The evaluation of complex cases


The above method works well for most brands, and is the standard approach. However, there are cases where, in order to evaluate certain brands – or brands in unusual market situations – we have to use one of the other methods examined above.

The case of loss-making companies

The above procedure is based on the theory that the brand is a conditional asset, and hence its value is obtained after the deduction of an allowance for the capital invested in production. This poses the problem of how to value brands owned by loss-making companies.

According to the above approach – which assumes a profitable balance – if there are no profits then the brand has no economic value in its current sphere of activity. It acquires value only if a new business plan, with very different cost structures, can demonstrate not only that the company can generate a profit, but also that there will be excess profits even after an allowance has been made for the tangible and intangible assets required for the production and distribution of the product or service.

Financial valuation thus dispels any mirages surrounding the brand: regardless of its reputation and image, a brand acquires value only if it is backed by a profit-making business plan. The term ‘mirage’ is an apposite one, as many buyers allow themselves to be seduced by brand awareness and image statistics. The economic approach reminds us that reputation and image are worth nothing unless they produce profit – with the help of other assets, which have to be factored in.

The case of abandoned and subsequently resold brands

Companies regularly kill off brands; in order for mega-brands to be created, business operations have to be contracted to just a handful of brands, and many must thus be disposed of. For example, Nestlé abandoned Chambourcy, and PSA abandoned Talbot. Nevertheless, brands can be sold on after several years of inactivity.

How can we use the multi-stage approach shown above if there has been no economic activity, and therefore no profit or loss figures? How, for example, can we estimate the value of a brand which has lain dormant for years, such as Talbot, Simca, Studebaker or Plymouth? According to the successive residuals approach, we should assess it as part of the new business plan incorporating this revitalised brand; or in any event, this is what the buyer should do before buying.

Another evaluation method consists of measuring the additional price and margin that the use of the hitherto defunct brand would enable its new user to command. We have to consider this in terms of the differential margin: although the brand might make it possible to charge a higher public price at the retail level, the retailer might well keep the majority of this increase and hand over only a modest proportion to the endpurchaser. In fact, this is often what actually happens: when the brand is weak, and returns to the marketplace after a long absence, retailers take advantage of the fact to increase the size of their cut.

It is in the interests of the seller to use a different valuation method. A good candidate is the replacement cost method (the amount that has to be spent now to rebuild the brand and its residual reputation, along with all of its copyright registrations worldwide, for example). As a last resort, there is always sale by auction.

How can weak brands be evaluated?

Some brands remain brands only in the legal sense: they have become mere names, and no longer influence buyers. How are these to be evaluated? This is a common scenario. Given that money was paid for these brands, the replacement cost method is advisable. For example, how much would need to be spent today to:

  • create a brand in this sector: name research, name tests and so on;
  • trademark it in all relevant countries;
  • devise a graphic theme for a new logo and so on?

How can young brands be evaluated?

This case is similar to the previous one. Once a young brand has proven that it can be profitable (for example, in the fashion market), the commodity being sold is in fact the time and money saved in establishing the legal and image foundations of the brand (its name and visual identity). Going beyond this means indulging in the same sort of risks taken by all investors in the dot.com brands, often to their cost.

Unlike our fashion example, these brands had provided no proof that they could one day make money. Without a business, and in any case without profits, they could not be evaluated in any reliable way. This was the cause of the internet boom: five-year business plans produced estimated revenues which, when multiplied by a factor of between three and seven, resulted in exorbitant valuations.

How can parent brands be evaluated?

Today, brand theory dictates a two-level architecture with a parent brand and daughter brands. For example, Garnier is a parent brand, while Fructis, Ambre Solaire, Feria and Graphic are daughter brands. So how can we calculate the value of parent brands such as Garnier and l’Oréal Paris?

