Economic Use Brand Valuation - Definition

There are several brand valuation techniques available, one of which is Income Based Brand Valuation which itself has two alternatives; Royalty Relief and Economic Use which is described below. Other techniques can be found on the links below.

This considers the economic value of a brand in current use to current owner. In other words, it considers the return that the owner actually achieves by owning the brand - now and in the future.

Economic use valuations assume that brands provide their owners with security of demand. In the short run a manufacturer without a brand might enjoy the same sales, the same economies of scale, even the same premium prices as the manufacturer with a brand. However, the non-branded manufacturer could not rely on the same security of knowing that the brand's customers this year are likely to be customers of the brand next year, and for many years after that.

This approach also depends on the accuracy of future sales and earnings projections. It uses the future earnings attributable to a brand after making a fair charge for the tangible assets employed. A charge is also made for tax at a notional rate. The resulting brand earnings are discounted back to a Net Present Value (NPV) representing the current value of the brand.

Typically such brand valuations are based on 3-5 year earnings forecasts. In addition, an annuity is calculated on the final year's earnings on the assumption that the brand continues beyond the forecast period, effectively into perpetuity. As brand rights can be owned in perpetuity and many brands have been around for over 50 years, this is not an unreasonable assumption.

Steps in an Economic Use valuation:

  • Modeling the market (to identify market demand and the position of individual brands in the context of all other market competitors. Usually the valuation model is segmented to reflect the relevant competitive framework within which the brand operates).
  • Forecasting economic value added of the branded business (to identify total branded business earnings).
  • Estimating Brand Value Added BVA® using business drivers research (to determine what proportion of total branded business earnings may be attributed specifically to the brand).

Benchmarking brand risk rates - Brandßeta® analysis (to assess the security of the brand franchise with both trade customers and end-consumers and therefore the security of future brand earnings). The resulting discount rate is used in the Discounted Cash Flow DCF calculation.

 

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