The Real Value of Brand Management? – New Standard to Help Measuring

(IPRinfo 2/2010)
Ruth Lähdeaho
Partner, BrandWorxx Ltd

The new ISO 10668 standard offers both the marketing and the legal departments a concrete tool for accounting for their future budgets. The standardisation process has enhanced the understanding of the finance, legal and marketing people about each others’ roles in increasing business value.

Investments are required to increase the value of the brand and thereby the entire business. But why, especially in financial crises, is it that cost-cutting in organisations primarily affects marketing? Most often, this is due to the lack of tools for measuring and accounting the impact of branding on business value.

The ISO 10668 standard provides marketing professionals and brand managers with a tool that even the people from the finance department understand. A significant result of this standardisation work is the dialogue created between the finance, legal and marketing people, enhancing their understanding of each others’ roles in increasing business value.

The standard professionalizes brand management
To quote the well known expert David Haigh from Brand Finance: ”It professionalizes brand management. As evidence of this, SAM Group, which produces the Dow Jones Sustainability Index (DJSI), intends to upweight businesses in the DJSI if they adopt ISO 10668 principles. This is based on the view that businesses which manage their brands systematically are likely to be more sustainable long term.”

The ISO 10668 standard specifies a framework for brand valuation. This includes the objectives and the bases of valuation, the approaches to and the methods of valuation as well as the sourcing of quality data and assumptions. It also specifies the methods of reporting the results of the accomplished valuation.

According to the standard, financial, behavioural and legal parameters need to be taken into account when performing brand valuations.

As for financial aspects, the standard specifies the requirements for three approaches to brand valuation. The income approach measures the value of the brand by reference to the present value of its economic benefits. The market approach, on the other hand, measures the value of the brand based on what other purchasers in the market have paid for similar assets. The third approach measures the value of the brand based on the cost invested in it.

Behavioural analysis needed to assess the risk
In order to assess the value of the brand, the key financial parameters and valuation assumptions need to be adjusted based on an analysis of the behavioural aspects of the brand.

For example, when applying the income approach, behavioural analyses are necessary to determine the monetary proportion attributable to the brand, and to assess the risk connected to the brand when determining the discount rate.

The brand strength also needs to be assessed in order to estimate the level of future sales volumes, revenues and risks. Measures commonly used to understand brand strength include awareness, perceptual attributes, differentiation, attitude and loyalty.

Effects of legal protection on the brand value vary
An important component of brand valuation is assessing the legal protection afforded to the brand in each relevant jurisdiction. Legal protection affects the brand value because it permits the brand owner to utilise formal legal systems to exclude third parties from using the same brand.

Brand valuation needs to take into account legal parameters affecting positively or negatively on the value of the brand. These include distinctiveness, scope of use/scope of registration (territory, goods & services), extent of use, notoriety (well-known brand), risk of cancellation, priority and dilution. Also, the ability and/or willingness of the owner to enforce legal rights is of importance.

The legal parameters depend on the correspondence between the legal rights of the brand and the market it operates in. These parameters often define the relationship between the legal rights and the market perception.

The standard is available from next autumn
By autumn 2010, the final standard (ISO 10668) will be available to those business enterprises who want to systematically measure one of their most valuable intellectual assets.

Now that the translation of the standard into Finnish is completed, the work of the Finnish group involved in the standardisation work is coming to a close. Its task now is to communicate about this new tool for management.
We are more than glad to answer any questions you may have on the standard and its development.

The Finnish working group:
Markku Tuominen, Benjon Ltd; Ruth Lähdeaho, BrandWorxx Ltd; Päivi Räty, Confederation of Finnish Industries EK; Marja-Leena Mansala, IPR University Center; Juha-Pekka Koskinen, Itella Corp.; Mikko Palmu, KPMG; Olli Kemppinen, KPMG; Timo Kivi-Koskinen, Lexia Ltd; Esko Saura, PricewaterhouseCoopers;

International organization for Standardization ISO keeps a catalogue of standards. The fact sheet for ISO 10668:2010 and ISO 10668:2010 (Brand valuation — Requirements for monetary brand valuation), which are still under development in June 2010: http://www.iso.org/iso/catalogue_detail.htm?csnumber=46032

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