A Taxonomy of Brand Valuation Practice: Methodologies and

Purposes

April 2009

Gabriela Salinas, Global Brand Manager, Deloitte and

Tim Ambler, Senior Fellow, London Business School

Gabriela Salinas
is Global Brand Manager at Deloitte. Consulting, teaching and research interests include
management, evaluation and valuation of brands. Member of the ISO Project Committee for
Brand Valuation Standardization. Books include Brand valuation: a review of approaches,
methodologies and providers (2007, Spain), Brand valuation and evaluation: measuring to
create value (2008, Spain) and The International Brand Valuation Manual: A complete overview
and analysis of brand valuation techniques, methodologies and applications (2009,
forthcoming).

Tim Ambler
is Senior Fellow, London Business School which he joined in 1991. Teaching and research
interests include the measurement and reporting of marketing performance, including narrative
disclosures in company annual reports. Books include The Sage Handbook of Advertising (2007,
co-edited with Gerard Tellis), Marketing and the Bottom Line (2000, 2003), and Doing Business
in China (2000, 2003, 2008, with Morgen Witzel).

Keywords:
Brand valuation, brand measurement, brand equity, DCF, classification, valuation methodology.

Contact:

Gabriela Salinas, msalinasfabbri@deloitte.es, Deloitte, Plaza Pablo Ruiz Picasso, 1, Torre Picasso, 28020
Madrid, Spain, phone +34 915 145 000, fax: + 34 915 145 180
Tim Ambler, tambler@london.edu, London Business School, London NW1 4SA, phone 44+ 20 7000
8618
 Abstract

Brands can be valued using a variety of techniques. Like any tool, each technique may be suitable for
some purposes and not for others. This paper classifies brand valuation methodologies according to the
approaches and premises they adopt and suitability for different types of applications. The paper only
considers financial brand valuation, not other forms of brand equity measurement. We indicate some
flaws in valuation methodologies either in general or for particular purposes. Classification is complicated
by specialist firms seeking to differentiate methodologies (“proprietary models”) for their own marketing
purposes. Much of this differentiation is little more than re-labelling. The methods of brand valuation,
and their specialist providers, garnered from the literature may represent many more around the world. On
the other hand, our net was sufficiently large to be confident that all the main approaches have been
captured. After removing the theoretic methods that do not appear to be used in practice, we were left
with a short list of practical methods which we analyse and classify. This paper sets out to map this
jungle to assist practitioners and academics to assess the alternative techniques.

1
 A Taxonomy of Brand Valuation Practice: Methodologies and Purposes

Since the 1980s, marketers have been under increasing pressure for “accountability” in two senses: being
responsible for the results from marketing activity and reporting those results using the language of
finance. As a consequence, practitioners and academics have been researching methods of financially
valuing brands.1

Rupert Murdoch included the values of his newspaper brands (“mast heads”) on the Australian News
Group balance sheet in 1984 and Interbrand valued the UK’s Rank Hovis McDougall brands as part of a
bid defence in 1988.2 Since then, valuation methodologies have proliferated in response to the technical
alternatives, academic papers, diversity in usage and the marketing needs of firms differentiating their
valuation services.

This paper sets out to map this jungle to assist practitioners and academics in their choice of valuation
technique. The paper only considers financial brand valuation, not other forms of brand equity
measurement. The asset, created by good marketing, should not be confused with the financial worth of
that asset, namely “brand valuation”.3 Any asset can be valued in different ways for different purposes but
those valuations do not change the asset itself. Some writers use “brand strength” to mean “brand
equity” in the sense used in this paper, either because of distaste for the term brand equity (e.g. Feldwick 4)
or because they have used “brand equity” to mean the brand’s financial value (e.g. Simon and Sullivan 5).
Unless it is part of a title we have replaced “brand strength” by “brand equity”. Keller 6 uses “brand
strength” as an introduction to brand equity to mean the overall impact of the brand.

We first review the development of brand valuation methods and industry before discussing the
methodology for this study. We then identify distinct methodologies from the literature and how they
relate to one another. Removing theoretical methodologies which do not appear to be provided in practice
leaves a short list of used methodologies. This is not quite a neat list of totally distinct methodologies but
enough separation can be achieved for comparative analysis. The objective was to get past proprietary
labelling, for distinctiveness in the market, to identify the underlying products, i.e., methods, and their
characteristics.

2
After discussing limitations and future research, whether this analysis is robust, and how it can be
developed, we draw conclusions. For example, we find that for tax and other technical purposes, the
royalty relief tends to be the methodology of choice as it satisfies the requirements of practicality and
reliability sought after by practitioners. Managers, however, are more concerned with actions, i.e. key
value wich, in turn, will change future profits and thus the present value of the brand.

The background section is structured around the factors contributing to the development of brand
valuation methods, and then the development of the brand valuation industry.

The development of brand valuation methods

At least four factors have driven the development of brand valuation methods: measuring marketing
performance, justifying share prices, trading brands and tax management. We take these factors in turn.

Increasing recognition of brands as assets has lead to realisation that the return from marketing should be
seen as the incremental net profit or loss together with the change in the value of the brand. 7 This factor
seeks to bridge the gap between marketing and finance by justifying marketing investment and resource
allocation in financial terms and then using the same method for judging performance. Having all metrics
in the same currency, as distinct from measures such as customer satisfaction, is clearly attractive to
management. The problem, as we will see later, is finding a valid method of brand valuation for
performance assessment.

Quite separately, but over the same time period, analysts have been faced with an increasing discrepancy
between share prices for companies and their tangible assets. These discrepancies have been attributed to
intangible assets, including brand. Some (e.g. Hirose 8) argued that including brands on balance sheets
would help explain this discrepancy. Others (e.g. Barwise, Higson, Likierman, and Marsh 9) objected
strongly. The emerging compromise, in the UK and most other countries, was that the cost of acquired
brands could be capitalized but not the value of either home grown or acquired brands except that the cost
should be checked annually for “impairment”. If the value had declined below cost, then the lower figure
should be used.10 There is nothing to stop companies reporting the values of their brands in the narrative
sections of their annual reports and some now do so (for example, Telefónica S.A. 2002 annual report, p.
25). Whether brands should appear on balance sheets is outside the scope of this paper which is only
concerned with how brands are, and should be, valued. We should note, however, that the debate has little

3
substance. Any company wishing to inform shareholders of the value of its brands may do so in the
narrative section of their annual report, if not the balance sheet section.

