Wow – interesting material on brand valuation! After a short discussion in a Breeze session earlier in the class, I was aware that a monetary value could be put on a brand (especially in Europe), but I was eager to learn more about how this value is determined. I understand the theory of goodwill during acquisitions and the associated accounting practices and inclusion on the balance sheet, but I had no idea of the possible discrepancies and potential exclusion of such a huge part of the value of a company.
I believe the value of a brand is based on the perception, recognition, reputation, qualities, and attributes that a product or service delivers… in the customers’ minds and sometimes hearts. These aforementioned characteristics (some of which are intangible) and feelings have an effect on what a customer believes about a product, what is memorable, and what value they perceive it to have to them personally. These effects, in turn, have an effect on customers’ purchases, which lead to revenues and profits of a company, now and well into the future. A brand can create a reason for purchase, and it can also create a lasting bond with a customer that leads to trust and brand loyalty, and therefore future purchases. A brand can also create value for a customer by what it says about the person who buys it – ie, the reputation. Most Harley Davidson owners these days are doctors and lawyers who crave the reputation and feeling of freedom they obtain while riding their motorcycles. 
Some of my most favorite brands are tried-and-true global favorites, such as Levi’s, Facebook, Nike, Sony, BMW, Google, and Amazon. However, after living in Europe for a few years, I have developed some favorites from that side of the world as well, such as Franziskaner and Erdinger (German hefeweizens), several Italian Chianti’s and Spanish red wines, and of course my employer there – Opel. Some of my favorite brands are even places – Hawaii has done quite a lot of marketing to garner its reputation (and my wife and I love it there), Iceland has done well for itself after the bankruptcy a few years ago (a beautiful place to visit, especially the blue lagoon), and New Zealand has created a brand strong enough that I traveled 40 hours to get there (from Germany to New Zealand really is halfway around the world…). I’d also be remiss if I failed to mention that I’m a devout supporter of Canon camera equipment and Lavazza espresso. Most of my favorite brands are in place because of they continue to deliver trustworthy products or services, year after year, that fit my needs, budget, niche, and lifestyle. I feel I can trust them to keep delivering the quality that I expect at a price point that meets my budget, and this creates lasting value in my mind.
Given the immense value of brands and their ability to develop cash flows now and potentially into the future, I definitely feel that they belong on the balance sheet. I actually can’t believe that the GAAP does not require brand valuation. In this case, the European reporting principles seem to make much more sense in my opinion. For example, the Brand Valuation article this week described that the brand contribution to market capitalization of McDonalds is 71%. That’s huge, but never shows up on the balance sheet. It would seem, then, that there are large discrepancies out there that can be hidden when comparing companies. I believe the GAAP accounting principles need to be modified to define brand valuation if it is really accounting for 1/3 of shareholder value, as the article states. It would definitely be helpful to track the performance of a brand over time, as with all other aspects of a company. Finally, why would the GAAP require a company to declare the intangible value of an acquired company brand, but not the value of an internally generated brand?
Yes, there is a large uncertainty about how to put a number on the value of a brand, but the article presents an excellent starting point methodology. The five steps presented to capture the value creation of a brand need to be distinctly researched and defined in the GAAP and implemented. They may end up being continually revised, given the diverse and complicated nature of companies in existence today, but I feel we need to begin the process and continually hone the principles in order to capture the real assets and positions of companies.
Nice blog.
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