significant factor which is the ground reality of the brand being valued

Significant factor which is the ground reality of the

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significant factor, which is the ground reality of the 'brand being valued', existing in the market place, and therefore the market itself being influenced by the 'existing brand' – which means that the market is not an ideal ground zero. 3. ‘Market Value’ – Method The Market value approach is similar to finding out what people may be willing to pay for the brand, if the same is put up for sale. Similar to what happens if a flat or a car is put up for sale, here the question is, putting up a 'brand' for sale, may not be that frequent an operation, and buyers may also not be so easy to come by. The other difficulty is that even if indicative bids for some brands are available, it may not be so easy to interpolate one on the other. 4. ‘Premium Price’ – Method This method in essence tries to value a brand in terms of the price premium that the brand may command over an unbranded or generic equivalent. A price premium can be used to calculate the additional profits earned by the brand (after allowing for any additional production or marketing costs) and then, may be over a five year period, calculating a net present value, using some inflation or interest rate, to arrive at a value for the brand based on the profit stream over the past 5 years. The biggest difficulty of this method is to find an equivalent unbranded or generic product. The other drawback of this system is that the effect of the 'brand' may not entirely be reflected in the ‘price premium', some reflection may 156
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BRAND VALUATION also be in the sales volume and market shares. Because a good brand does not look at price premium alone, it also looks at increased market share. 5. Royalty Relief Method This approach values a brand at the net present value of the royalty payments that the company would have to pay to license the brand, if it did not own the brand. Thus the brand’s value is equivalent to the amount that ownership of the brand by the company, “relieves” the company from paying as license fees or royalty. The problem is calculating the amount of royalty. Royalties can be calculated as a simple percentage or can be on a tiered percentage basis. Payment frequency needs to be established. The price basis may also have to be set, viz., will be on basis of inventory price, or vendor price, or line, item price. A maximum/ minimum amount for life of contract needs to be set. Generally when calculating any royalty rate, one must understand that royalty is the licensor’s share of the product’s profit in the hands of the licensee which in arithmetical terms would be – Royalty on sales price = Licensors share of the licensee’s profit X profit on sales price Thus if a licensor wants to receive 20 percent share of licensee’s profit on a product that will sell at Rs. 50, and on which the licensor estimates the licensee’s profit would be Rs. 15, the licensor would negotiate to apply a royalty rate of 6percent on the sales price = 20 percent of 15/ 50 = 20 percent of 30 percent = 6 percent One can calculate for a hypothetical case on the following parameters: Calculation on a 7 year period.
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