quality and distribution control have devalued the brand in the luxury market.
Although this business strategy has made Pierre Cardin one of the wealthiest
men in fashion, it has severely damaged his brand image, brand equity and
brand value. These examples provide a clear rationale behind brand valuation.
The process of calculating and determining the intangible asset worth of
brands is called brand valuation. This valuation incorporates several business
aspects such as branding, marketing, finance and production as well as
features of the law of taxation and economics. This gives brand valuation a
multi-subject dimension by bringing a synergy between the different business
disciplines. It shows a direct co-relation between branding, marketing and
finance and how the result of one directly impacts on the other. It also shows
that the figures recorded on the balance sheet of companies with strong
brands have their origin in marketing and branding. Since a company’s brand
value is recorded in its financial report as an asset, it is worth asking how this
intangible asset is accurately calculated.
The methodology for brand valuation has been in debate ever since the
importance of branding rose to the forefront of business strategy and manage-
ment in the mid-1980s. Brand valuation is linked with accounting method-
ologies, standards and principles. This is because in financial reporting, a
company’s worth must be recorded against the specific source(s) of its value,
which includes brands. Since accounting standards vary from country to
country, it is quite difficult to pinpoint a standard brand valuation methodol-
ogy that has been accepted internationally. In addition, unlike the measure-
ment of other company assets such as stocks and bonds, which have
comparable values, brand valuation lacks a market base from which to draw
benchmarks. This makes the exercise of brand valuation both challenging and
accuracy-focused.
So how can the value of luxury brands be reliably assessed? When should
brand valuation feature in the balance sheet? How often should brands be
evaluated? What about depreciated brands? Are they also featured on the
balance sheet as lost revenue? The questions regarding brand valuation are
endless and have led to intense debate in Western economies.
As much as accounting is complicated and is not the subject of this book,
its discussion cannot be avoided in this section because of the major inter-
relationship between accounting and brand valuation. Accounting principles
work on the premise that brands acquire their value through the market. In
other words, the true worth of a brand is not known until it is either sold or
purchased. This is when the payment that has either been made or received as
a result of a company’s goodwill is explicitly represented on the balance sheet
of the acquiring company. This viewpoint also supports the notion that as
long as a brand has not been bought or sold, its brand value cannot be accu-
rately estimated or represented. Therefore, only past and recorded transac-
tions regarding brands are the reference points for the brand value. If this
principle is right, then the implication is that several luxury brands that are
chapter 5 125the art of creating and managing luxury fashion brands