Understanding brand value – insights from INTA

“Trademark practitioners play a critical role in brand valuation and brand evaluation exercises and should be stronger strategic partners with their finance and marketing colleagues.” This was the key conclusion of the Brand Value Special Task Force Report, published by INTA in April 2020. For those in the global IP community, this is perhaps obvious. We have known for some time that intellectual property is one of the most valuable assets on the balance sheet and a key component of a brand’s value. Yet, the process of calculating brand value is frequently undertaken in silos by colleagues in finance and marketing, often with no input from the brand’s IP team. Consequently, the value that legal protection brings to brands is not included in the calculation and the value on the balance sheet is lower than it should be.

Three things are certain. First, professionals across a range of disciplines beyond legal – including finance, marketing and accounting, as well as among the C-suite and investors – increasingly appreciate the value of intangible assets. Second, with various stakeholders using different definitions, concepts and methods, true brand value remains elusive, with further coordinated, multidisciplinary research necessary. Finally, trademark practitioners, or brand professionals as we now refer to this role, must play a central role in determining brand value – and they are very keen to do so.

Enhancing the value and purpose of the in-house IP team

The brand professional mandate is expanding. At INTA, we view this change as part of a broader evolution from trademark practitioner to brand professional. At its most basic, the role of in-house practitioner is evolving from specialist to generalist. A general counsel for brands – or brand counsel – now works on adjacent areas of the law, as well as, for example, on marketing and advertising claims, regulatory issues and matters relating to privacy and compliance. Among a brand professional’s expanding responsibilities is the need to understand brand value.

Providing insight and guidance on the changing roles and responsibilities of in-house brand teams, INTA released its 2020 In-House Practitioners Benchmarking Report in December last year. According to the report, 91% of respondents agreed that their “organisation’s leadership appreciates the value and importance of trademarks and related issues”.

While this is welcome, legal teams continue to be seen as cost centres within many organisations, their value measured not by what they contribute but by what they prevent. This inherent misunderstanding about the value and purpose of in-house IP teams speaks volumes. It arguably also contributes to the rationale behind not including legal in brand valuation exercises.

Perhaps unsurprisingly, about half of respondents said that they did not know how their organisation captured the value of trademarks.

As part of its work, the Brand Value Special Task Force looked at the ISO standards for brand valuation and evaluation. ‘Legal considerations’ and ‘legal dimensions’ feature in the ISO standards, as they are essential segments in brand valuation and brand evaluation exercises. However, it is unclear to what extent brand professionals have been involved in the development of these aspects. INTA has established a Brand Valuation and Evaluation Sub-committee as part of its Commercialisation of Brands Committee to focus on these matters.

Addressing the underlying issue – a deep misunderstanding about the value and purpose of in-house IP teams within organisations – can also lead to a host of other benefits, including:

• helping to increase budgets and secure additional resources for the in-house IP team;
• breaking down the silos between legal and other internal departments;
• securing a seat at the C-suite;
• providing the opportunity to showcase the team’s value as key brand ambassadors and strategic partners; and
• ensuring inclusion in brand valuation and evaluation exercises.

Brand evaluation and brand equity

Those involved in brand valuation exercises often limit their view to brands as intangible assets whose current value should be determined by objective means. Therefore, they consider only financial and economic aspects. However, a financial-only approach lacks the marketing and consumer-oriented perspectives that are necessary to fully discover the true value of a brand in the market. As such, the Brand Value Special Task Force Report brings a unique perspective by considering brand equity – understood as the evaluation process of subjective aspects present in consumer minds – and marketing indicators, while providing objective and transparent valuations of such assets.

One of seven expert insights in the report was contributed by Bobby J Calder, the Kellstadt professor of marketing at the Kellogg School of Management, Northwestern University in Evanston, Illinois, and current chair of the ISO committee on brand evaluation. In it, he notes:

It is necessary to draw a sharp distinction between a ‘brand evaluation’ and the more developed area of ‘brand valuation.’ Most common brand valuation methods rely to a greater or lesser extent on market information. Value is ascribed based on prices that have been paid in the past or what might reasonably be paid in the future. It should be clear that this market value is, in principle, different from evaluating the contribution of the brand to an ongoing business. It is possible that a brand evaluation and a brand valuation could diverge considerably.

