Brand value and valuation
To many businesses, their brand is a critical business asset. Of course, the value of this asset may not be identified on the balance sheet since many of the brand-building investments made by companies are expensed over time. However, when one company acquires another company, brand-related value may be recognized on the balance sheet of the acquiring company.
For instance, when Diamond Foods acquired premium potato chip maker Kettle Foods for $616 million in 2010, $235 million of this amount (38 percent of the purchase price) was identified as Kettle’s “Brand Intangible” asset value. The Kettle transaction gives us a glimpse into how brand value can contribute to the overall value of a business.
The Kettle transaction also illustrates one of the reasons it may be necessary to value a brand. In this case, the brand was valued as part of a purchase price allocation as required under ASC 805 for financial accounting purposes. Yet brands may also be valued for tax, bankruptcy, litigation, investment, lending and business planning purposes.
Digital brand management challenges
Due to the impact of the Internet and mobile technology on the manner in which markets now work, brands have achieved a heightened level of importance. In an era where buyers and sellers across the globe are literally keystrokes away, brand names provide a critical means of identifying and distinguishing businesses, products and services. Brands help consumers cut through the digital clutter.
While technology has made brands more important, it has also made them more susceptible to unauthorized — and sometimes illegal — use by competitors and others. As a result, the brand value your company has developed may be under attack online as a result of:
- websites with URLs that are confusingly similar to your brand name which may be used to sell counterfeit goods, enable phishing attacks or simply free ride on the good will of your brand;
- counterfeit products being sold on legitimate websites such as eBay;
- competitors purchasing your brand name as a paid search keyword with Google or other search engines so that searches for your brand will result in the display of the competitor’s ad;
- the hacking of Facebook, Twitter and other social media sites such as the recent hacking of Burger King’s twitter account in which their logo was replaced by a McDonald’s logo (by a hacker, not by McDonald’s);
- false or misleading statements about your business in online discussion groups, blogs or other interactive sites.
Prevent, detect, respond
To protect the value of your brand in the digital age, it may be necessary to deal with some or all of the challenges listed above. Prevention is an obvious answer to online brand management problems but is not always possible due to the largely unrestricted nature of the Internet. Detection requires vigilance through online searches and monitoring of sites referencing your brand name through manual or automated means. And finally, if an offending use of your brand name is found online, response options may include personal contact, contact through legal counsel (including filing suit), incident reporting to the host site or other alternatives.
Glenn Perdue, MBA, CVA, MAFF, CLP, is the managing member of KraftCPAs’ affiliate, Kraft Analytics, LLC. Glenn has extensive experience in intellectual property valuation, licensing and damage analysis.