How is brand value calculated?
With a well known brand that is associated with good quality products and which is familiar and respected by customers, a higher price can be charged from them than the price of the same product sold under a generic name. This translates to higher revenues being earned along the whole value chain. Companies have to pay lesser margins to the distributors and the profit to sales ratio is also higher. The value of the brand name is higher with the increased premium in price that can be charged for it. The difference in the Value/ Sales ratio of the branded product to that of the Value/ Sales ratio of a generic product can be taken as the value of the brand.
Brand value or brand valuation is an estimate of the total value of the brand expressed in monetary terms. Companies adopt several different methods to estimate the brand value. One way is to take brand value of the company as a whole, in terms of its market capitalization, and subtract from this the value its physical and other assets except the brands. The remainder is then considered to be equal to the brand value. Another approach to calculate the brand value is to calculate the present value of all the expected future profits of the company as its brand value. For this purpose profit is taken as the net profit after providing for the nominal interest on the net worth of the company.
Brand value at product level may be calculated by comparing the market prices of the branded product with comparable product without significant brand value, and then using this price difference to calculate additional profits earned due to brand image of the product. Calculating the present value of the stream of additional profits expected in future gives the brand value.