The major problem with this method was that the objective of forecasting
was different from the objective of brand valuation. Forecasting methods
were used to evaluate the market value of fixed assets, while brand valuation
represented the market value of intangible assets. Above all, the role of brand
valuation in mergers or acquisitions is significantly different from the role of
brand valuation for a company’s internal use in strategy development. These
factors have contributed to the ongoing debate of the brand valuation of
companies, particularly luxury brands.
The exercise of brand valuation is necessary for brand-auditing purposes,
that is to carry out a health-check for the brand. Another function of brand
valuation is to aid in the creation, revision and implementation of effective
marketing and corporate strategies. In addition, brand valuation when carried
out frequently, helps to assess the short-term results and long-term impact of
current strategies. However, this frequent evaluation shouldn’t undermine the
long-term nature and benefits of the brand. For example, luxury brands such
as Prada have seen a significant rise in their brand value in recent years,
compared to twenty years ago, as a result of efforts made towards brand value
creation. However the high brand equity and long-term brand growth poten-
tial of Prada shouldn’t hamper frequent brand valuation.
Several brand valuation methods have been devised by different compa-
nies and groups specializing in brand management strategy, as a result of the
inconsistencies created by accounting methods and the need for constant
brand valuation. These groups have differing approaches but have all recog-
nized three important facts that accounting fails to reflect:
1 The importance of understanding how brands work, how they can be
grown and how they can increase or decrease in value in the short and long
terms.
2 The importance of creating synergy between all the departments involved
in creating and sustaining brands within a company such as finance,
marketing, operations, product development, e-commerce and audit.
3 The significant role of brand valuation in marketing, branding and corpo-
rate strategy formulation.
The methodologies created for brand valuation include the technique devel-
oped by brand consulting company, Interbrand Corp. This method recognizes
brands as assets that have value through a projection of their future earning
potential using current sales turnover and historical financial data. This
projected figure is then discounted to a present value, creating what accoun-
tants call a Net Present Value (NPV). The NPV is arrived at after deducting
operating costs, capital, taxes and other intangibles. Other factors such as the
management capability, market position, global scale of operations and stabil-
ity are considered in calculating the net present value.
Another brand valuation method is that of brand consultancy company
chapter 5 127the art of creating and managing luxury fashion brands