Remember that the first essential stage in the process is segmentation into strategic units: cash reporting units. It is this requirement that the analysis be conducted at the level of reporting units and cash generating units that provides an explanation of how to evaluate parent brands that contain several daughter brands. Typical examples are Chanel and Dior. For example, there is no such thing as a Chanel perfume; rather, there are products with brands such as Chanel No 5, and Chanel No 18.

These are daughter brands. The same is true with Dior Parfum: the reason it has created a Fahrenheit unit, producing profit and loss accounts, is that value is being created at this point. By adding up our evaluations of individual daughter brands, we arrive at an overall cumulative value for them. The value of Dior itself, separated from its daughter brands, is thus a residual one.

« Previous Topics
Brand Valuation In Practice
Evaluating Brand Valuation Methods
What Is Financial Brand Equity?
Next Topics »
What About The Brand Values Published Annually In The Press?

Strategic Brand Management Related Practice Tests

Strategic Management Practice Tests
Brand Equity In Question What Is A Brand? Differentiating Between Brandassets, Strength And Value Tracking Brand Equity Goodwill: The Convergence Of Finance And Marketing How Brands Create Value For The Customer How Brands Create Value For The Company Corporate Reputation And The Corporate Brand Strategic Implications Of Branding What Does Branding Really Mean? Permanently Nurturing The Difference Brands Act As A Genetic Programme Respect The Brand ‘contract’ The Product And The Brand Each Brand Needs A Flagship Product Advertising Products Through The Brand Prism Brands And Other Signs Of Quality Obstacles To The Implications Of Branding Brand And Business Building Are Brands For All Companies? Building A Market Leader Without Advertising Brand Building: From Product To Values, And Vice Versa Are Leading Brands The Best Products Or The Best Value? Understanding The Value Curve Of The Target Breaking The Rule And Acting Fast Comparing Brand And Business Models: Cola Drinks From Private Labels To Store Brands Evolution Of The Distributor’s Brand Are They Brands Like The Others? Why Have Distributor's Brands? The Financial Equation Of The Distributor’s Brand The Three Stages Of The Distributor’s Brand The Case Of Decathlon Factors In The Success Of Distributor's Brands Optimising The Dob Marketing Mix The Real Brand Issue For Distributors Competing Against Distributor's Brands Facing The Low-cost Revolution Should Manufacturers Produce Goods For Dob's? Brand Diversity: The Types Of Brands Luxury, Brand And Griffe Service Brands Brand And Nature: Fresh Produce Pharmaceutical Brands The Business-to-business Brand The Internet Brand Country Brands Thinking Of Towns As Brands Universities And Business Schools Are Brands Thinking Of Celebrities As Brands The New Rules Of Brand Management The Limits Of A Certain Type Of Marketing About Brand Equity The New Brand Realities We Have Entered The B To B To C Phase Brand Or Business Model Power? Building The Brand In Reverse? The Power Of Passions Beginning With The Strong 360° Experience Beginning With The Shop The Company Must Be More Human, More Open Experimenting For More Efficiency The Enlarged Scope Of Brand Management Licensing: A Strategic Lever How Co-branding Grows The Business Brand Identity And Positioning Brand Identity: A Necessary Concept Identity And Positioning Why Brands Need Identity And Positioning The Six Facets Of Brand Identity Sources Of Identity: Brand Dna Brand Essence Launching The Brand Launching A Brand And Launching A Product Are Not The Same Defining The Brand’s Platform The Process Of Brand Positioning Determining The Flagship Product Brand Campaign Or Product Campaign? Brand Language And Territory Of Communication Choosing A Name For A Strong Brand Making Creative 360° Communications Work For The Brand Building Brand Foundations Through Opinion Leaders And Communities The Challenge Of Growth In Mature Markets Growth Through Existing Customers Line Extensions: Necessity And Limits Growth Through Innovation Disrupting Markets Through Value Innovation Managing Fragmented