what the customers feel the quality is image and thus even if a product

What the customers feel the quality is image and thus

This preview shows page 154 - 157 out of 203 pages.

what the customers feel the quality is (image) and thus even if a product improves the physical quality while the customers carry a poor image of the product the perceived quality will still be low. A strong brand equity can translate into easy acceptance of new products introduced by the brand owner, ability to command a premium in the market, getting preferred shelf space, increased financial clout and last but not the least easy marketability of the brand itself. 154
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BRAND VALUATION 11.2 VALUATION OF A BRAND In this chapter we shall deal with two principal issues viz., what are the uses for brand valuation, and what are the methods that may be used to value brand. Brand valuation is not a very old concept. Sometimes in the late 70’s and early 80’s this concept got introduced as a response to the vulnerability of low profile but sound business houses to the acquisitive attentions of predatory conglomerates keen to acquire such businesses. At the time of negotiation the balance sheet of such target business needed to be spruced up by the intangible yet very much real worth of the brands marketed by them. Valuing brands therefore necessitate breaking up a company into its component brands and then valuing these brands by some applicable methods. The main argument against valuing a brand and pegging a financial figure to it, is that, all said and done there will remain an element of subjectivity and consequent arbitrariness in the exercise. Another big hurdle is the irregularity and infrequency in brand transactions and therefore unlike valuing a business, where more frequent transactions can test the suitability of some methods of business valuation, brands do not offer such numerous examples for testing any method being scouted. Brands operate in diverse sets of markets and in today’s age of globalization these market diversity can indeed be very large. It is therefore important to segregate the entire area of operations into smaller markets in terms of their responsiveness to branding. Methods Over the years several methods have been used from time to time: 1. Historical Cost Method This approach values the brand as the sum of all costs incurred in bringing the brand to its current state. The biggest drawback of this method is identifying the costs involved in creating a brand and how to separate that 155
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BRAND VALUATION part of the marketing expenditure which was responsible for brand building. The other problem with this method is the basic question of what relationship can historical spending bear to have, in relation to the current value of the brand, because most marketing spends, may have been in some context. 2. Replacement Costs Method This approach values a brand using an estimated cost of creating a similar but new brand. While saying 'estimating the cost' is easy, the actual task may be extremely difficult and often hypothetical. Most of the assumptions may be questionable, and arbitrary, plus one cannot lose sight of another
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