Financial Value of Brands Imperative: Why Brands Must be Valued in Financial Terms

Marketing exists to drive profitable and sustainable growth through increased demand. Since growth is measured in financial terms, the strength of brands and the resulting customer franchise must also be expressed and analyzed in financial terms. Regular measurement and analysis of the financial value of brands demonstrates the material contribution of brands to the overall value of the enterprise and provides an excellent management decision-making tool to enhance long-term enterprise value.

For brand-centric companies, it's increasingly clear that the primary driver of market capitalization (i.e. enterprise value) is the future anticipated stream of cash flows generated by their brands, and the magnitude of this brand-value impact is closely tied to the relative success in growing those future cash flows. Expressed most simply in economic terms, effective marketing pushes the demand curve upward and to the right, providing benefit in volume, price, or both.

Due to the "Brand Value Accounting Dilemma," the current state of accounting standards and financial reporting does a relatively poor and inconsistent job of accurately measuring, explaining, and reporting the Financial Value of Brands for internal management purposes.

Since this matter is not likely to be resolved anytime soon by accounting-standards setters, brand-centric enterprises should develop an internal methodology to annually measure, explain and report the Financial Value of Brands to the executive level, even in the absence of any external regulatory or accounting requirements.

This resource features case studies, including The Bud Light Brand Divorce, and FVB measurement provider summaries from Brand Finance, Kantar, Ogilvy, Interbrand, and Presciant.