Markets Growth Through Cross-selling Between Brands Growth Through Internationalisation Sustaining A Brand Long Term Is There A Brand Life Cycle? Nurturing A Perceived Difference Investing In Communication No One Is Free From Price Comparisons Branding Is An Art At Retail Creating Entry Barriers Defending Against Brand Counterfeiting Brand Equity Versus Customer Equity: One Needs The Other Sustaining Proximity With Influencers Should All Brands Follow Their Customers? Reinventing The Brand: Salomon Adapting To The Market: Identity And Change Bigger Or Better Brands? From Reassurance To Stimulation Consistency Is Not Mere Repetition Brand And Products: Integration And Differentiation Specialist Brands And Generalist Brands Building The Brand Through Coherence Defining The Core Identity Of The Brand Confirming The Presence Of Brand Core Facets In Each Product Identifying The Role Of Each Product Line In The Construction Of The Brand Graphically Representing The Overall System Of The Brand Checking The Coherence Worldwide The Three Layers Of A Brand: Kernel, Codes And Promises Respecting The Brand Dna Managing Two Levels Of Branding Growth Through Brand Extensions What Is New About Brand Extensions? Brand Or Line Extensions? The Limits Of The Classical Conception Of A Brand Why Are Brand Extensions Necessary? Building The Brand Through Systematic Extensions: Nivea Extending The Brand To Internationalize It Identifying Potential Extensions The Economics Of Brand Extension What Research Tells Us About Brand Extensions Avoiding The Risk Of Dilution Balancing Identity And Adaptation To The Extension Market Segments Assessing What Should Not Change: The Brand Kernel Preparing The Brand For Remote Extensions Keys To Successful Brand Extensions Is The Market Really Attractive? An Extension-based Business Model: Virgin How Execution Kills A Good Idea: Easycar Brand Architecture The Key Questions Of Brand Architecture Type And Role Of Brands The Main Types Of Brand Architecture The Flexible Umbrella Brand The Aligning Umbrella Brand (masterbrand) Choosing The Appropriate Branding Strategy New Trends In Branding Strategies Internationalising The Architecture Of The Brand Some Classic Dysfunctions What Name For New Products? Group And Corporate Brands Corporate Brands And Product Brands Multi-brand Portfolios Inherited Complex Portfolios From Single To Multiple Brands: Michelin The Benefits Of Multiple Entries Linking The Portfolio To Segmentation Global Portfolio Strategy The Case Of Industrial Brand Portfolios Linking The Brand Portfolio To The Corporate Strategy Key Rules To Manage A Multibrand Portfolio The Growing Role Of Design In Portfolio Management Does The Corporate Organization Match The Brand Portfolio? Auditing The Portfolio Strategically A Local And Global Portfolio – Nestlé Handling Name Changes And Brand Transfers Brand Transfers Are More Than A Name Change Reasons For Brand Transfers The Challenge Of Brand Transfers When One Should Not Switch Analysing Best Practices Transferring A Service Brand How Soon After An Acquisition Should Transfer Take Place? Managing Resistance To Change Factors Of Successful Brand Transfers Brand Turnaround And Rejuvenation The Decay Of Brand Equity The Factors Of Decline Distribution Factors When The Brand Becomes Generic Preventing The Brand From Ageing Rejuvenating A Brand Growing Older But Not Ageing Managing Global Brands The Latest On Globalisation Patterns Of Brand Globalisation Why Globalise? The Benefits Of A Global Image Conditions Favouring Global Brands The Excess Of Globalisation Barriers To Globalisation Coping With Local Diversity Building The Brand In Emerging Countries Naming Problems Achieving The Delicate Local–global Balance Being Perceived As Local: The New Ideal Of Global Brands? Local Brands Can Strike Back The Process Of Brand Globalisation Globalising Communications: Processes And Problems Making Local Brands Converge Financial Valuation And Accounting For Brands Accounting For Brands: The Debate What Is Financial Brand Equity? Evaluating Brand Valuation Methods Brand Valuation In Practice The evaluation of complex cases What About The Brand Values Published Annually In The Press? Strategic Brand Management Interview Questions