An executive summary for managers and executive readers can be found at the end of this article

A conceptual study on brand valuation

A. Seetharaman
Associate Dean, Faculty of Management, Multimedia University, Cyberjaya, Malaysia

Zainal Azlan Bin Mohd Nadzir S. Gunalan

Postgraduate Scholar, Faculty of Management, Multimedia University, Cyberjaya, Malaysia Postgraduate Scholar, Faculty of Management, Multimedia University, Cyberjaya, Malaysia Keywords Brand valuation, Methods, Problem solving, Accounting Abstract Recognizing brands on the company's financial statement as an identifiable intangible asset is a relatively recent development in financial reporting, which only became a focus of attention in the late 1980s. Accounting bodies throughout the world have appeared uncertain as to how to treat the issue of placing a brand in the financial statement as there is little guidance and less understanding over accounting treatment of brand valuation. The debate over procedures for valuing brands and including them as a fixed asset to the corporate financial statement has become a great controversy. As a descriptive study, the present conceptual study highlights the problems associated with brand valuation. Many corporate companies support the fact that valuing and hence capitalizing their brand bring a lot of advantages to the organization. The present study examines four main methods of valuing brands, namely the cost-based method, marketbased method, income-based method and formulary method. The method used in every valuation is subject to the suitability of the brand condition determined on their existing uses. A few recommendations based on the conceptual study are made in order to meet the needs of organizations and the business community as well.

Introduction Definition of brand A brand can be defined as an asset that does not have physical existence and the value of which cannot be determined exactly unless it becomes the subject of a specific business transaction of sale and acquisition. Intended to identify goods or services The other definition that can be used is a name or a symbol and its associated tangible and emotional attributes that is intended to identify the goods or services of one seller in order to differentiate them from those of competitors. Difference between a product and a brand There are lots of differences between a brand and a product. Stephen King from WPP Group, London has differentiated a brand from a product:
A product is something that is made in a factory; a brand is something that is bought by a customer. A product can be copied by a competitor; a brand is unique. A product can be quickly outdated; a successful brand is timeless.

A product, either tangible or intangible is just merely the generic term whereas a brand has personality and also characteristics that possess certain associations. A brand can conjure a lot of meaning to a person, depending on the experience of that person.
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The origin of brand valuation Accounting for brand valuation is a relatively recent development in financial reporting. In the middle of the 1980s, Interbrand company, a consultancy organization, conducted the first ever brand valuation service for Rank Hovis McDougall (RHM) company. Accounting treatment Interbrand company succeeded in their accounting treatment in presenting the worth of the company's brand as an asset on the balance sheet. RHM's management wanted the information to fight a hostile takeover bid. The intention of RHM board was to convince the investors that the bid was too low, and eventually repel it. It was the wave of brand acquisitions in the late 1980s that exposed the hidden value in highly branded companies and brought brand valuation to the fore. Some of these acquisitions included Nestle buying Rowntree, Danone buying Nabisco's European business and Grand Metropolitan buying Pillsbury. All these acquisitions were at high multiple price tags. Goodwill on acquisition The amount being paid for the acquisition, especially for the strongly branded name, was increasingly higher than the value of a company's net tangible assets. This resulted in goodwill on acquisition. This goodwill actually disguised a mix of intangible assets brands, copyrights, patents, staff knowledge or customer loyalty. Objectives of the study The objectives of the study are:
.

to identify how brand valuation has been made in the past and also to assess the benefits of disclosure of the valued brand in the balance sheet as an intangible asset; to critically analyze the existing methods of brand valuation in order to choose one as the best approach among all; and to focus the importance of addressing brand valuation issues specifically and to reinforce the fact that there should be global standardization principles regarding valuing and accounting brand valuation.

