In search of the true value of brands – new ISO brand valuation standard 20671

The discrepancies between various brand value rankings published by different marketing and brand consulting firms were (and still are) all too obvious. As a result, major players met under the umbrella of ISO (International Standards Organization) starting in 2006, and finally released the ISO 10668 brand valuation standard in 2010. Its impact on the industry has been limited. Only a few firms in Europe were accredited. Large jurisdictions – US and China in particular –  complained about not being represented in ISO 10668.

To cope with these shortcomings, a new standard – ISO 20671 Brand Evaluation – was released in a draft version recently, developed this time under the lead of the US and China. Reportedly, the draft has been adopted unanimously by all members of the project group. Its impact remains to be seen.

It is important to understand that both standards emerged out of the professional marketing and branding communities; the financial valuation sector was not part of it. Although both standards play a very minor role in financial valuation, accounting, reporting and tax, we should not close our eyes. There is a need of the marketing community to get robust and reliable figures on brand value, and finally on the returns of brand investments. Financial valuation, and the IVSC in particular, is well advised to consider the approaches of the ISO papers in their own standardization efforts.

While Marketing knows most about brand strength, Valuation knows most about financials. Desirably, there should be more cross-fertilization. In particular, valuation of trademarks and brands should go beyond identifying an appropriate royalty rate. More substance is needed in explaining the reasons why a particular royalty rate is appropriate, in determining useful life beyond saying that it cannot be reasonably determined, and in determining trademark related risk beyond using rule-of-thumb risk premiums. All of this relates to absolute and relative brand strength.