A Perspective on Including Brand Premium in Valuation

A Perspective on Including Brand Premium in Valuation

Akhil Jain

In contemporary markets, companies such as Nike, Apple, Microsoft, and Coca-Cola are frequently regarded as quintessential examples of strong brands, reflecting their significant consumer recognition and association. However, the concept of a "brand" extends beyond mere recognition, encompassing both historical and modern interpretations. Etymologically, the term "brand" originates from the Old Norse word brandr, meaning "to burn," a reference to the practice of marking livestock with heated iron to signify ownership. This rudimentary form of branding has since evolved into a complex, intangible asset that significantly affects the valuation of firms.

Brand valuation has become increasingly important in a world where intangible assets represent a considerable portion of a company's market capitalization. In fact, the financial value of brands is often a significant factor in corporate strategy, influencing mergers, acquisitions, and market positioning. Brands not only create consumer loyalty but also generate substantial economic advantages. This paper aims to explore the brand's value from the standpoint of an investor, emphasizing the financial and market implications of brand equity in firm valuation. The discussion covers the definition and quantification of brand equity, the brand's contribution to company revenue, and its integration into various valuation methods.