Accounting for Brand Equity

Recently accountants have cottoned on to something that we marketers knew all along:  brand equity is a valuable asset.  The International Financial Reporting Standards, a series of rigorous accounting rules that govern many companies in the European Union, now require that companies report the value of assets, including brands, that they acquire when they buy other businesses.

So, what is a brand worth?  The amount that it would cost to replace it?  The discounted amount of cash a brand will generate in coming years?  The value of a comparable brand that was recently acquired? 

Accountants commonly use all these measures to value a brand.  Savvy marketers know better.  The value of a brand is the value of the excess cash flows that the brand delivers to its company.  According to Peter Doyle’s work at the University of Warwick, marquee brands deliver these cash flows in four ways:  higher, faster, longer and less volatile:

  • Higher – Strong brands command higher prices
  • Faster – Powerful brands have faster consumer uptake and faster penetration through distribution channels
  • Longer – Great brands last forever and deliver profits to the companies that own them for a longer period of time
  • Less Volatile – Robust brands have fewer fluctuations in demand and provide steady revenue streams over time

It is by building these marquee brands that we marketers considerably contribute to the bottom lines of our companies.  Let the accountants measure that.

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