A third interest in brand valuation arises when the brands, or the companies owning the brands, are
bought and sold. The original Rank Hovis McDougall valuations and the near-contemporary Grand
Metropolitan acquisition of Smirnoff vodka were examples of this. Large shareholder investments were at
stake on both sides. More recently Unilever and Procter & Gamble have been selling their smaller brands
in order to focus on the larger ones.

The fourth factor is technical and legal, e.g. tax management. If a multinational group can legitimately
locate the global brand ownership in a lower tax country and maximize the share of profit attributable to
the brand’s owner in that country, then group after tax income is increased. Related to this factor is the
valuation of brands in legal cases such as company break ups. Legal and tax conceptualization of brands
and their values come together especially where tax disputes finish up in court.

Development of the brand valuation industry

As noted above, Interbrand can claim to be the pioneer in the specialist brand valuation industry. 11
Interbrand initially favoured deriving a multiple and applying it to recent earnings. 12 Since then
methodologies and suppliers have proliferated. Our review of the literature revealed 52 suppliers as
shown by the Appendix, and no doubt there are many more. We need to distinguish between proprietary
models and provider since some suppliers, such as Houlihan Advisors and AUS Consultants, the
intangible valuation firm based in New Jersey, seem to use general methodologies rather than proprietary
methods. Other providers apply proprietary methodologies developed by third parties. For example,
absoluteBRAND applies the proprietary methodology developed by Intangible Business and FutureBrand
has a model which seems to be almost identical to the “Brand Role Model" developed by Interbrand. 17
of these suppliers use methods that could not be determined from their literature.

The development of this industry has involved suppliers with diverse qualifications for brand valuation. 13

As Figure 1 shows, these include IP lawyers, Intellectual Capital Consultancies, “Strategic Branding”
consultancies, and Economic Valuation specialists.

4
Figure 1. Types of brand valuation providers

IP
Lawyers
“Big 4”
Intangible
and
asset
auditing
valuation
companies

Acade-
mics with
or without Brand Economic
proprietary valuation Valuation
methods providers Specialist

Intellectual
Market
capital
Research
consultan-
Agencies
cies “Branding”
companies

Source: Salinas14

Methodology

As Figure 1 implies, collating practical methods is complicated by the multiplicity of sources. An

academic taxonomy can be based on papers in the leading scholarly journals but those are rarely used by
practitioners. The Emerald database of journal articles yielded 179 possibly related articles of which 151
dealt with brand equity but only 19 with brand value or valuation.

From Amazon, academic library searches and personal sources, we located 30 books with sections related
to brand valuation. Beyond that we used our experience of brand valuation practitioners to locate
additional brand valuation techniques and our personal experience of their application to their clients’
business. A number of references are to the promotional material of those providers.

Analysis

This section identifies three types of model which are then used as a framework for the methods we found
in the literature. Most models are variations on these three general approaches to brand valuation: 15, 16,17

5
1. Cost: According to this approach, the brand is valued on the basis of the historical cost of creation or
what it might cost to recreate a similar brand.

2. Market: It is sometimes possible to estimate the brand value by reference to open market values
where there is evidence of prices at which these assets have changed hands. As with the cost
approach, this may be acceptable where the asset in question is not unique and there are sufficient
comparable transactions in the market place.

3. Income: It is based on the premise that future cash flows attributable to a brand dictate its value for its
owner or a potential investor. This is why, it requires the identification of the future revenues, income
or cash flows attributable to the brand and discount them to present value. In order to arrive at a
capital value, the estimated future cash flows or earnings attributable to the brand are discounted back
to a net present value (“Discounted Cash Flows” - “DCF” approach).

Tables 1, 2 and 3 list those three methods and their main variations, of which the last has far the greatest
number. Table 4 lists the methods that did not seem to fit any of the three categories. Note that the
sources are both academic and commercial but we have excluded all measurement of brand equity other
than brand valuation

Table 1: Cost based methods

 Name Description Advantages Disadvantages Source1

1 Historical cost Uses historical cost of  According to  Does not consider the brand Haigh,20Hirose,21
of creation creating the brand to Anson, this
18
earning potential Anson22
estimate brand value. approach “can often –  Does not capture the value
but not always- added, or lost, by
provide a floor management, i.e., the
minimum value for competitive position of the
the brand”. brand.
 “It can be used for  It can be difficult to recapture
embryonic assets all the historic development
where no specific costs
market application or
benefit can be
identified” (Anson19).

1?
Here, by source we do not necessarily mean the originator of the methodology, but a paper describing the method.

6
2 Cost to recreate Uses current prices to  According to  Not a good future indicator. Smith,25
(reproduction estimate the cost of Anson, this
23
Haigh,26
or recreating the brand approach “can often – Boos,27
replacement) today. but not always- Anson28
provide a floor
minimum value for
the brand”.
 “It can be used for
embryonic assets
where no specific
market application or
benefit can be
identified” (Anson24).

Probably the most reliable method of valuation would be based on comparisons with actual brand sales or
transactions, as shown in Table 2. The difficulty here is that there are too few examples of such sales and
even when they occur, the necessary data remains private.

Table 2: Brand sale comparisons

 Name Description Advantages Disadvantages Source

3 Brand sale / The brand is valued by Useful where there is Data comparability. Smith29, Ambler and
transactions comparing recent enough comparable data. Barwise,30
comparison transactions involving Haigh,,31 Anson32
(multiples) similar brands in similar
markets or by reference to
comparable market
multiples.

Table 3 requires mention of an anomaly concerning the word “brand”. Many academics and discussion
of brand valuation assume that the word “brand” excludes the underlying products (i.e. we are valuing
additional value due to the branding) but many others use the inclusive sense. Ambler and Barwise 33
provide a page (p.369) comparing the two sets of sources with some authors, e.g. Kotler 34 and Aaker,35,36
appearing on both lists. The issue is, for example, whether the valuation of the Smirnoff brand includes or
excludes the profits due to the unbranded vodka itself. The exclusive definition presents immense
difficulties in theory because, inter alia, the quality of the brand/product is partly a consequence of the
branding and so is the perception of that quality. The packaging could be attributed to the branding or to

7
the legal need for packaging any commodity or both. The quality of a Rolls Royce would not be installed
if it were not a Rolls Royce. The exclusive usage presents even greater difficulties in practice because the
underlying products are not commodities with separate market places and prices and the two profit
streams cannot be realistically estimated separately. On the other hand, these difficulties are avoided by
royalty relief methods where it is clear that only the branding elements are being [notionally] licensed and
the separation from the underlying product is obvious, at least from the perspective of the licensor. The
brand’s value to the licensee, however, retains the difficulties of separation (Barwise et al. 37).