Unlike most other intangible assets, one significant component of a brand is the consumer perception of it. There is thus a significant degree of subjectivity when it comes to assessing the value of brands. One goal of brand valuation standards is to mitigate this. Brand professionals need to know how their companies calculate and attribute brand value and whether valuation is conducted in a routine and consistent manner.

Consistency is also important because brand valuations may be undertaken for a variety of reasons during the different phases of a typical product lifecycle. For example, in the market development phase, the company may require cash from investors. However, in the maturity phase, it may be looking to divest its product line. Given that brand professionals are involved from the legal perspective in every step of a typical product lifecycle, they should also be involved in the brand valuation and evaluation processes.

Trademarks and brand (e)valuation

INTA’s working definition of a ‘brand’ (as shared in the report) is “the total identity of a product or service, which a current or prospective consumer relates to and connects with intellectually, psychologically, and/or emotionally. ‘Brand’ is a complex, multi-layered promise of what will be delivered to and experienced by the consumer.” This definition includes trademarks, Calder points out. Therefore, trademarks should be treated as integral to the business-level process of brand value creation.

“Trademarks,” he notes, “are thus part of a brand design process that allows consumers to recognise the brand value, and trademarks can directly contribute to this value creation. From this perspective, it is important to recognise that managing trademarks as part of a brand design process is an important part of internal business decision making.”

At the same time, the holistic value created by brands (to which trademarks contribute) is often undervalued and even regarded with scepticism by those outside the marketing team. This also underscores why brand professionals should be involved in the brand-evaluation process.

The primary question for most companies is how monetary value is attributed to brands when elements of them exist in the consumer’s mind. The recently issued ISO 20671 brand evaluation rules are a promising approach to a more detailed examination of a brand’s current value.

Impact of brand restrictions

Another issue to be considered is the growing trend of brand restrictions. The INTA community views brand restrictions as one of the greatest threats to brands, trademarks and, by extension, brand value.

INTA’s attitudinal study, Brand Restrictions Study: A View from Gen Zers and Millennials, released in June 2021, was commissioned to show how the world’s largest generations view brand restrictions and how their purchasing behaviour could be affected by limitations or prohibitions on packaging design elements. It also explores the value that young consumers place on brands and in the brand experience. As such, conclusions can be drawn about the impact of brand restrictions on the brand experience and, therefore, on brand equity and brand value.

The study reveals how brands play a vital role in consumer lives. Ultimately, consumers have an emotional connection to brands. Globally, six out of 10 respondents said that they would be sad if certain brands that they love disappeared forever, while almost half said that the brands they use reflect their personal values. Trademarks are central to the brand experience. Removing trademarks and other branding elements from product packaging would negatively alter the brand experience and decrease brand equity.

The study also found that trust and quality play a critical role in driving brand loyalty, with seven out of 10 consumers globally saying that they trust brands. Conversely, one in three consumers worry that they may accidently purchase counterfeit products as a result of brand restrictions. Counterfeiting undermines consumer trust and again affects the brand experience and brand value. Brand professionals should share these insights with colleagues and clients both in discussions around brand value and through IP enforcement.

Closing thoughts

For many brands, resilience has become a matter of survival during the pandemic. Brands are now looking to the future and taking steps to build resilience in preparation for the next crisis and to navigate an increasingly complex global economy and marketplace, with the very value of the brand at stake in this shifting and unpredictable landscape.

Brand valuation is a multifaceted and complicated topic. While different professionals bring diverse perspectives and can seem to speak different languages, the multidisciplinary approach taken in preparing the Brand Value Special Task Force Report demonstrates the common interests shared by these diverse groups. It also underscores the vital role that brand professionals play in brand valuation and evaluation exercises, and why they are an essential part of the discussion now and in the future.