Brands are at the heart of corporate life. They are of course of interest to those outside of companies, to consumers, and are also increasingly of interest to financial analysts who monitor companies and to banks that finance their business. Inside a company, a brand is an asset that unites employees, used mainly by the marketing and communication departments, but also of interest to strategic, financial, legal, and accounting management.
In addition to the numerous parties for whom brands are important, brands raise a wide range of issues, and there is uncertainty surrounding how to define them and what makes them valuable for a company. Before examining how brand value is created in the next chapter, we first explore exactly what constitutes a brand.1
The objective of this chapter is to show that a brand is a complex asset and therefore particularly challenging to value. This complexity is due to a number of factors. Section 1 explains the differences between a brand and other legal terms (such as trademark) and demonstrates that a brand gives its owner legal rights and is in this respect an asset of the company which may, under certain conditions, be recognised on its balance sheet. Nonetheless, a brand is a very specific asset to which the entire company has access but that may have many uses, which will vary from one brand to another (Section 2). Section 3 illustrates a second level of complexity: the scope of a brand can never be clearly defined because it evolves over time. Finally, Section 4 reminds us that a brand is an intangible asset that obeys the rules of the economy of intangibles, the overriding principles of which directly impact brand value.
1. A Brand Is a Right and an Asset
There is sometimes confusion as to what constitutes a brand. It is therefore important to define what we refer to as a “brand” and how it differs from other associated terms such as “trademark”, “trade name” or even “service mark”.
Trademarks consist of legally protected visual elements such as names, colours, shapes, words, or symbols used to differentiate a good or a service and fuel consumer demand. A trademark, or a trade name, is generally considered to be a bundle of legally defined property rights that can be defended in court. In the United States, a trademark is a brand name that has been registered with the US Patent and Trademark Office. To be recognised as such, a trademark must perform a distinguishing function to allow the source of goods or services to be identified. Registration of a brand name as a trademark affords the owner of that trademark legal recourse if someone else uses that name.
From an economic standpoint, a brand is a wider concept and consists of a set of attributes that are attached to a particular identity and are perceived to be associated with future economic benefits for the entity that controls the brand. A brand is not limited to a trademark but also refers to formulas, recipes, or trade dress and can be seen as a consistent pool of interrelated assets. The term “trademark” has a legal origin, whereas the term “brand” is used in marketing and finance to designate a larger bundle, usually consisting of a trademark associated with other intellectual property rights (Haigh and Knowles, 2004). The term “brand” is relevant to business decision makers, whereas the use of the term “trademark” is relevant in court. From a valuation perspective, we will use the term “brand” to refer to this pool of assets and to refer to its valuation as a whole.
A brand is therefore a collection of markers or signs providing visual, auditory, or even olfactory identification of goods or services. A brand may appear as a word, an expression, an acronym, a series of numbers, a slogan, a visual symbol, a colour, a melody, or a form. This list is long and not exhaustive. Think of the famous Nike “swoosh”, the stylised “M” of McDonald’s, and the signature sound of BMW in its TV advertisements. Each one is a perfectly distinctive brand marker. Moreover, most brands use a combination of these markers to ensure they are clearly differentiated, for example, a word written in a particular graphic style combined with a specific colour. Yet a brand is not limited to the single sign that conveys it: by virtue of this sign, it is an expression of an identity. For the consumer, a brand expresses the identity of the products and services provided by the company, indeed the identity of the company itself. For example, the “apple” logo of Apple Inc. has become synonymous with technological products with streamlined design and refined ergonomics.
1.1. A Brand Is a Right …
If these signs have a monetary value, it is because the brand represents a bundle of rights. According to the World Intellectual Property Organization (WIPO), “A trademark is a distinctive sign that identifies certain goods or services as those produced or provided by a specific person or enterprise”.2 As defined in the US Trademark Act of 1946 (the Lanham Act), a trademark is “any word, name, symbol or device or any combination thereof [used by someone to] identify and distinguish his goods, including a unique product, from those manufactured or sold by others and to indicate the source of the goods”. Legally, therefore, a trademark constitutes a company’s exclusive right to utilise a particular sign to designate its products or services and to authorise a third party to use this sign in return for payment. It is precisely because this right is exclusive and, therefore, it can be assigned or licensed, that it has a monetary value.
This right is generally acquired through registration of the brand name in a national brand registry. The registration of trademarks in the United Kingdom is achieved through the UK Intellectual Property Office and lasts ten years, after which it must be renewed to preserve the owner’s rights. