October 2010 saw the launch of the first standard on brand valuation from the International Organization for Standardization (ISO). It was developed over two years by brand valuation practitioners and specialists such as Intangible Business in countries throughout the world.

‘ISO 10668 Brand valuation – Requirements for monetary brand valuation‘ is relevant to those involved in licensing for a number reasons. It defines how to quantify the investment in brands, it provides lawyers guidance on what to expect from valuers when quantifying losses from infringements, it is useful for negotiating royalty rates and other licensing arrangements, for agreeing plans to commercialise IP, analysing return on investment and understanding the value created through licensing.

The standard outlines the three key approaches to valuing brands. There are several economic income-based methodologies which analyse the proportion of a business’ earning that are attributable to the brand. One of the most common of these is the relief-from-royalty methodology which calculates the discounted value of future royalty payments the brand owner would need to pay to use the brand if they did not actually own it. This relies heavily on licensing principles such as determining applicable royalty rates and identifying branded earnings. Those involved in licensing will therefore be more familiar than they might think with how to value brands.

The income approach is supported by the market approach which stipulates the brand value should be referenced to comparable brand transactions and the cost approach which calculates the amount invested in creating the brand and the amount that would be required to re-create it. In practice a combination of the most applicable methodologies for the circumstances and particular brand are used to arrive at a rounded, objective valuation.

The key difference about ISO 10668 from other brand valuation standards is the inclusion of both legal requirements and behavioural aspects. Input from lawyers is required to assess the legal rights that protect the brand and the parameters that affect brand value such as distinctiveness, scope of use, and risks such as cancellation or dilution.

The inclusion of behavioural aspects is what really marks the ISO standard out as different. It states that the kind of brand and market analysis usually not carried out or understood by accountants should be a key component of every valuation methodology. Analysis should be conducted on the strength of the brand, looking at aspects such as brand awareness, perceptual attributes, knowledge, attitude, relevance and loyalty. Stakeholders’ emotional attachment to the brand and how this impacts pricing, volume and demand should also be considered. This is a significant departure from previous guidelines and one with positive ramifications.

With a key brand valuation method relying on licensing principles and brands being valued increasingly for licensing purposes - especially for disputes – it’s worth at least being aware of ISO 10668 and how it can be applied to your licensing strategies.