Further research is needed to compare what the best known brand valuers claim, in respect of inclusive
versus exclusive usage, with what they do in practice.

Table 3: Income based methods

 Name Description Advantages Disadvantages Source

4 Price The brand value is calculated
Premium multiplying the unit price
differential of the brand in
comparison with a generic
product by the volume of
sales. There are, at least, two
options to calculate price
premium statistically:
 Conjoint
Analysis: It identifies the
utility relative to
independent product
attributes
 Hedonic Analysis:
The hedonic approach
considers the price as a
function of different
product traits, being the
brand one of them
 Theoretically  Difficult to apply from Ambler and Barwise,38
attractive since it is the practical point of Tollington,39 Smith
universally view and not all and Parr,40
understood. organizations will be Zimmermann et al.,41
 The statistical able to conduct this Boos,42 Salinas43,44
methods to calculate type of analysis,
price differentials are especially if their
perceived as methods products are distributed
that remove the through independent
subjectivity inherent channels that may not
to the valuation be willing to
process. participate in the
experiment or if they
sell bundled products
or services that are
difficult to compare
with the competitor’s
offer.
 It does not take into
account the advantages
of cost and volume.
 The application of
statistical methods to
calculate price
differentials does not
remove, but “moves”
the subjectivity
inherent of any

8

5 Demand It considers the effects of
Driver / brand equity on the demand
Brand and supply functions, in
Strength order to determine the
Analysis influence of the brand in the
decision making process. It is
based on the analysis of
demand drivers and/or brand
attributes. This analysis
could be statistical or
judgmental.
6 Gross margin Brand value is the product of
comparison the branded sales revenues
(“Economy of and the premium branded
Scale gross margin, i.e. the excess
Technique”) above the average gross
margin of comparable
competitors.
7 Operating Brand value is the product of
profit the branded sales revenues
comparison and the premium branded
EBIT, i.e. the excess above
the average EBIT of
comparable competitors. 6
valuation process to
another level: the
selection of the
variables or attributes
of the product. It can
only be supplementary
of traditional methods.
 From a marketing  Many of the Brand Finance,45
point of view, this consultancies that Zimmermann et al.,46
method can add apply this methodology BrandEconomics,47
value helping to tend to apply a “black Sattler et al.,48
determine the key box” approach, i.e., Brandient,49 Brand
demand drivers that they do not reveal their Metrics,50 Interbrand
create value for the estimation algorithms Zintzmeyer and Lux,51
firm. or they apply it in Kumar and Hansted
 It does not always different ways Blomqvistm,52 Mussler
depend on the data of depending on the et al.,53 A.C. Nielsen,54
comparable availability of Salinas55,56
transactions or information.
companies to Accordingly, results
estimate the obtained under this
proportion of the approach may not be
earnings attributable comparable.
to the brand.  The resulting index of
the demand driver
analysis can be applied
on different bases
(EVA, Free Cash
Flow, Sales, etc.).
It allows the valuation of It does not take into Smith57
brands that do not have account any variables that
price advantage, since it can influence the operating
also considers the cost margin other than brand,
advantage. and thus may under or
over-value the brand. But
proponents of the inclusive
brand definition (see
below) would regard that
as an advantage.
It takes into account There may be other Smith,58 Smith and
more brand advantages variables apart from brand Parr59
than the “economy of that influence the operating
scale” and “price earnings, and this is why
premium” techniques this methodology may
(lower promotion costs, under or over-value the
9
 and 7 are similar except for
the use of gross margin vs.
EBIT.
8 Royalty Based on the licensing fee
Relief the company would have to
pay if it did not own the
brand. This methodology
involves estimating likely
future sales and then
applying an appropriate
royalty rate. The stream of
notional brand royalty is
discounted back to a net
present value – the brand
value.
There are several ways of
calculating the royalty rates
applicable to the forecasted
revenues including:
 Scoring techniques based
on brand equity and
market comparables
 Operating earnings excess
 One version of this allows
royalties to diminish over
time (“Kern X-times
model”, as cited by
Zimmermann et al.). 60
9 Excess Cash The Free Cash Flow
flows attributable to the brand is
estimated by deducting the
return of other assets
different from brand from the
Free Cash Flow of the firm.
10 Excess It calculates the portion of
Margin the excess margin that is
administration expenses, brand.
and other expenses not
included in the cost of
sales).
 Valuation specific to  Brands, by nature, are Barwise et al.,61
the industry. unique and not really Aaker,62 Smith,63
 Based on traditional comparable. Ambler and Barwise,64
brand licensing (e.g.  Sometimes, the royalty Fernández ,65
Smirnoff vodka) rate not only includes a Intangible Business,66
practices. charge for the use of Whitwell,67
 Theoretically the brand. The problem Zimmermann et al.,68
attractive, since it is to determine which Boos,69 BBDO,70
eliminates the part of the royalty rate Anson,71 Salinas72,73
intrinsic difficulty of has its origin in the
estimating the brand and which part in
profitability and risk the rest of obligations
differentials of the contract. This is
attributable to the why some authors
brand. believe that it cannot
 It has been accepted isolate perfectly the
by numerous fiscal brand value as the
authorities as a royalty rates not only
reasonable model. remunerate the brand
exploitation, but the
supply of raw
materials, "know-how"
and other services to
allow the licensee to
keep the required
quality standard.
 It may discount the
value of 100% control
over both the brand and
its territorial
marketing.
It eliminates the need to The Free Cash Flow Fernández,74 Kam and
use comparative data attributable to the brand is Angberg75
from other transactions similar to the EVA
involving brands. concept, but replaces the
flow attributable to the
unbranded company by the
assets used by the branded
company times their
required return.
Conceptually, it is In the case of companies Smith,76 Pratt,77
consistent with the with strong brands and Andriessen78
10
 attributable to the brand
(excluding the margin of
other intangible, tangible or
financial assets), based on the
valuation expert’s
experience.
11 Marginal The value of the marginal
Cash Flows cash flows that are generated
(value of the by the exploitation of the
company brand are the base to value it.
“with” and
“without” the
brand)
12 Competitive The brand value is estimated
Equilibria discounting the “brand
Analysis earnings”. Brand earnings are
calculated based on the
differential market share due
