Brand Valuation in India
Brand Valuation in India
A brand is a valuable and intangible asset for a business. A brand is a covenant with the consumer creating loyalty, faith, trust and mass-market appeal, based on how the brand is marketed and promoted. Determination of the brand value involves a combination of direct and indirect processes. A direct process is one which arrives at a price based on the investment made for the brand. An indirect measurement will be based on the potential sources, awareness of the brand and elements of brand image.
Methods of brand valuation
Cost-Based Approach: It is primarily associated with the cost of creating or replacing the brand. The following are the classifications in the Cost-based approach:
Historical Cost Method
Brand valuation through the historical cost method is used at the initial stage of brand creation. The historical cost method isolates the direct costs and contributes to indirect costs. It attempts to recreate the historical development and creates an assessment value for the future. However, the cost of creating a brand does not play a major role in the present value.
Replacement Cost Method
This method values the brand keeping the investment and expenditure necessary to replace the brand with a new one which has equivalent utility to the company.
Market-Based Approach: A market-based method of brand valuation deals with the amount at which a brand is sold and the highest value that a buyer is willing to pay for it. The market-based approach is classified into:
Brand Sale Comparable Approach
In this method, the brand is valued by the recent transactions that involve similar brands in the same industry. It is viewed from a third party perspective and cannot be applied to all cases for comparing data.
Brand Equity Approach
The brand equity approach includes advertising and results in price premium profits. In this case, the value of brand equity is estimated using the financial market value.
Residual Method
The residual value is arrived at when the market capitalisation is subtracted from the net asset value. The variables such as risk-free interest rate, current exercise price, the variance of the asset, time of expiration of the option and value of the underlying asset are included. It helps to calculate the potential value of line extensions.
Income-Based Approach: In this approach, the potential of the brand is calculated by the future net earnings that directly contribute to determining the value of the brand. The following are the classifications in the Income-Based Approach:
Royalty Relief Method
As per this method, the value of the brand is related to characteristics applied by the company or valuer. The valuer will have to estimate the base for calculation and determine the appropriate royalty rate, a growth rate, expected life and a discount rate for the brand. This method is accepted by tax authorities and has an edge of being industry-specific.
Differential Price to Sales Ratio Method
This method will calculate the brand value as a difference between the estimated price to sales ratio for a company with a brand and the price to sales ratio for an unbranded company. This will be multiplied by the sales of the branded company.
Price Premium Method
The approach of this method is that a branded product should sell for a premium over an unbranded product. The value is calculated by comparing the cost involved for production and cost produced after sales. It creates the impact of assuming that the brand helps to accumulate additional profit.
Discounted Cash Flow
Cash flow acts as an important component for determining the value of an asset. It takes into account the increasing working capital and fixed asset investments. It estimates the amount of future cash flow that the brand can generate.
Advantages of brand valuation for a Business
- Valuation of a brand converts a brand from being an expense to an asset in the financial statements.
- It helps the brand to be valued with the same criteria as other investments in the firm.
- It helps in customer recognition.
- Brand valuation gives a competitive advantage to the business.
- There is enhanced credibility and customer loyalty.
Validity of Trade Mark
The trademark is valid for a period of 10 years from the date of issuance. After the end of 10 years, it can be renewed.
Steps to Register a Brand in India
Step 1: In order to register a brand, a trademark application needs to be prepared. It should be submitted in Form TM-1 with the below-mentioned documents.
- Proof of business registration such as ID proof of the proprietor, PAN card or Aadhaar card
- Proof of claim of the proposed mark that can be used in another country.
- Soft copy of the trademark.
- Power of attorney to be signed by the applicant.
- An image of the brand logo
Step 2: Payment of application fee of Rs.2500.
Step 3: Fill up the application of the brand name registration through manual filing or e-filing. For e-filing, the receipt will be provided instantly through the website.
Step 4: The Registrar will check the documents submitted. There should not be any dispute amongst the existing products or pending brands for registration.
Step 5: The brand name will be published in Indian Trade Mark Journals. There should not be any opposition for 3 – 4 months from the date of publication and will be proceeded towards acceptance.
Step 6: The Registrar will accept the application in case of no opposition is registered within the stipulated period of 90 or 120 days.
Upon rejection due to non-approval, the applicant has another chance to refill the same form without any charges. If the application gets rejected the second time, the applicant should file from the beginning.
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