BRAND ISO
Brands live in consumers’ minds, representing consumers’ interpretations, associations, and experiences of the brand. Meanwhile, investors and company valuators are interested in the financial value of brand equity. Brand is an intrinsic part of the product that drives sales but also attracts investors and business partners to collaborate. Strong brands also tend to pull in the best talents, which means your brand can work as a great source for competences you need.
In short, brands have a diverse and significant effect on the company’s performance, making them a huge intangible asset that impacts the way companies can manage their business and thrive in the long term in the constantly changing business environment.
We are often asked how valuable brand really is, and how is it measured. Earlier, there has been a lack of reliable monetary measures for valuating such an intangible asset, on which CFOs and Marketing leaders would agree. CEOs and C-suite decision-makers have struggled to understand which traditionally held metrics, marketing-preferred NPS or the finance-oriented ROI, generates more revenue and forms the basis for decision-making for the best business return.
- The ISO 10668:2010 Standard
“Brand Valuation—Requirements for Monetary Brand Valuation” outlines accounting-based methods for valuation the brand in financial terms.
ISO 10668: Brand Valuation is an international standard for measuring brand value. It specifies the requirements of an ISO-compliant brand valuation, provides a framework for valuation (including procedures and methods), and shows methods for reporting results.
ISO 10668 can be applied to brand valuations for a wide range of purposes, including accounting, financial reporting, tax planning and compliance, litigation support and licensing.
The purpose of ISO 10668 is to provide a consistent and reliable brand valuation approach that can be applied across all types of brands – big or small; local, national, or international.
ISO 10668 starts with the general requirements of an ISO-compliant valuation: transparency, validity; reliability; sufficiency; objectivity; and financial, behavioural, and legal parameters.
Next, it outlines the specific requirements of a brand valuation. These are: declaration of purpose; value concept/premise; and identification of brand. It is important that the purpose of the valuation is declared as this can affect other aspects of the brand valuation, such as the valuation assumptions, the premise or basis of value, and the final valuation outcome.
The standard then explains the different approaches to valuation, as well as general considerations regarding brand valuation approaches. The three main approaches are:
- The income approach – This is when the value of the brand is based on the expected income it will generate in its lifetime.
- The market approach – This approach bases value on the reasonable amount a buyer can be expected to pay for the brand, based on data from similar brands.
- The cost approach – This is when the value of the brand is based on how much it would cost to replicate the brand at the time of the valuation.
The most suitable approach for measuring a brand’s value is dependent on the purpose of the brand valuation, the premise or basis of value, and the characteristics of the brand.
The standard goes on to provide guidance on valuation assumptions and analysis:
- Market and financial data
- Behavioural aspects
- Legal aspects
- Sourcing and use of quality data and assumptions
ISO 10668 also specifies the requirements for the contents of an ISO-compliant brand valuation report, and the different methods for reporting the results of a brand valuation.
- The ISO 20671:2019 Standard
standard “Brand Evaluation—Principles and Fundamentals”, provides an integrated framework for brand evaluation containing brand input elements, output dimensions and sample indicators.
Brand entails distinctive images that include names, terms, logos and/or signs to help a company distinguish itself from others in the market. The brand can be commercial or not-for-profit, but the function of all brands is to create a recognizable entity in the market that, in the mind of consumers, adds value to the product. Thus, for consumers, brands are the perceptions, benefits, and experiences that they associate with a good or a service. From the point of view of the company, the main purpose of a brand is to increase cash flow through price premiums, lower costs, increased volume, or greater repeat purchase loyalty.
As an intangible asset, brands, unlike machinery, buildings, or products, have no physical substance. Whereas brands can have tangible value as trademarks or customer lists, the primary value of the brand is intangible. The expected economic benefit to the company flows from association in the consumer’s mind. The challenge of how to effectively recognize and value a brand as an intangible asset is what led to the creation of ISO 20671.
In general, intangible assets such as brands are becoming more and more economically important. Though not formally recognized in GDP reports, economists find that the value of intangibles is higher than tangibles in most developed economies. And intangibles increasingly distinguish successful companies from less successful ones. This macro situation underscores the need to transcend accounting and finance traditions and treat brands as part of a company’s value creation process.
So, there’s a long-standing need to bridge the divide between marketing and finance. Activities such as social media, mobile apps, sponsorships and the like certainly help build brands, but we need to understand that brands exist in the mind of the consumer. The greater the “strength” of the brand in affecting consumer buying decisions, the greater the value of the brand to the company as a financial asset. Companies need to periodically evaluate the strength of the brand and its contribution to economic returns. Based on this evaluation, better decisions can be made about investing in brand-building activities.
ISO 20671 is a useful starting point for companies and organizations wanting to increase their brand value. It provides a universal view of non-financial and financial measures with the intention for more specific standards to be developed in the future in conjunction with companies undertaking this process.
As a concept, ISO 20671 can be applied to all companies wishing to evaluate the value of their brand more effectively. It does not need to be specific to all products, industries and services just now; it is much more important to agree on the general definitions and framework first and work on more specific guidelines later.