to the image of the company.
13 Core brand The brand value is calculated
value plus the as the sum of the core brand
value of other value and the value that it
related assets earns from its products and
brands.
14 Valuation It calculates brand value by
based on the estimating the brand value at
concept of individual level and
Customer aggregating it for all
Lifetime customers. The brand value
Value (CLV) at individual level is
calculated as the proportion
of the CLV attributable to the
brand. This proportion or
exclusive definition of a many obsolete tangible
brand which excludes assets in books, the brand
the underlying product. would be undervalued due
to the high technical yield
that would be allocated to
the tangible and financial
assets of the company.
Subjectivity in the
determination of the
required return of each
intangible asset.
The allocation of the
margin to each intangible
asset is still subjective and
arbitrary since the return
on the tangible assets is
considered fixed.
Conceptually, it is Difficult to find a Lamb,79 Smith80
consistent with the comparable company with
exclusive definition of a the same mix of intangible,
brand. monetary and tangible
assets and that sells
unbranded products.
It is based on objective Based on the proportion of Moreno, 81Salinas82,83
observable data. market share not explained
by “objective factors”
(distribution, marketing
investment, price).
According to Anson,84 Very subjective. Anson85
this provides a more
“realistic” view on the
value of a corporate
brand, recognizing its
two main areas of value.
According to Fischer,86 it  Subject of Fischer87
is cost-effective measurement errors
 Moves the subjectivity
to a different level
11
 Brand Equity Share (BES) is
calculated through statistical
analysis.
15 Differential It calculates brand value as
of price to the difference between the
sale ratios estimated price to sales ratio
for a branded company and
another price to sales ratio
for an unbranded company.
Table 4: Other methods
 Name Description
16 Comparison with Under this approach, the
the theoretical earnings attributable to the
earnings from the brand are determined as the
equivalent differential EBIT between
unbranded product the branded product and the
equivalent unbranded one.
To estimate the earnings of
the unbranded product, a
ROCE of 5% and an
Employed Capital that is
equal to the median of the
sector are assumed. Then a
brand multiple is calculated
based on brand equity and a
“S curve” based on P/E
ratios. The brand value is
estimated as the earnings
attributable to the brand by
the brand multiple.
17 Cost of creation It estimates brand value as
and development the creation and
plus a percentage development costs plus the
of historical 10% of the average annual
income2 revenues of the last 5 years.
18 Formulae based on Brand value is calculated as
accounting data the “Brand earnings”
2
In reality, this methodology could be classified as a “mixed methodology”, involving elements of the cost and
income approach. This methodology is known as “Enterprise Value” and the 10% average annual revenues as
“factor Repenn”.
The logic is intuitive and  Difficulty involved in
easy to understand.
 The Damodaran model
Advantages
Conceptually, to
compare the earnings
of the branded vs. the
unbranded company is
consistent with the
exclusive definition of
a brand which
excludes the
underlying product.
This is only a
conceptual advantage,
we are not referring to
the way in which the
model is actually
implemented.
No advantages.
It only uses publicly
available information.
12
Damodaran,88
estimating the Fernández89
parameters of the
generic product
assumes the same level
of current sales
revenues for the
branded and unbranded
company.
Disadvantages Source
It is difficult to Birkin,90 Haigh,91
implement since it is not Meschi,92 Walker,93
easy to obtain reliable Motameni and
data on the unbranded Shahrokhi,94
offer. Tollington,95
The quantification of the Fernández,96
differential EBIT is very Seetharaman et al.97
subjective.
It excludes behavioural
measures of “brand
equity”
Applying P/E ratios to
value the brand, assumes
that the brand can be
valued as the business as
a whole (but this is a
problem with the
multiples method in
general).
Same disadvantages as Zimmermann et al.98
cost approaches and
arbitrary.
The methodology Hirose,99 Beccacece,
assumes that the brand is Borgonovo and
 discounted in perpetuity
with no growth. Brand
earnings are the product of
the Prestige Driver (PD),
Expansion Driver (ED) and
Loyalty Driver (LD).
19 Multiples based on Brand Value is calculated as
proprietary the product between
research data “intangible earnings” –
calculated as EVA-,
“brand contribution” –
which is calculated based
on the strength of the
relationship with the present
base of clients- and “brand
multiple” –which is
calculated based on a short
term growth index.
20 Percentage of Based on surveys to
market cap corporate executives which
attributable to the estimate the “Brand
brand Power ” (brand equity
TM
index) and on financial data,
the “corporate” brand value
is calculated through a
statistical model.
21 Real Options It values the brand as an
option of geographic
expansion, brand extension,
etc.
22 Stock Price Based on an equation that
Movements links brand value,
calculated as the component
of share value, attributable
to the brand, to advertising
like a perpetual bond Reggiani,100
with interest that will not Salinas101,102
grow. This aspect of the
model is very poor, as it
is not universally
applicable.
It discounts the “brand
earnings” at the risk free
rate, which is wrong, as
the method does not
effectively consider
brand risk in the cash
flows.
Based on researched Takes into account short Millward Brown
marketing variables. term growth expectations Optimor,103
and the strengths of the Salinas104,105
relationship with the
present base of clients as
the basis for valuation.
EVA hard to pin down
as income due to brand.
It takes into account It does not take into Callaman,106
other audiences than account other “corporate Corebrand,107
customers. audiences” such as Salinas108,109
financial analysts,
financial institutions,
governments, etc.
It requires users to be The assumptions Fernández,110
clear about required make the Upton,111 Ward and
assumptions used in application of this Ryals,112 Lamb113
forecasts. Especially methodology very
useful where real difficult.
options are otherwise
employed in planning.
More appropriate to  Brand equity is Simon and
value single brand based on four factors Sullivan,114
companies. for all sectors. Motameni and
 It assumes a strong Shahrokhi115
efficient market.
13
 expenses, penetration order,
time in market and present
and past ad share.
23 Valuation model It calculates the variation in
based on CAPM the required cost of capital
and the resulting
incremental firm value
when the reputation index
varies in one unit.
It includes the benefits It only produces a Srivastava et al.,116
of having a strong relative brand value. Salinas117,118
brand for a broader
group of stakeholders
than the product
orientated brand
valuation models.