Brand equity

Concept of branding and brand value The creation and maintenance of brands are becoming more important in today's intensely competitive environment. Investing in branding activities creates brand equity. Equity exists when the customers are aware of the brand, loyal to the brand and perceive the brand as having quality. Awareness, loyalty and quality perception are three main components of a successful brand. Brand awareness Brand awareness is a very important element in the branding process. Customers should be aware about the product. Consumers will choose only the recognized item if there are two items to select. The demand on a certain brand increases when more awareness and acceptance of the brand are created among customers. There are four different levels of awareness, namely, dominant, top-of-mind, recall and recognition. Dominant brand means the customers can think of the product category. For examples, Kleenex, Jell-O and A1 Steak Sauce. The second one is ``top-of-mind'' which means the customers can think of the first brand; for examples, Pepsi and Coca-Cola. The third level is recalling

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brands, which are all the brand names that you recall after you, have mentioned the ``top-of-mind'' brand. A consumer can recall all different types of laundry like Downey Surf and Cheer. A brand that is merely recognized is the weakest form of awareness. If asked to name car brands, a consumer may be able to recall ten to 15 different brands while the others lack brand awareness. Types of loyalty Brand loyalty A brand is a value. The brand loyalty of customers is classified in five categories. First, is ``non-customers'' also called ``non-users'', which means these customers use different types of products. Second, ``price switchers'' which are consumers who always buy the cheapest product. Customers tend to look for the cheapest product and have a higher satisfaction. For them, a branded product is costly and not much different. Third, is ``passively loyal''. These consumers buy the product because of habit and not for a reason. These customers can change any time if there is a good reason. The next category is ``fence sitters''. These customers are interested in convenience and price; that is, they like the cheaper product but must be in a convenient situation to purchase a product. Finally, ``committed clients'' like to buy a particular product in any place at any time. Perceived quality Perceived quality is something to do with price premium. A price premium can be charged for quality products. Consumers are willing to pay the price premium for the product and services but they perceive higher quality. A product has to live up to certain quality standards, which may or may not be tests of true quality. One example is how consumers like to kick tires just to classify the quality of a car. This shows the difference from test of true quality. Brand burden Value for money There are three methods for charging price premium on a branded product, which are cost method, market method and income methods. For the first method, one should study the current value for historical expenses when creating the brand. However, what is known as ``brand burden'' may occur, whereby the present value of an established brand may have grown to a huge amount. In this case, the cost of re-creating a similar or identical brand should be analyzed. This is known as re-creating cost analysis. The second approach looks into the transactions of brand. Information for this analysis may be difficult to obtain. Here again one could use a suitable different brand as a substitute for analysis purposes. Calculate the premium value In the income approach, two methods are used to calculate the premium value, that is the discounted cash flow model and the excess earnings method. The return that belongs to other asset categories is subtracted from the net free cash flow. Any balance earnings are considered the return from the brand itself. Therefore, in the income approach, the premium value is derived by the present value returns belonging to the brand.
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Research methodology The data and findings presented in this project paper are mostly taken from secondary sources. The information was gathered from the magazines, literature books and also journals. In order to update the information for the findings, the Internet was used as an important source. Source materials The source materials of the data were obtained from Malaysian universities' library. The secondary data were based on several accounting bodies, such as Accounting Principles Board (APB), Australian Accounting Research Foundation (AARF), Accounting Standards Committee (ASC), and other accounting bodies with a focus on their reactions towards brand accounting that is the core of the brand valuation. Problems in valuing a brand The professional bodies have appeared uncertain as how to resolve the issue of brand valuation. It happens because of the lack of understanding and guidance over accounting treatment of brands. Much of the uncertainty associated with brands is regarding the relationship with goodwill and other intangible assets. There is real confusion about the distinction between brands and other assets such as goodwill or trademark. This difficulty leads to further problems when deciding how to measure and report them in financial statements. Intangible assets The treatment of brands in the USA There are no particular straightforward procedures for valuing a brand. This creates some problems that are facing a lot of companies. The scenario in USA appeared to have a lot of confusion and uncertainty. The Financial Accounting Standard Board (FASB) as the rule-making body there, however uses three criteria to define an asset: (1) ``it embodies a probable future benefit that involve a capacity, singly or in combination with other assets, to contribute directly or indirectly to future net cash inflows''; (2) ``a particular entity can obtain the benefit and control others access to it''; (3) ``the transaction or other event giving rise to the enterprise's right to or control of the benefit as already occurred''. Other principles reviewed From the definition, a brand almost satisfies all the three criteria of an asset. To strengthen the fact that a brand can be defined as an asset, other principles associated with a brand have been closely reviewed. There is no special brand valuation issued by the APB. APB accepted that they only issued Opinion No. 17 that covered intangible assets generally. Even the current US accounting standards do not address brand valuation issues specifically. The APB concluded:
A company should record as assets the costs of intangible assets acquired from the other enterprises or individuals. Costs of developing, maintaining, or restoring intangible assets which are not specifically identifiable, have indeterminate lives, or are inherent in a continuing business and related to an enterprise as a whole such as goodwill, should be deducted from income when incurred.

