Destroying and creating equity value through brand management: Positive and negative brand impact assessment by using the VIM modelling approach
Year: 2014
Type: article
Abstract: For the time being the importance of understanding a firm's equity value creation becomes essential. The corporate brand and the related brand portfolio of product brands have become the value driving assets of increasing importance. In this paper, we present a newly developed integrated brand valuation modeling approach (the proprietary VIM - Verifiable Interdependent Model) which is also applicable to private (unlisted) companies where the market capitalization of equity is unknown. After explaining the basic model mechanics and theoretical spillovers with the pricing and marketing strategy of the firm, we elaborate the importance of the positive or negative impact of the brand equity for equity value creation of the firm based on the firm's specific value drivers. To demonstrate the application of the model and to evaluate the informative value of the obtained results we also present a case study of the XYZ Brand valuation. Apart from the brand valuation, we demonstrate the positive and negative impacts of the brand on the value of the firm. Furthermore, we outline the applicability of this approach for the use within the IFRS 13.1. INTRODUCTIONThe issue of appraising intangible assets, and specifically trademarks, is discussed extensively in specialized literature (Cizinska & Krabec, 2013, Gerzema, Lebar, 2008, Hubbard, 2010, Murphy, 1990, Perrier, Stobart, 2008, Salinas, 2009); among other things, this is because intangible assets are becoming more and more important within intensifying competition in hypercompetitive, more and more saturated, product markets.In appraising intangible assets of unlisted companies operating in developing markets, appraisers face the problem of insufficient empirical data, or their low quality. This makes the application of standard methodology used for appraising identifiable intangible assets disputable. In this paper, a possible approach to appraising the fair value category of trademark of an unlisted (private) company will be suggested. Our ambition is to solve these methodological issues in a way that will have a sufficiently informative value that will enable the resulting valuation to be seen as a valuation of the selected and/or assigned category of the value of the particular assets. For many reasons presented in this paper, the valuation of identifiable intangible assets is even more difficult than the valuation of a business as a whole.First of all, the main categories of the value usable for the purposes for which intangible assets are normally appraised will be summed up. Then, we will deal with problems that appraisers have to face when appraising intangible assets of unlisted private companies. On the basis of that analysis, we suggest the VIM model (Verifiable Interdependent Model), which has been designed specifically for the conditions of use in this environment. This is followed by a case study, where the application of the model is demonstrated, and the informative value of the obtained results evaluated.2. THE FAIR VALUE CATEGORY FOR APPRAISING THE TRADEMARK OF AN UNLISTED COMPANYWithin the established practice of assets valuation, specialized literature, property valuation professional standards, and, last but not least, applicable legal regulations of the Czech Republic normally respecting the fact that the value and the method of being derived is always exclusively relevant for the appraised object, appraised subject(s), and the purpose for which the value of the appraised object is determined with respect to the appraised subjects. At the same time, the established rules also provide recommendations, or even define a duty to apply particular valuation methods. In some cases, the methods have to be applied in a particular way in order to guarantee and maintain a sufficiently reliable and demonstrable link between the object, subject(s), and purpose of the valuation. It can be generally stated that the methods which can be used for valuation in a particular case are predetermined by the selection of an object, subjects, and purpose of the valuation; this predetermination follows from established assets valuation best practice rules, valuation standards, or applicable legal regulations. …
Authors: Romana Čižinská, Tomáš Krabec
Institution: Škoda Auto University
Language: English
Subfield: Strategy and Management
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W1542301366