We now test those tables against the market by eliminating those where the source is in the academic
literature and we could find no commercial usage. The authors have used their own experience for much
of this paper, one as a long serving executive in a brand valuation business and the other as a practitioner
and then an academic specialising in brand and marketing measurement. We may not be aware of some
academics using their published methods in their consultancy roles and the line between the two is
debatable. Our study of the literature indicates that, for example, the following could be excluded from
the list presented in the Appendix on grounds of being purely academic: Fischer, 119 Hirose,120 Simon and
Sullivan121 and Srivastava et al.122 On the other hand, we concluded that Baruch Lev’s work, as described
by Hoffman123 and Damodaran´s model124 were sufficiently mainstream to be counted as being used in
practice.

Figure 2 provides a tree diagram that shows, for the most popular approach namely Income, the
methodologies, what they are known as and their commercial providers in one snapshot. We found no
current providers of the historical, reproduction or replacement cost methods which would seem to
confirm that the Cost approach is not being used in practice to value brands. The numbers of the
methodologies in Figure 2 refer to Table 3.

14
Figure 2. Tree diagram of approaches, methodologies and providers for the Income approach

Methodologies Models Sources

1. “Brand Rating” Icon Brand Navigation

2. Price Premium / multiple based on P/E Trout&Partners

3. Herp model based on Conjoint Analysis Herp

4. Price Premium

4. Sander model based on Hedonic Analysis Sander

Unspecified AUS Consultants

5.“Brand Balance Sheet”

AC Nielsen
6. “Brand Performancer ”

7. Advanced Brand Valuation GfK – PwC - Sattler

8. BEES ®
BBDO
9. BEE ®
5. Demand Drivers / Brand Strength Analysis
10. BrandEconomics BrandEconomics

11. Brand Finance “Earnings Split” Brand Finance

12. Brandient “BrandStamina TM” Model Brandient

13. BrandMetrics BrandMetrics

14. “Brand Role Model” Interbrand Interbrand

15. Prophet Influence Model Prophet

16. Semion Semion Brand Broker GmbH

Unspecified Equilibrium Consulting, FutureBrand

6. Gross Margin Comparison Unspecified AUS Consultants

7. Operating Profit Comparison Unspecified AUS Consultants

17. Intangible Business Model AbsoluteBRAND, Intangible Business

18. Brand Finance Model Brand Finance

8. Royalty Relief 19. BEVA BBDO / Ernst&Young

20. Valmatrix ® Consor

Unspecified AUS Consultants

21. “Kern X -times model” Kern

9. Excess Cash Flows Unspecified AUS Consultants, Houlihan Advisors

22. VALCALC ® Consor

10. Excess Margin 23. Intangible Scorecard Baruch Lev

Unspecified AUS Consultants

11. Value of company with and without brand Unspecified AUS Consultants

12. Competitive equilibria analysis 24. Competitive equilibria analysis Villafañe&Associates

13. Core brand value plus the value of other brand

25. BEVQ TM (Brand Value Equation Method) Consor
related assets

14. Model based on Customer Lifetime Value 26. Fischer´s Model Fisher

15. Difference in price to sales ratios 27. Damodaran ´s Damodaran

15
This leaves the final, Other, category shown in Figure 3. The numbers of the methodologies in Figure 3
refer to Table 4.

Figure 3. Tree diagram of approaches, methodologies and providers for other approaches

Methodologies Known as Sources

33. “Global Brand Equity” Motameni and Shahrokhi

16. Comparison w/ theoretical earnings of
the equivalent unbranded product 34. Interbrand Multiples based on P/E Interbrand, Financial World

17.Cost of creation and development plus

28. “Enterprise Value” Repenn
a percentage on the hist. income

29. Brand Valuation Model by Hirose

18. Formulae based on accounting data Hirose et al.
Committee

19. Multiples based on proprietary

35. BrandZTM Millward Brown Optimor
research data

20. Percentage of Market Cap attributable

32. Corebrand Corebrand
to the brand

21. Real Options None Unknown

22. Stock Price Movements 31. Simon & Sullivan Unknown

23. Valuation Model based on CAPM 30. Srivastava et al. Srivastava et al.

This analysis of the theoretical methods indicates that we can eliminate both cost methods, and the
aforementioned four purely academic methods, i.e. the 23 can be reduced to 17 available in practice.
Different methodologies produce different results. Figure 4 shows the divergent results from league tables
published in 2005 by three consultancy firms.

Figure 4. Comparison of 2005 brand valuation estimates for Toyota, Samsung and Apple calculated
by Interbrand, Millward Brown Optimor and Vivaldi Partners – in USD billion

16
 Toyota
30,2 Samsung
25,8 Apple
24,8

14,9 15,9
14,3
12,0
7,9
5,3

Interbrand MBO Vivaldi

Source: Interbrand,125 Millward Brown Optimor,126 Badenhausen and Roney127 as cited in Salinas128

Unless the reasons are explained, this variation undermines the users’ faith in the reliability of brand
valuation in general.129 Gunther and Kreigbaum-Kling130 surveyed 79 German companies and 40% of
their respondents stated that the main reason for not valuing brands was the lack of an appropriate
method.

Taxonomy of brand valuation methodologies

In order to widen the understanding of these “Income” and “Other” methodologies, we now review them
according to five criteria. Clearly the choice of criteria is, to some extent subjective, but we based this
choice on our experience of the market:

1. Treatment of risk
2. Determination of the income attributable to the brand
3. Audience that the model addresses (corporate brand vs. consumer brand)
4. Source, i.e. origin of the method
5. The usage

Treatment of risk
We analyzed the methodologies according to their treatment of risk and found:

17
  57% of the proprietary methodologies listed in Figures 2 and 3 use discount rates to deal with
risk.

 55% of those that use discount rates to deal with risk, adjust the discount rate according to the
specific brand risk.

