Do Brands Have Salvage Value?
Do brands have value when the owner of the brand decides not to use the brand any more in his marketing efforts? Yes, certain transactions in brands point out the fact that brands have salvage value. Certain brands were sold long after their use was discontinued by their owners.
Why Brands Have a Salvage Value?
Brands have a salgave value because each brand has a potential market size. The potential market size is different at different levels of market. The size of the market for which this brand is the first preference, market for which this brand is second preference or third preference, market that is willing to buy this brand in case other brands are not available, to market which is aware of this brand and will try it in case of emergencies or when good promotions are available.
Brand Valuation
Brand salvage value is an interesting concept and this concept has application when companies invest in brands. Brand investments require investment or expenditure in the product or service offering and in marketing expenditures that build the brand. There will be the return on investment concept which is applicable to brand investments also and this calcuation of internal rate of return for brand building projects needs to take into consideration brand salvage value.
IFRS provides for valuation of intangible assets including trademarks. Trademarks include brands and accountants have to value brands. Accountants are trying to come out with guidelines for brand valuation. Of course finance and valuations specialists have come out with various alternative valuation methods already. But accounting bodies have to choose some methods among these or they have to come up with new methods which will be part of accepted accounting principles.
Dr. Roger Sinclair wrote a short paper on the importance of brand valuation in new accounting methods.
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