Brand equity: the Brazilian factor

Determining a brand’s value is increasingly important, not only for financial reporting, merger and acquisition and litigation reasons, but also to improve brand strategy, as Maria José Cruz explains.

A variety of approaches has been developed over the years to value brand equity, but the International Organization for Standardization, in Autumn 2010, issued Monetary Brand Valuation, ISO 10668, which set out the methods to adopt when valuing a brand.

According to ISO 10668 the three following methods are the ones to be used: (i) income approach, which seeks to measure the economic benefit of the brand to be generated from a stream of future earnings or cash flows; (ii) market approach, which estimates the value of a brand by reference to market transactions involving similar brands; and (iii) cost approach, based on the accumulation of the costs incurred to build the brand (further information is available at https://www.iso.org).

Regardless of the financial approaches applied to calculate brand equity, the use of appropriate assumptions in order to derive a fair value is essential. In recent years, methods for calculating brand value have shifted to accommodate subject inputs and modern-day judgements (ISO 10668 highlighted the importance of preliminary legal analysis and behavioural analysis to complement the methods of brand evaluation), as consumers largely contribute to boost a brand’s equity.