 45% of those that use discount rates, estimate them applying either Weighted Average Cost of
Capital (WACC) or Capital Asset Pricing Model (CAPM).

Figure 5 provides a detailed classification of the methodologies according to the way in which they
consider brand risk.

Figure 5. Analysis of the methodologies according to their treatment of risk

Risk Factor

Discount Rate Multiple

• Interbrand
WACC without WACC with Multiples
Others • GBE (R.
adjustments adjustments
Motameni)
• BrandMetrics • Advanced Brand • AC Nielsen BBS • Trout&Partners
• Intangible Business Valuation (GfK – • AC Nielsen BP
• Valmatrix® PwC – Sattler) • BEVA (BBDO /
• BEE® (BBDO) Ernst&Young)
• Brandient • Brand Rating
• Brand Finance • Competitive
“Earnings Split” Equilibria Analysis
• Brand Finance (Villafañe &
Royalty Relief Asociados)
• Prophet • Fischer (2007)
• Intangible
Scorecard (Lev)
• Interbrand DCF
• VALCALC®
• “X-times model”
(Kern)
• Hirose et al. Model

Source: Based on Salinas131

Although adjusting discount rates has been criticized by academics (Barwise et al. 132), it is widely
practiced not only for brand and intangible assets valuation, but also for the valuation of other financial
assets.

18
Determination of the income attributable to the brand

The literature shows at least 13 techniques for determining the brand contribution to revenues, income or
cash flows. The numbers again refer to Tables 1-4 above:

Table 5: Methods for estimating brand contribution to profit

 Name

3 Brand sale comparison (multiples)

4 Price Premium

5 Demand Driver / Brand Strength Analysis

6 Gross margin comparison (“Economy of Scale Technique”)

7 Operating profit comparison

8 Royalty Relief

9 Excess Cash flows

10 Excess Margin

12 Competitive Equilibria Analysis

16 Comparison with the theoretical earnings from the equivalent unbranded product

17 Arbitrary Constant Coefficients (“Factor Repenn”) 3

18 Formulae based on accounting data

19 Proportion of loyal clients as % of total client base 4

The only other method we should consider is the Roos133 "Conjoint Value Hierarchy". This is not added to
the 17 methodologies elicited earlier because this is just a separation method and not an integral valuation
method.

3
This is applied in the context of the “Enterprise Value” methodology.
4
The way in which “brand contribution” to earnings is determined by Millward Brown Optimor (Multiples based on
proprietary research methodology).

19
Of the identified models that use the income approach, 34% analyse brand equity (strength) or demand
drivers to determine the proportion of revenues or income attributable to the brand. 11% use the Royalty
Relief methodology and an identical percentage use Price Premium, while only 6% apply the comparison
with the theoretical earnings of the unbranded product and excess margin. Comparing methodologies, it
appeared that the Royalty Relief method is used consistently whereas there is more variety in the
application of the Brand Strength method.

Audience that the model addresses

Whether they be academic or commercial, corporate brand valuation models, based sometimes on
reputation rather than brand equity, address a shareholder, or perhaps stakeholder audience (Corebrand, 134
Hirose,135 Srivastava et al.,136 Zimmermann et al.,137 Anson138) as distinct from a marketing or commercial
audience. As with all these valuations, validity depends on the purpose intended. Clearly, if brand
valuation is being used to measure marketing performance, then what is in the minds of shareholders and
stockmarket analysts is less relevant. The end users and all parts of the distribution chain are the minds
that matter for “product” brands, here meaning the equity associated with the branded goods and/or
services in the commercial marketplace. If, however, the user is concerned with variations in share prices,
the reputation with the financial community matters a great deal. Where brand valuation is being used as
part of the calculation of the price for a single brand company acquisition, both audiences may be
relevant.

Corporate brand valuation has been used where there was a need to assess the economic contribution of
the corporate brand from this wider audience or to share prices, e.g.:

 There is a need to assess the benefits or drawbacks of potential endorsement of the corporate
brand,
 There is a need to assess the impact of a corporate re-branding, like in the case of Philip-Morris
that changed its name to Altria,
 There is a need to prove the value added by investor relations practices.

20
Almost all the methods we have presented are applied to product, i.e. goods and/or services, brands and
we found only three specialists for corporate brand valuation (see Table 6 which uses the numbering from
Tables 1-4). The BEVQTM model is an exception in that it is used to value both corporate and product
brands. We foresee a growing development of this corporate brand valuation given the interest among
academics and executives as a tool for “measuring the impact of reputation on business value.”

Table 6: Methods for valuing corporate brands

13 BEVQTM (Brand Equation Method)

18 Valuation of Corporate Reputation based on
CAPM
20 Percent of market cap attributable to corporate
brand

1
Aaker, D. (1991), Managing Brand Equity: Capitalizing on the value of a brand name, The Free Press, New York.

2
Sampson, J. (1997), “Brand Valuation: Today and Tomorrow,” in Raymond Perrier, ed., Brand Valuation, London: Premier Books, 175-
182.

3
Raggio, Randle D., and Robert P. Leone (2009), “Chasing brand value: Fully leveraging brand equity to maximise brand value,” Journal
of Brand Management (2009) 16, 248 – 263.

4
Feldwick, P. (1996), "Do we really need brand equity?" The Journal of Brand Management, 4(1), 9-28.

5
Simon, C. and Sullivan, M., (1993), "The measurement and determinants of brand equity: a financial approach", Marketing Science, 12 (1
Winter), 28-52

6
Keller, K. L. (1998), Strategic Brand Management, Prentice Hall, New Jersey.

7
Ambler, T. (2003), Marketing and the Bottom Line, 2nd edition, FT Prentice Hall, London.

8
Hirose, Y. (2002), The Report of the Committee on Brand Valuation, Ministry of Economy, Trade and Industry, The Government of
Japan, June 24.
9
Barwise, P., Higson, C., Likierman, A. and Marsh, P. (1989), Accounting for Brands, London Business School/The Institute of Chartered
Accountants in England and Wales.

10
ASB (1998), Financial Reporting Standard: Good will and Intangible Assets, Accounting Standards Board, London.

11
Sampson, see ref. 2 above

12
Haigh, D. (1997), “Accounting and Forecasting for Brands,” in Raymond Perrier, ed., Brand Valuation, Premier Books, London, 35-42.

