Evaluating brand value in an intangible environment

Evaluating brand value in an intangible environment

Procter and Gamble Co. acquired Gillette Co. for a whopping $57 billion, with almost half of that going for five brands. The top 10 global brands are worth $390 billion, three times the GDP of Thailand.

If you had acquired a business in the 1980s, chances are you would have paid as much as 75% for the balance sheet. So why are we paying so much today to acquire unaccounted intangibles?

If you can’t explain where 80% of your business’s value originates, someone’s going to come along pretty soon and eat your lunch.

Do accounting standards recognize these assets?

One of the fundamental stumbling blocks to better value management has been the lack of recognition of these as business assets by the accounting principles in vogue. The impending adoption of the International Financial Reporting Standards, or IFRS, should set a new course in value management.

A significant benefit of applying the financial accounting standards for brands is the opportunity to construct a value contribution model.

It is possible today to identify the impact of a brand by geography, demographics, product lines and more. This would be an invaluable tool in the hands of any management that wants to influence and monitor value creation.

India’s increasing global footprint: Tetley, Jaguar and Land Rover, Corus Group Plc., Gatorade, etc. It doesn’t take a PhD in finance to figure out what assets these companies (or brands) were bought for. If indeed these owners were paid such large (borrowed) sums primarily for their intangibles, it stands to reason that shareholders would want to know how these assets are being managed for value.

If the board’s mandate to the CEO is to create value, it would be ironical if there were no means for him to know where value resides.

Firms such as BMW AG, Nokia Oyj, McDonald’s Corp. and Walt Disney Co. have clear mandates for the CEO to manage and protect their most valuable assets.

As such, in these companies, the CEO is actually the CBO or the chief brand officer. Think of the number of legendary brand names which are so closely linked to the leadership of the firm.

(Steve) Jobs (of Apple Inc.), (Andy) Grove (of Intel Corp.), (Jack) Welch (of GE), (Bill) Gates (of Microsoft Corp.), (Larry) Page and (Sergey) Brin (of Google Inc.), et al. Finally, the big value generators will be easily identified by their ability to measure and manage their intangibles out of the executive suite.

Ramesh Thomas is chief knowledge officer, Equitor Management Consulting Pvt. Ltd, a brand value management firm. As told to Anushree Chandran