Tahir's Tips: Exploiting brand value
While building a successful, recognisable brand in the fashion industry is vital, few businesses and individuals fully capitalise on their brand’s value and often fail to recognise the lifeline that a strong brand can offer in times of financial pressure. In this week’s tips, we explore the ways your brand can help you if your business is experiencing financial difficulty.
Where can brand value exist?
At its most basic level, a brand identifies the source of a product or service to consumers. Therefore the name of a brand and its logo, along with the goodwill attached to them, are valuable assets. But brand value can exist in a multitude of places, some of them surprising. A customer database, any registered trademarks (think of the instantly recognisable - and well protected - trademarks of international fashion houses, such as Chanel [pictured], Prada or Cartier to name but a few), inactive domain names or even an archive of unused design material, could all prove to have significant worth.
A good way to think about brand value is to question what someone would be prepared to pay you for, and why. For example, a marketing company may consider a customer database to be very valuable, as it provides contact details for individuals for future marketing campaigns, but can also reveal key information about purchasing habits.
Capitalising on a brand’s value
Increasingly, brands can be used as collateral to secure asset-based loans. While lending on intellectual property used to be rare, lenders are recognising the value that can lie in intangible assets. The loan could then be used to help expand or develop your business.
Licensing the brand is another way to generate money. Brand value is considered difficult and costly to establish and third parties are willing to pay to be able to exploit established goodwill. This can make dormant brands, which may have been neglected as they don’t fit into a retailer's current objectives, particularly attractive.
If you’re facing significant difficulty, the goodwill in the brand itself may be relatively unaffected when compared to the distress faced by the actual business. Even in insolvency situations, brands can be sold on as assets.
How brands are valued
Generally, three approaches to valuation are used: cost; income; and market value.
The cost approach considers what it would cost to reproduce the brand to the level attained at the valuation date, including labour, materials and overhead charges. The income approach looks at the money generated from licensing a particular piece of intellectual property and seeks to predict future income streams, while the market approach is a comparison to what similar property has been exchanged at on the market.
The methods of valuation are becoming increasingly sophisticated and the reason for seeking the valuation can determine which approach is used.
Whether or not the business is in financial difficulty, the approach to valuing the brand will largely be the same. However, you should be aware that acting sooner rather than later can help you maximise the amount you receive. Your negotiating position is likely to be stronger and any discount to reflect the struggles faced by the brand (including negative publicity) will be lower.
Realising the value of your brand can provide the opportunity for financial gain, whether you’re facing difficulty or if you just need to a cash injection to help your business. Properly protected intellectual property is an important first step in capitalising on your brand's value and you should consult a lawyer to discuss the best way of doing this.
For more information on Industry member, Tahir, visit his personal partner page on the Sheridans website. To contact him directly, visit The Industry Directory, email [email protected] or telephone 020 7079 0103.
Image: Chanel Resort 17 catwalk