From the perspective of Zeff and Dharan from their book, Readings and Notes on Financial Accounting (Zeff and Dharan, 1997), their interpretation
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of APB Opinion No. 17 is that the cost of developing, maintaining or restoring a home-grown brand must also be recorded as an asset if: (1) the brand is specifically identifiable; (2) it has a determinate life; (3) it is not integral to a continuing business or not related to the enterprise as a whole. No fixed life All brands easily satisfy the first requirement and also the third requirement, when the brand is not the company name. The only problem is regarding the second requirement that is about determinate life which means that, unlike patent or copyright, a brand does not have a fixed life. The brand which is an intangible asset needs to be amortized over a welldefined period. The issue is if it is acceptable to capitalize an asset with a definite ten-year life, it should also be equally acceptable for an asset whose life is indeterminate but is definitely more than ten years, to be capitalized too. The benefit of accounting a brand as an asset reflects increased value of net assets of the company which may lead to higher borrowing power for the company. There is another problem concerning this brand valuation. It is not an easy task to predict whether any particular brand will maintain value, flop or even grow in value. For instance, a brand such as Ferrari and Marlboro will endure in value. But, this might not be so in the case of the forgotten brands, which have grown less in value. Weakened brands Weakened brands, however, may become questionable assets permanently on the balance sheet. To overcome the problem, there is a suggestion made by Hambros Australia that any company involved will have a formally revaluing brand asset for at least every three years. The treatment of brands in the UK and Australia The situation in other places appeared to be uncertainty in regarding how to treat the brand. The debate over formal procedures for valuing brands and adding them as assets to corporate balance sheet is the major controversy. In the UK and Australia, accounting rules require companies to write off the goodwill obtained through acquisitions. The rules have often resulted in sizeable losses for acquiring companies in the year of acquisition. This happened because under these rules, the money paid in an acquisition over and above the fair value of identifiable assets is viewed as money lost without a compensating asset being acquired. However, this principle drew protests from a lot of UK companies. Those companies protested by capitalizing their acquired brands and arguing that they were not goodwill but identifiable assets. All its brands on the balance sheet Some of the companies have gone further by capitalizing not only ``acquired'' brands but also the ``home-grown'' brands. For example, a UK company, RHM included the value of 678 million for all its brands on the balance sheet. The amount of money also included the ``home-grown''. Scenario of brand treatment in Malaysia Companies in Malaysia use a diversity of accounting practices on goodwill. The brand issues in Malaysia have not been a popular issue, as the companies prefer not to recognize them in the balance sheet. This is proved by a survey noting that the recognition of the so-called identifiable intangible assets such
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as brand names and licenses were almost not evidenced at all (Tong, 1998). Table I shows the treatment of intangible assets including the brand names. Accounting principles For Malaysia's accounting principles associated with the brand names, it states that although they are identifiable, they are generally incapable of separation from the business as a whole. Although there is no general consensus on the appropriate accounting treatment for intangible assets (including brand names), the conventional practices appear to be as follows: purchased identifiable intangible assets should be recognized in the accounts. Internally developed identifiable intangible assets may be recognized if they satisfy established recognition criteria. Methods of brand evaluation There are several methods of determining the value of a brand. Generally, they can be classified into four types of method based on existing uses (Cravens and Guilding, 1999), which are: (1) cost-based approaches; (2) market-based approaches; (3) income-based approaches; (4) formulary approaches. Conservative method Cost-based approaches For this method, a brand is valued by considering the cost involved in developing the brand. The costs being incurred are the actual costs associated with acquiring, building or maintaining the brand. The stage of the cost incurred could be during market testing, research and development of the product concept, product improvements and continued promotion. This method is the most conservative method among all the methods and it provides little future orientation. It complies with standard accounting practice for valuing assets. Thus, accountants are more familiar and treat this method as the most suitable way to value a brand. On the other hand, marketers do not agree as for them this kind of method fails to capture the value-added through the application process of strategic brand management. Disadvantage of the method A major problem with this approach is that all brand-related costs that were previously expended must be included. This brings to the disadvantage of the method, as it is difficult to identify the costs that were not directly attributable to the brand but instead were expended in support of it.
Large listed Small listed No. % No. % Number of companies Types of intangibles Pre-operating expenses Research and development Patents and trademark Technical know-how Rights (publishing right, copyright, etc.) Franchises Brand names Other 123 26 4 3 1 2 16 37 34 40 50 33 67 35 175 49 5 3 1 2 1 29 56 64 50 50 100 67 33 63 Unlisted No. % 21 2 1 1 7 22 10 2 Total No. % 329 77 10 6 1 2 3 46 100 100 100 100 100 100 100 100

