These two moves were unusual, but not revolutionary,
Reckitt & Colman and Grand Met were only valuing acquired
brands as part of the complexity of acquisitions and valua-
tions. The real revolution came in 1988 when Philip Morris
paid $12.9 billion for the Kraft food company, a sum that was
four times the book value of the tangible assets in the business.
What Philip Morris was really paying for was the intangible
assets of the brands.
In the same year, RHM decided to value all its brands, not
just newly acquired ones, and after much debate in learned
journals many more have followed its example. Brand
managers now have an additional responsibility. As well as
building the value of the brand in the customer’s eyes they
now must also please the accountants. The problem has
become how to value the brand and as yet there is no one
agreed method.
The task was relatively easy when a company was buying a
brand as part of an acquisition – what it paid was what it
thought it was worth, the market decided. But what if you
already owned it? Three methods stand out from the crowd:
ᔡ
The Existing Use method. This attempts to value the brand
based on the price premium it receives over its generic
competition, plus a calculation for the level of recognition
the brand has in the market and the esteem in which
customers hold the brand.
ᔡ
The Earnings Multiple system. This calculates something
called brand earnings, largely based on the cash flow
provided by the brand, and multiplies that by a figure based
on brand strength. Brand strength is a combination of
factors including market share, global presence, investment,
and any brand protection measures taken.
ᔡ
The Interbrand system (as developed by the firm of that
name). Recent profitability is multiplied by a number
between 1 and 20 that represents a balance of seven impor-
tant aspects of the brand:
– its leadership position;
– its likely longevity;
52
ᔡ
Understanding brands