Methodologies of measuring brand equity


Many different methods have been proposed for brand valuation because the financial accounting procedures for valuing intangible assets vary across countries. Several criteria, such as market share and market ranking, brand stability and track record, stability of product category, internationality, market trends, promotional support and legal protection enjoyed by the brand enter the evaluation.

For the purpose of valuation, the brand has to be defined as a specific, separable and transferable asset, with clear legal title.

All brand valuation methodologies work on the principle of segregating the return on brand from the other tangible and intangible assets, and assigning it a definite portion of aggregate business value.

Some of the popular methods for brand valuation are:

Brand – earnings multiple approach.

Royalty – based approach

Profit split approach

Brand – earnings multiple approach

Brand – earnings multiple approach, propounded by Inter–brand, the research agency, involves determination of brand strength score, assessment of brand value/brand earnings multiple and charging adequate return on capital to screen out the return on non-brand assets.

Royalty – based approach

In the royalty – based approach, the firm estimates the amount of hypothetical royalty income that could be generated if the subject brand were leased by an independent third party owner to the business currently using the brand.

Profit split approach

In the profit split approach also, the firm assumes that an independent third party owns the brand and licenses it for an associated profit. The firm has to estimate the amount of profit that could be spilt between the brand and other intangible assets.

Brand Equity —- Lakme

When the new marketing joint venture between HLL and Lakme, Lakme Lever Ltd was set up as prelude to HLL’s takeover of Lakme, Lakme received Rs 59 crore as consideration towards transferring the Lakme brands to the new J.V

The allocation was:

· Rs 20 crore towards price of the brand.
· Rs 8.08 crore towards net current assets.
· Rs 0.96 crore towards fixed assets.
· And Rs 30 crore towards a non-compete agreement.

In fact, a major part of the Rs 30 crore paid for the non-complete agreement is also attributed to the brand strength of Lakme.

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