Brand Accounting

Four Approaches for brand valuation

1. COST BASED APPROACH
2. MARKET BASED APPROACH
3. INCOME BASED APPROACH
4. FORMULARY APPROACH
Cost Based approach
• Cost Based approach is the approach more often used by Aaker and
Keller and is primarily concerned with the cost in creating or replacing
the brand. The cost approach can be further divided into the
following methods:
1. Accumulated Cost or Historical cost method:
2. Replacement Cost Method:
3. Use of Conversion Model:
4. Customer Preference Model:
Market based approach
• Market based approach basically deals with the amount at which a
brand is sold and is related to highest value that a “willing buyer &
seller” are prepared to pay for an asset. This approach is most
commonly used when one wishes to sell the brand and consists of
methods herein stated:
1. Comparable Approach or the Brand Sale Comparison Method
2. Brand Equity based on Equity Evaluation method
3. Residual Method
Income Based Approach:
• Income Based or Economic Use approach is the valuation of future net
earnings directly attributable to the brand to determine the value of the
brand in its current use. This method is extremely effective as it shows the
future potential of a brand that the owner currently enjoys and the value is
useful when compared to the open market valuation as the owner can
determine the benefit foregone by pursuing the current course of action.
• The methods used under the approach are as follows:
1. Royalty Relief Method:
2. Differential of Price to sale ratios method
3. Price Premium Method
4. Brand Equity based on discounted cash flow
5. Brand Equity based on differences in return on investment, return on assets and
economic value added
FORMULARY APPROACH
• The Formulary approaches are those that are extensively used
commercially by consulting other organizations. This approach is
similar to the income or economic use approach differing in the
magnitude of commercial usage and employing multiple criteria to
determine the value of the brand. Within formulary approaches are
the following approaches:
1. Interbrand Approach
2. Finance World Method
3. Brand Equity Ten
4. Brand Finance Ltd.