Table I. Recognition of intangible assets in Malaysia

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Also, the time horizon used to start incurring the costs might be a problem in the case of mature brands. This is due to the difficulties of identifying many of the costs. One example of the expenditure associated with the brand is technological expertise. It is an important factor to include but at the same time it might also be very difficult to value due to the intangible nature of it. Historical costs After determining the historical costs involved in developing the brand, it is necessary to consider how discount rates can be applied to suit the historical expenditures to the present value. Market-based approaches This method focuses on the external brand management approach. This method determines the worth of a brand and it is based on the amount at which a brand can be sold. To determine its market value, the future benefits associated with owning the brand are included and are discounted to the present value. The problem faced in the application of this method is that it requires being able to determine a market value. Thus, this method can be a difficult estimation due to the absence of an actual market for most brands. Most of the managers have few opportunities to value brands based on actual selling prices. This is also due to a limitation of trading activity for most brands. Financial markets To overcome this problem, proxies can be made based on how the financial markets estimate the value regarding the brand. One way to determine the financial market is by making a separation between tangible assets and intangible assets. The market value of the intangibles can be assessed once the entire value of the firm is determined. Another way is by comparing the brand being valued to the performance of another substitute brand, which is unrelated to the firm. This method has the advantage of including the perspective external to the firm, although it is much more realistic if a similar brand exists in the marketplace for comparison. Income-based approaches This approach focuses on the future potential of a brand. Thus, it avoids problems relating to a dependence on costs. The method requires determination of the future net revenues attributable to the brand and discounting to the present value. There are a lot of ways to determine net revenue. One way is by comparing a brand's price premium to a generic product. This method estimates a brand's incremental profit compared to an unbranded product or an equivalent benchmark. However, not all branded products have unbranded equivalents that permit a comparison. Estimate annual royalties The second method is by estimating the annual royalties associated with the brand as it is in a licensing agreement. This is more applicable to an international brand than to a brand which is competing in the domestic market. The third method considers supply and demand effects to estimate brand strength. The effect of retailers and consumers is considered here. Actual consumer brand sales compared to total sales to supply the product through retailers are computed. The future revenues from the brand including the brand extensions are estimated after obtaining the revenue attributable to the brand using one of the above methods. This also involves a strategic assessment of the brand.
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Indicator of profitability

Formulary approaches This method involves multiple criteria in determining a brand's value. The approach here is suitable for internal management purposes and external financial reporting. There must be an indicator of brand profitability. One example is by using three-year weighted average of profits after tax as done by Interbrand, a consulting firm. For computing brand profitability, the factors that need to be considered are the factors that relate directly to the brand's identity. However, it is difficult because the company may not consider specific functions as separate from the brand. For example, a great distribution system might contribute to a brand's success; however, this is not a key element of its identity although the system supports the brand.

