Cost-Based-Method for evaluating Brand Equity

Historical Costs:

This is the money that has been spent on the brand till date. Suppose Rs.100 million have bean spent so far creating a brand called ‘X’. The value at which the brand can be sold to another organization should be Rs.100 million.

This appeals intuitively though there are several problems in using historical costs. First, a prospective buyer is interested in the future cash flows from a brand and the fact that 100 million was spent on brand ‘X’ does not guarantee the realization of even a fraction of that amount in future sales. 

Costs incurred in brands are no measure of the efficiency with which the money was spent. The R& D budgets of GM, Siemens, Philips, Xerox and IBM are much more than their respective Japanese competitors namely Honda, Hitachi, Sony, Canon and NEC. Yet the number of successful models produced by the Japanese far outnumber the ones produced by their western counterparts. Poorly spent finances hardly get translated into brand equity. Historical costs may or may not be an adequate measure of a brand’s future potential even when the costs are adjusted to the current prices.

Share This Post

Post Comment