“A rose by any other name would smell as sweet” quoted William Shakespeare in Romeo and Juliet; thereby implying that names do not really matter. This could not be farther from truth in the present times, when strategic acquisitions are made with a view to acquire a brand name.
Chatting over a cup of coffee yesterday, a friend brought up the topic of SBC Communication’s acquisition of AT&T in 2005, followed by changing its name to AT&T Inc. SBC CEO Edward Whitacre had mentioned that they had factored the great name of AT&T & its strong worldwide brand in the acquisition decision.
When a company is sold, it seeks to obtain a value over and beyond that of its tangible assets. This is referred to as `goodwill’ and can be thought of as a “premium” for buying a business over and above the fair value of the net tangible assets acquired. Firms sometimes pay large premiums for acquiring firms with valuable brand names because they believe that these brand names can be used for expansion into new markets.
Conventionally the value of a brand has been regarded as part of goodwill, which arises only when a business is sold. As a consequence, the value of acquired brands is included in companies’ balance sheets but the value of internally generated brands remains unaccounted for. To do away with this inconsistency, in the recent years some major consumer brands have been capitalised, which means that a value has been put on the brand and included in the balance sheet as an asset of the company.
Like beauty lies in the eyes of the beholder, the value of brands lies in the perception of the people. Building these perceptions can take years but it can be destroyed overnight due to some marketing failure, resulting in the brand worth to fluctuate and erode quickly.
The “Brandz 2011” survey by Millward Brown ranked Apple as the most valued brand at $153bn, up 84 per cent on last year, and Google at $111bn, down two per cent. The McDonald’s brand accounts for more than 70 percent of shareholder value. The Coca-Cola brand alone accounts for 51 percent of the stock market value of the Coca-Cola Company.
Various approaches to measuring brand value have developed, but still the capitalisation of a company’s brand value on the balance sheet remains contentious due to problems in a realistic assessment of brand value and the fact that the brand worth can fluctuate quickly.