Creating a multiplier

A multiplier is then attached to the valuation after determining brand profitability. To determine the multiplier, there are seven factors to consider. It is created from an evaluation of brand strength based on seven factors: (1) Leadership the ability of the brand to function as a market leader and holding a dominant market share. (2) Stability the ability of the brand to retain their image and consumer loyalty over long period. (3) Market certain product markets are more valuable than brands in other markets due to their ability to generate grater sales volume. (4) Support the organizations that are able to give full support and are consistently managed are weighted higher than brands without any organizational investment. (5) Protection relates to the legal issues associated with the brand such as registered trademark that strengthen their legal right to protect the brand. (6) International image an international brand has more potential to expand rather than a regional or domestic brand. (7) Trend the ability of the brand to remain current in the perception of consumers and to maintain a consistent level of perception.

Calculating value

The procedure of how a multiplier is applied to a brand's profits after two main deductions is shown below. To get the value of brand, the multiplier which is created from an evaluation of brand strength must be known. Profits from branded product Less: Profits from unbranded line produced parallel with the branded product Less: Profits from assets that do not contribute to the strength of the brand Net profits from branded product D multiplier = value of brand The method is based on the fact that the product cash flows are separately identifiable. Table II is an example of an evaluation of brand strength based on seven factors, which are weighted using the guidelines by Interbrand Company (Kapferer, 1994). Interbrand uses only seven of these factors to obtain the A B C D

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Evaluation factor Leadership Stability Market International image Trend Support Protection Brand strength

Maximum score 25 15 10 25 10 10 5 100

Brand A 19 12 7 18 7 8 5 76

Brand B 19 9 6 5 5 7 3 54

Brand C 10 7 8 2 8 8 4 46

Table II. Evaluation of brand

overall mark, calculating from the weighted sum of the individual marks for each factor. The brands that are valued need to be treated into the balance sheet. Below are some samples of accounting for brand in companies' financial statement. Acquired brands The examples of accounting for brands Rank Hovis McDougall (RHM). In the 1990 annual report of RHM, the company had included the value of all its brand names (acquired and home grown) and also stated that brands were not subject to amortization. This company has valued its brands at their current use value, in conjunction with Interbrand Group plc, a branding consultant (Elliot and Elliott, 1996). Policy: intangibles assets (brands both acquired and created within the group) are included at their current cost. Such cost, which is reviewed annually, is not subject to amortization (see Tables III and IV). Guinness plc. The company not only includes acquired brands in its balance sheet but also describe the characteristics of a brand (see Table V). Fair value Policy: The fair value of businesses acquired and of interests taken in associated undertakings includes brands, which are recognized where the brand has value, which is substantial and long term. Acquired brands are only recognized when the title is clear, when brand earnings are separately identifiable and when the band achieves earnings in excess of those achieved
1990 Sterling millions Fixed assets Intangible assets Tangible assets 588.0 454.0 1,042.0 1989 Sterling millions 740.0 515.6 1,255.6

Table III. Balance Sheet at 1 September 1990 (RHM)

Brands Sterling millions 740.0 0.6 (145.3) (7.3) 588.0

Fixed assets intangible assets At 2 September 1989 Additions Disposals Reevaluations At 1 September 1990

Table IV. Notes to the accounts (RHM)

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1993 Sterling millions Fixed assets Acquired brands at cost Tangible assets Investment 1,395 1,725 1,439 4,559

1992 Sterling millions 1,395 1,719 1,436 4,550

Table V. Balance Sheet at 31 December (Guinness plc)