13
Salinas, G. (2007), “Valoración de marcas: Revisión de enfoques, proveedores y metodologías”, Deusto, Barcelona

14
Ibid.
15

21
Origin of the method

To analyze overlap of the methodologies developed by academics and commercial providers, we need
three classifications: academic, commercial, and hybrid, i.e., those developed jointly by academics and
commercial providers, together with a group which did not provide enough data for classification. We
were surprised to find only one hybrid, namely ABV (GfK-PWC-Sattler). To underline that, we found a
clear divergence between the methodologies proposed or endorsed by academics and those originating
with commercial providers (see Figure 6). The latter were primarily identified with Demand Analysis
and Royalty Relief whereas the former group was concerned with theoretical aspects many of which do
not seem to be widely applied.

?
Aaker, D. (1996), Building Strong Brands, The Free Press, New York.

37
Barwise et al., see ref. 9 above

22
Figure 6. Commercial vs. Academic Origins

Academia / “Theory of Praxis / “Practice of

intangibles” intangibles”

Valuation Demand
Damodaran based on Analysis
Srivastava “Royalty
CAPM AC Nielsen
Difference et al. Relief”
BBDO
in price to absoluteBRAND BrandEconomics
sales ratios Price AUS Consultants Brandient
premium Brand Finance BrandMetrics
Consor Equilibrium
Stock Price Herp Intangible Business
Movements Sander FutureBrand
Prophet
Simon & Semion
Sullivan

The ideal, the perfect, the What works, applicable,

utopic, not always applicable, practical, although not
models that do not always work perfect (as any
in practice modelization of reality)

Source: Salinas139

The treatment of the discount rate applicable to the brand valuations also varies by origin. While some
academics criticize the adjustments made to the discount rate applicable to the earnings attributable to the
brand or the scoring techniques on which some of these adjustments are based (Smith and Parr 140), most
commercial providers adjust the WACC to reflect the specific brand risk (Haigh, 141 Zimmerman et al.,142
Intangible Business143).

The usage

So far, this review has not considered the usefulness of these methodologies and their validity in practice.
They can be reduced to just two general categories of application: technical (accounting, transactional and
litigation) and managerial.

 Technical: Royalty Relief tends to be the choice methodology in practice and in the specialist
literature.
 Managerial: The Demand Driver analysis methodology tends to be the preferred methodology.

23
Technical valuations are undertaken for annual reports, testing impairment, tax planning, securitization,
mergers, litigation and acquisitions. The objective here is to establish the financial market value of the
brand as between an arm’s length seller and buyer. For example, where a company owning brands is
acquired, and the brand(s) will appear on the acquirer’s balance sheet, brand valuation is required to
distinguish the cost of the brand(s) from the rest of the acquisition cost. Financial standards require that
acquired brands are included in the balance sheet at acquisition cost. Thereafter, brand valuations are
required annually, the “impairment” test, to ensure that the market value of the brand is not lower than the
cost shown on the balance sheet.

Managerial brand valuations are used for restructuring portfolio management, budget allocation and
performance assessment. Such valuations can form part of dynamic business models both as an output
from one cycle of marketing and input to the next where brand equity is first influenced by, and then
influences, marketer actions and key variables in the market. Marketing performance can be evaluated as
short-term incremental cash flow plus any increase in brand equity, perhaps quantified as the change in
the brand’s valuation.144

Prospectively, brand valuation can be used to compare the outcomes of different brand strategies and the
relative performance of different marketing teams. The intention is to improve marketing effectiveness
and accountability. In practice, brand valuation has been used to defend marketing budgets, to make
decisions about brand extension and brand architecture, and to measure marketing productivity, although
this usage has been challenged145 partly because relying on [future] forecasts to assess [past] performance
introduces more uncertainty than reliability. There is moral hazard in inviting marketers for forecasts to
assess their own performance and forecasts by others may be no more objective. Some companies have
used, but then abandoned, brand valuation for performance assessment. It is arguable that brand
valuation should be used as a reality check on other methods but not relied upon.

Management uses tend to consider the brand value for different client segments, product or lines, and the
potential use of the brand in different categories. In order to do that, they include a sensitivity analysis
module for different scenarios and strategic options that the client wishes to consider. Here future
forecasts, which use the same external variables, e.g. projected interest rates, are being used for choosing
between alternative future strategies. In other words, brand valuation is more useful for planning than for
performance assessment.

24
To analyze the suitability of the provider, we have used the following criteria, again selected on the basis
of our experience and previous academic research 146:

 The way in which the provider is positioned in the market, what and how he communicates about
his valuation practice,

 The type of projects in which the provider has been involved historically. To get information on
this aspect, we have researched web pages and commercial brochures of each relevant provider,
and press clippings worldwide,

 The business model of the provider (if he is exclusively focused on economic valuation or his
business model includes general advice on branding or marketing), and

 If the provider has specific departments or divisions dedicated to transactional, accounting, legal
or management of brands or intangibles.

In this way, most “branding” agencies (i.e., generalist branding consultancy firms that provide the whole
range of branding services from positioning, architecture, naming and valuation) have been classified as
“management orientated providers”. Companies that specialize in asset economic valuation and the “Big
4” accountancy firms have been classified as “technical providers”. Figure 7 shows a classification of
providers where there methodologies were revealed.

25
Figure 7. Classification of providers according to their technical or management orientation

Providers Providers
positioned in positioned in
“technical” “management”
practices practices

• Absolute Brand • AC Nielsen

• AUS Consultants • BBDO
• Brand Finance • Brandient
• Consor • Equilibrium
• BBDO / Consulting
Ernst&Young • FutureBrand
• Intangible • GfK
Business • Icon Brand
• Houlihan Navigation
Advisors • Interbrand
• Millward Brown
Optimor
• Prophet
• Villafañe &
Asoc.

Source: Based on Salinas147

The relationship between the type of provider and the methodology used is consistent with that reported
above (see Figure 8).

