:What role do intangibles play in company valuations and
how can these be measured?
For example, when Daewoo made a bid to purchase the electronics company,
Thomson, it offered to pay an astonishing €1 because, according to Daewoo,
the brand Thomson had no value. This extreme view was perhaps because,
as a brand, Thomson had little branding weight to substantially contribute
profitability to Daewoo. In the luxury fashion scene, Pierre Cardin, one of
the pioneers of haute coutureand prêt-à-porterput his brand on the market
for sale at a price of approximately $500 million but industry sources indi-
cate that buyers were not forthcoming. This could again be because the
market believed that this asking price is an over-estimate of the true value of
the brand. As a matter of fact, excessive licensing and questionable minimal124
luxury fashion branding