by unbranded products. Amortization is not provided except where the end of the useful economic life of the asset can be foreseen. Conclusion The research paper has provided us with a strong fact that the difficulties caused by brand classification has brought out many problems and much confusion with the internal and also the external use of financial statements. Business advancement Brand accounting for the brand valuation has arisen because the corporate companies believed that their brands should be treated in balance sheet as well as other assets. These companies would prefer to avoid both immediate write off and the capitalization and amortization of purchased goodwill. The business community justifies brands as an asset. This action appeared to satisfy the companies, as there is a lot of importance and benefit for business purposes. One of the main purposes is that it can reduce debt ratios. Thus, it will raise the capital and increase additional funds needed for business advancement To assess the value of brands, there are several methods to be followed. The method chosen is due to its uses and on agreement. As for the cost-based approach, it can provide a reasonable indication of value if all forms of obsolescence are properly identified, quantified and subtracted from the current cost estimate. However, the obsolescence that is subtracted from the current cost estimate should relate to the subject brand only. That means, it is not appropriate to include obsolescence from any tangible assets that are used with the subject brand and to assign only the obsolescence related to brand to those assets. The second method is the market-based approach. This method is the process by which a market value estimate is derived by analyzing similar brands that have recently been sold or licensed, and then comparing those brands to the subject brand. Accurately applying the market approach can provide a compelling estimate of value. However, this method is less practical due to the amount of research required in its application. Guideline sales and license transactions need to be identified and analyzed in order to measure several factors associated with the brand, such as economic income, risk associated with achieving the economic income and the expected remaining useful life. Conceptually elegant valuation For the income-based approach, it is the most conceptually elegant valuation approach because the value is the present value of the expected income that can be generated through the ownership of the brand. This method is applicable to many types of economic analyses, such as damages analyses, event analyses and royalty rate estimation that rely greatly on this approach. The last method is the formulary approach. This method has the advantage of being suitable not only for external financial reporting, but also for internal management purposes. But there is also a slight problem regarding this
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method. Some of the companies would not consider specific functions as separate from the brand. To ensure the effectiveness of this method, it requires a determination of multiplier and this will be attached to the calculation after assessing brand profitability. The seven factors affecting the multiplier are leadership, stability, market, international image, trend, support and protection. Recommendations Based on the research, a few important recommendations are made for the future of brand valuation. The accounting bodies of the USA treated the brand differently from what has been practiced by their counterparts in the UK and Australia particularly. The scenario of brand treatment in Malaysia also looks uncertain. Price independence The unique advantage of branding over goodwill or other intangible assets is price independence over competitors. Price independence and price fixation are of vital importance both for marketers and accountants. It is suggested to introduce a proper guideline made by a collection of influential accounting bodies throughout the world. This action hopefully enables the addressing of the brand valuation issue specifically without undue traditional reliance on definition of intangible asset or goodwill. It is also recommended to formulate a standardized principle on the accounting for brand valuation. Time is ripe now to initiate a solid step to ensure its stability and reliability. Besides the above, it is further suggested that all organizations that wish to determine the brand value may use the formulary approaches. This method has a relatively slight disadvantage compared to other approaches. This method also relies on market situation of brands to forecast the future in order to generate more sales volume.
References and further reading Aaker, D.A. (1997), ``Should you take your brand to where the action is?'', Harvard Business Review, September-October. Cravens, K.S. and Guilding, C. (1999), ``Strategic brand valuation: a cross-functional perspective'', Business Horizons, No. 4 Vol. 42, July-August. Elliott, B. and Elliott, F. (1996), Financial Accounting and Reporting, 2nd ed., Prentice-Hall Europe, London. Gill, H. (1995), ``Broad definition on brand and asset'', Management Accounting Journal, January. Kapferer, J.-N. (1994), ``New approach to creating and evaluating brand equity'', Strategic Brand Management. Leo, K.J. and Hoggett, J.R. (1993), Company Accounting in Australia, 3rd ed., John Wiley & Sons, New York, NY. Reilly, R.F. and Scheweihs, R.P. (1999), Valuing Tangible Assets, McGraw-Hill, Maidenhead. Tan Too Hiong, A. (1997), ``Branding is rewarding'', Banker's Journal's Malaysia, No. 103, October-November. Temporal, P. (1995), ``The power of brands'', Corporate World, Vol. 7 No. 10, October. Tong, T.L. (1998), ``Financial reporting: a survey of Malaysian financial reporting practices'', MACPA Educational Trust Fund. Vishwanath, V. and Mark, J. (1997), ``Your brand best strategy'', Harvard Business Review, May-June. Wilke, R. (1999), ``Brand imitation and its effects on innovation, competition and brand equity'', Business Horizons, No. 6 Vol. 42, November-December. Yegge, W.M. (1996), A Basic Guide for Valuing a Company, John Wiley & Sons, New York, NY. Zeff, S.A. and Dharan, B.G. (1997), Readings and Notes on Financial Accounting, 5th ed., McGraw-Hill, Maidenhead.
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More sales volume