Figure 8. Methods most frequently used for “technical” and “management” providers

Providers positioned Providers positioned in

in “technical” practices “management” practices

Excess cash Competitive equilibria

flow 14% 9%
analysis

Excess margin 14% Price Premium 9%

Royalty Relief 71% Demand Driver

Analysis 82%

Source: Based on Salinas148

26
A number of academic authors agree that royalty relief should be the methodology of choice for
valuations for accounting and reporting purposes.149,150151,152 The “Big 4” accountancy firms tend to signal
Royalty Relief as the most reliable from the technical point of view 5.

Academic authors who address the issue of brand valuation for managerial uses, tend to focus on the
methodologies proposed by the providers, and not to challenge or defend other methodologies (cf.
Motameni and Shahrokhi,153 Fischer154). This makes the choice of provider more difficult.

Brand valuation users (CEOs, CFOs and CMOs or legal departments within a firm) need to be careful
when choosing a provider, since these processes tend to be costly from the point of view of time and
resource allocation. Before choosing any provider, the client needs to be clear about the purpose of the
valuation, and the technical conditions required for that. If the valuation is for managerial purposes, the
user has more degrees of freedom.

Limitations and further research

The research presented in this paper is based on literature available, the empirical observation of the
practices of brand valuation providers and our own experience. In order to refine the findings, a formal
survey of practitioners and user practices and experiences would be valuable. In particular, it would be
useful to measure client satisfaction with the methodologies that they use.

Conclusions

The paper reached the easy conclusion that no one method was suitable for all uses but we cannot be sure
that each of these methods is suitable for some usage nor whether just one method would suffice for any
usage. A number of the methodologies in the literature do not seem to be used in practice, and many of
the methodologies used in practice are not theoretically sound, either because of the difficulties in
obtaining ideal data internally or externally for benchmarking purposes or the provider’s unsophisticated
grasp of the field. For example, some discount rate adjustments are accepted in practice but may not be
academically robust.

5
Cf. http://www.ey.com/global/content.nsf/WebPrint/8b8e23cdd699f2b680256cc5004dafbb?
OpenDocument&Click=
122

27
We have some sympathy with the pragmatic view that what works, works. We also believe that providers
should be probed on the validity of their methodologies and how they compare with those of their
competitors.

This paper has provided two groups of potential brand valuation users with some help in choosing
methodologies and suppliers. The technical (tax and legal) group typically tends to have a narrow view
with only one methodology, and perhaps just one provider in mind. The managerial group typically is
aware of a range of consultants and methodologies but may be uncertain of how to choose between them.
Our comparison has suggested which methods seem broadly relevant for which applications and
highlights the gap between the academic approaches and the practical.

The application of a price/earnings multiple to current earnings was originally favoured by practitioners
but has since dropped away in favour of DCF methods. Brand valuation has been challenged as a strategic
marketing metric for performance evaluation and should be used, for that purpose, within a wider
dynamic package of metrics or for planning purposes. 155

The proliferation of providers and their apparent methodologies make choice difficult. Royalty Relief
emerges as generally accepted in technical areas such as tax and legal situations and Demand Driver for
managerial uses such as marketing planning. This paper set out to map the brand valuation jungle to
assist practitioners and academics to assess the alternative techniques. In all we identified and
illuminated 23 methodologies of which six do not seem to be used in practice.

Appendix: Brand Valuation Providers6

Name of commercial provider Source

AbsoluteBRAND www.absolutebrand.com

6
The authors have included in the list in this Apprendix some authors which having promoted certain
methodologies, it is not known if they belong or not to any firm or agency, namely: Herp, Kern, Sander and Repenn.

28
AC Nielsen Zimmermann et al.156

American Appraisal www.american-appraisal.com

Appraisal Economics

http://appraisaleconomics.com/

AUS Consultants
www.ausinc.com

Baruch Lev Hoffmann157

BBDO Consulting Zimmermann et al.158

Beacon Valuation Group http://www.beaconval.com/

Bradley Elms Consultants www.bradleygroup.com.au

Brand Finance www.brandfinance.com

Brand Metrics www.brandmetrics.com

BrandEconomics www.brandecon.com

Brandient www.brandient.com

BrandSync http://www.brandsync.com/

Chicago Partners www.chipar.com

Consor Zimmermann et al.159

Corebrand Callaman;160 Corebrand;161 www.corebrand.com

Damodaran Fernández162

Deloitte Carson163

Equilibrium Consulting www.equilibriumconsulting.com

Ernst & Young http://www.ey.com/global/content.nsf/India/Val_-

_Brand_Valuation_Techniques;
http://www.hinduonnet.com/thehindu/holnus/006200711282132.htm

FutureBrand Fernández;164 www.futurebrand.com

GfK Sattler et al.;165 Mussler et al.166

Gravitas Partners www.gravitas-partners.com

Herp Zimmermann et al.167

Houlihan Advisors Fernandez168

29
 Icon Brand Navigation Zimmermann et al.169

Inflexion Point http://www.ip-strategy.com/7

Intangible Business www.intangiblebusiness.com

InteCap, Inc.8 www.intecap.com

Interbrand Haigh170

IPMetrics www.ipmetrics.cc

Kern x-times model Zimmermann et al.171

KLM, Inc. http://www.klminc.com/brand_valuation/bvservices.html

KPMG Piper and Stevenson172

Mentor Group www.mentorgroupinc.com

Millward Brown Optimor Financial Times173

Mintz & Partners www.mintzca.com9

Morar Consulting http://www.morarconsulting.com/BrandValuationFramework.php

MR Valuation Consulting www.mrvaluation.com

Predictiv www.predictiv.net

Prophet Kumar and Hansted Vlomqvist;174 www.prophet.com

PwC Sattler et al.175

Repenn Zimmermann et al.176

Sander Zimmermann et al.177

Semion Zimmermann et al.178

TATA Economic Consultancy http://www.tecsglobal.com/sitehtm/product.htm

Services

Trout & Partners AASB179

Valuation Consulting www.valuation-consulting.co.uk

Villafañe & Asociados Rivilla180

7
This company is more focused on valuation of patents, but they state that they value intellectual property assets,
which include also brands.
8
Now part of CRA International
9
According to the web page of Mintz & Partners, on January 28, 2008, Mintz & Partners merged with Deloitte &
Touche’s mid-market group, Private Company Services.

30
 Vivaldi Partners Forbes;181 www.vivaldipartners.com

Willamette Management Reilly and Schweihs;182 http://www.willamette.com/

Associates

References

31
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