— John Stuart, Chairman of Quaker (ca. 1900)
The difficulty in pricing an intangible
A brand is a concept, it is an intangible and therefore difficult to value. However there is no denying that there is financial value in a strong, recognisable brand. The number one brand in the world is of course Coca-Cola, and they value their brand as half the value of the business - No small sum!
The following is an exerpt from the brand channel:
Evidence of brand valueThe increasing recognition of the value of intangibles came with the continuous increase in the gap between companies’ book values and their stock market valuations, as well as sharp increases in premiums above the stock market value that were paid in mergers and acquisitions.
Today it is possible to argue that, in general, the majority of business value is derived from intangibles. Management attention to these assets has certainly increased substantially.
The brand is a special intangible that in many businesses is the most important asset. This is because of the economic impact that brands have. They influence the choices of customers, employees, investors and government authorities. In a world of abundant choices, such influence is crucial for commercial success and creation of shareholder value. Even non-profit organisations have started embracing the brand as a key asset for obtaining donations, sponsorships and volunteers...
How to estimate a brand value... Several studies have tried to estimate the contribution that brands make to shareholder value. A study by Interbrand in association with JP Morgan (see Table 2.1) concluded that on average brands account for more than one-third of shareholder value. The study reveals that brands create significant value either as consumer or corporate brands or as a combination of both.
Table 2.1 shows how big the economic contribution made by brands to companies can be. The McDonald’s brand accounts for more than 70 percent of shareholder value. The Coca-Cola brand alone accounts for 51 percent of the stock market value of the Coca-Cola Company. This is despite the fact that the company owns a large portfolio of other drinks brands such as Sprite and Fanta.
How does this affect smaller business?
The time that a good brand makes a difference in smaller businesses is when it comes time to sell. A more well recognised business (due to a stronger brand) can attract more interest and a higher value. Business purchasers often feel more comfortable buying into a brand rather than just buying a business (one of the reasons franchise businesses are attractive to new business owners).
If you would like to have your brand reviewed talk to us today.