Web sites Http: //www.consor.com/article/brand/htm Http: //www4.jaring.my/harveyg/aticle/brand/index.htm Http: //www.brandfinance.com Http: //www.inta.org/ip_valuation.htm Http: //www.brandknowledge.com Http: //www.poolonline.com Http: //www.interbrand.com/who/docs/phil.html Http: //www.brad.ac.uk/acad/mancen/melnet/val1.html Http: //www.Niit.com/PressArticle/Article51.htm Http: //www.bham.ac.uk/eaa98/abstracts/frp/kriegbaum.html

&

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This summary has been provided to allow managers and executives a rapid appreciation of the content of this article. Those with a particular interest in the topic covered may then read the article in toto to take advantage of the more comprehensive description of the research undertaken and its results to get the full benefit of the material present

Executive summary and implications for managers and executives

The difficulty of valuing brands The idea that a company's brands should be recognized in its financial statements as identifiable, intangible assets has existed only since the late 1980s, when a wave of brand acquisitions exposed the hidden value in highly-branded companies. The acquisitions included Nestle buying Rowntree, Danone purchasing Nabisco's European business and Grand Metropolitan buying Pillsbury. However, accounting bodies throughout the world differ over how brand valuation should be done. Much of the uncertainty centres on the relationship between brands, goodwill, trademarks and other intangible assets. Seetharaman et al. examine four main methods of valuing brands. The cost-based method Cost-based approaches consider the costs involved in acquiring, building or maintaining the brand. Such costs could arise during market testing, research and development of the product concept, product improvements and continued promotion. The cost-based approach finds most favour with accountants because it complies with standard accounting practice for valuing assets. It is, however, the most conservative approach. Marketers point out that the method tends to look to the past rather than the future, and fails to take account of the added value that can result from strategic brand management. Ironically, there are also problems in identifying, for mature brands, exactly which, and to what extent, historical costs should be taken into account. The market-based method Market-based approaches take account of the future benefits associated with owning the brand. But, since few brands are actually traded, exact market value is difficult to determine. One way of overcoming this problem is to separate tangible and intangible assets. The market value of the intangibles can be assessed once the entire value of the firm is determined. Another way is to compare the brand being valued to the performance of another substitute brand. This is most realistic if a similar brand exists in the marketplace for comparison. But the substitute brand can also be unrelated to the firm. This carries the advantage of including a perspective external to the firm. Most firms consider market-based approaches impracticable because of the amount of research they involve. The income-based method Income-based approaches depend upon determining the future net revenues attributable to the brand and discounting to the present value. One way of determining net revenue is to compare how much extra the consumer will pay for the branded product over an unbranded equivalent. But, obviously, this can be used only when an unbranded equivalent exists. Another way is to estimate the annual royalties associated with the brand as if in a licensing agreement. But this is more applicable to international brands than those which sell only in the domestic market.

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A third approach estimates brand strength through supply and demand. Calculations are made of actual consumer brand sales, compared to total sales to supply the product through retailers. The formulary method The formulary method involves using various criteria to determine a brand's value. The approach is suitable for internal-management purposes and for external financial reporting. First, brand profitability is computed, taking into account the factors that relate directly to the brand's identity (a great distribution system, for example, might help to make a brand successful, but it is not a key element of its identity). A multiplier is then attached to the valuation. The multiplier takes account of whether the brand:
. . . . . .

can function as market leader and hold a dominant market share; is able to retain its image and consumer loyalty over a long period; is in a market where a high volume of sales can be generated; is supported by effective organization; enjoys legal protection through, for example, a registered trademark; has an international image, which provides greater potential to expand than a purely domestic brand; and can remain current in the perception of consumers.

Formulary approaches generally have fewer disadvantages than the other methods of assessing brand value. (A pre cis of the article ``A conceptual study on brand valuation''. Supplied by Marketing Consultants for MCB University Press.)

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