How to price a trademark?

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A trademark is an integral part of building the image and recognition of the company. The constantly growing interest in managing the company's value results in the dynamic development of brand valuation methods. Prior selection of the correct approach in making estimates has a measurable impact on the optimal management of the enterprise.

Definition of a trademark

According to the wording of Art. 120 of the Act of June 30, 2000 - Industrial Property Law (consolidated text: Journal of Laws of 2013, item 1410), a trademark may be any designation that can be represented graphically, if such a designation is suitable for distinguish the goods of one enterprise from the goods of another enterprise.

In practice, it may be, in particular, a word, a drawing, an ornament, a color composition, a spatial form, including the form of a product or packaging, as well as a melody or other sound signal.

Almost every company has its own trademark. Its main task is to build trust, acquire customers and their loyalty. As a result of stabilizing the position of the trademark, goodwill may increase.

A trademark may be sold, exchanged or donated, pledged or contributed to the company.

Benefits of using a trademark (brand)

The biggest advantage of promoting a brand is that the customer narrows down his assessment when choosing a good or service and starts linking the quality of the product with the brand.

Building awareness and loyalty results in the fact that the customer is reluctant to use products of less known brands.

The benefits for producers related to distribution channels should also be mentioned. As a result, their number grows, and the producer's bargaining power in relations with distributors increases.

Thanks to a strong brand, it is also possible to expand the range of goods or services offered under the brand that has been promoted for some time.

Moreover, a well-recognized trademark favors the individualisation of the products it offers. Such a situation greatly facilitates the adjustment of loyalty programs to the client's needs and enables the expansion of the market offer.

A strong brand of the company can be called "Bargaining chip" in the event of sale of the enterprise.

Methods of trademark valuation

Attempting to appraise a trademark is not the easiest task. In practice, there is no single correct method that would unambiguously reflect its value. In addition, the experience of the valuers is important.

Trademark valuation methods can be divided into two categories - marketing and financial.

Marketing method

The marketing methods take into account the revenue from the trademark owned, which is then corrected by measuring the relationship between the customer and the brand. The value of the mark is then estimated on the basis of the test results.

The downside of this method is its inaccuracy in measurements. It manifests itself in a significant simplification of the assumptions made. As a result, there may be significant discrepancies in the values ​​for individual years.

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Financial method

The financial method is more accurate. The valuation of a trademark consists in combining two situations. One of them involves the use of a trademark or brand. The second one turns them off. On the basis of the comparison of two different estimates, the excess of the company's profits due to the use of a trademark or brand is distinguished.

In addition, under the financial method, we can specify the cost approach, income approach and market valuation of a trademark.

The cost approach covers the totality of expected costs that would have to be incurred in order to benefit from the existing trademark. An example would be advertising or promotion costs. The scope of this method also covers earlier estimates, which will be updated to the present value as of the date of the given valuation.

Unfortunately, potential cash flows are neglected in the cost method. As a result, the result is lower than in the case of other methods of trademark valuation.

The income method is completely different. The financial result of owning a brand or trademark plays a significant role here. There are also many variations of this technique. It is worth mentioning the valuation, which is based on royalties and the premise that another company, without its own trademark, would be able to pay for using a competitor's brand.

The market method, in turn, is based on the so-called comparable transactions. A trade mark that has been acquired in the past by an enterprise and is currently on the market should be taken as a point of reference. Due to the fact that most of the transactions are classified, in practice the role of this method is marginal.

Summary

Trademark valuation is not easy. The multitude of methods and different results when using them make it impossible to obtain a real, objective result. Moreover, the legal provisions do not provide guidance on this subject. The experience of those who prepare the valuation is therefore indispensable here.