Brand as a Value

When analyzing the benefits of the communication age, business professionals often express the greatest gain for their companies as "strengthening their brands" or "increasing their brand value." The desired value here, in its most general sense, is to enhance their reputation and thereby ensure the continuity of their sales and earnings.

A rational customer base won't want to give you (or anyone else) their earnings unless the right conditions are in place, and they won't even appreciate being sold to. However, they will be incredibly pleased to be buying from you. Successful businesses are also reputable, having earned the trust of their potential customers and being able to articulate why their products are worth paying for. Understanding and adapting this pattern depends on conveying the right message through the company's brand.

In a competitive ecosystem where brand perception becomes people's reality, survival or leadership depends on a detailed understanding of branding processes and acting accordingly. Brands like Adidas, which directly impacts athlete performance with patented products that have advanced the literature in their fields for years; GRG Banking, which optimizes bank operational processes; and BASF SE, which touches every moment of life with chemistry, are examples of brands that best implement this value-creation strategy.

Brand Value

“The work of moving the world forward is important and cannot wait to be done by perfect people.” – George Eliot, Author.

Businesses, consciously or unconsciously, take steps to increase their brand value. Brand value, a company's most important consideration regarding branding processes, is the dependent variable of a brand's financial (monetary) value over a specific period of time. This value is pure and stripped of all the company's movable and immovable assets. Today, a brand is a commodity; it is bought and sold like any other commercial object in the current complex economic system, and moreover, it is a commodity whose financial return and value are closely related. A brand's value depends on a company's revenue, profit margin, market share, and future promise. The value of the same brand calculated over specific periods fluctuates depending on the momentum gained by relevant factors within that timeframe, and brand value reflects the outcome of studies conducted on these factors.

For example, one measure of boards of directors' success is how far they advance brand values since taking over management. Ultimately, this value summarizes the output of many inputs and decisions made on behalf of the company, the consistency and success of the decisions made. Furthermore, company officials need a value they can use as a basis for decisions such as sales, transfers, and licensing. If a company bases its decisions solely on movable and immovable assets, excluding the brand's own value, when establishing these rights, it also excludes all investments made in the brand up to that point.

In trademark infringement cases, the actual rights holder is advised to conduct a brand valuation to ensure that the legal process is conducted at the current value of the loss of rights suffered by the contraction in market share, declining sales, and the coordinated decline in brand value. In warning letters sent to third parties who infringe trademark rights, stating the limits of these infringers, including the brand value, and stating the severity of the loss and its consequences, effectively acts as a deterrent.

Brand Value Calculation

“It is the work we do that gives us value.” – G. Bancroft, Historian

Brand valuation experts and professionals in the relevant field differ on the method for calculating this value. While many different perspectives can be identified, nearly everyone chooses their method based on one of three distinct perspectives, methods, and schools of thought: the Market Approach, the Revenue Approach, and the Cost Approach.

According to the Market Approach, specific parameters such as the brand's existence in the market, market share, market position, sales growth rate, pricing, price elasticity, marketing speed, advertising sensitivity, as well as the brand's recognizability, reputation, and originality are influential. This method is based on the principle of reaching a conclusion by comparing with other brands in the market that produce the same product.

The basis of Revenue Based Brand Valuation is the calculation of how much of the company's profits from the sales of branded products originates from the brands, and the calculation of the cash flows provided by the branded products throughout their economic life to their current value (İlik, 2014, p. 51).

Cost-Based Brand Valuation refers to the total costs incurred throughout the process of acquiring or establishing a brand, from past to present. These costs encompass a wide range of factors, including advertising, promotional expenses, publicity expenses, and sponsorships. It's unclear which costs contribute to brand value. Identifying and including indirect expenses that enhance brand value is quite challenging with this method. (A. Seethraman, 2001, p. 249)

These three approaches fundamentally differ in their perspectives on the relationships between market share, profitability, and the historical flow of revenue. We can say that every debate about arriving at different brand values can be reduced to different interpretations of these relationships. This intellectual disagreement has given rise to a normative view as a result of the interdependence and co-evolution of the methods. In a report prepared in accordance with International Financial Standards (US GAAP, IAS/IFRS) and Valuation Norms (IDW S5, DIN/ISO 10668, DIN 77100), choosing a method solely focused on cost, revenue, or market will be detached from the overall value rationality, reflecting only a portion of the true brand value, compared to a report that uses mixed models.

Brand valuation reports generally consist of different phases. The report is structured around statistical and financial data, typically including terms and criteria that can be understood by experts. It is supplemented with sectoral content in the form of a social analysis, where the expert preparing the report assesses the industry's global and national trajectory in general terms and the conditions under which they made their predictions. The resulting studies and documentation ultimately determine the brand's value as a financial (monetary) value.

Source:

Tax World Magazine October 2005 (Issue No: 290)