is to convert the past expenditures into current dollar
expenditures, based on inflation. In other words, an
expenditureof$1.12billionin 1980 isreallymuchlargerif
stated in 2004 dollars.
5 Both of these will increase the value of the brand name.
Discounted Cash Flow Approach
In a discounted cash flow approach, we try to isolate the
effectofthebrandnameonthecashflowsofthefirm.Thatis
easiersaidthandonebecausetheeffectsofbrandnameare
feltthroughafirm,anditisalsodifficulttoseparatebrand
nameeffectsfromotherfactorsthatalsoaffectthecashflows,
suchasthefirm’sreputationforqualityorserviceandmarket
power.
Comparison to Generic Company
Perhapsthesimplestmeasureofbrandnamevalueisobtained
bycomparingthecashflowsofabrandnamecompanywith
anotherwisesimilarcompany(intermsofproductandscale)
withoutabrandname.Thedifferenceincashflowsthencan
beattributedtothebrandnameandthepresentvalueofthese
cash flows should generate a value for the brand name.
Whiletheapproachisintuitive,thekeyconstraintisfindinga
genericversion ofabrand namefirm.Alltoooften,brand
name companies dominate theirsectors and havedifferent
product mixes and much larger revenues than generic
companies in the same sector. Finding a generic twin to
Procter&GambleorCoca-Colawillbeimpossibletodo.To
simplify the process, we would recommend one of the
following approximations: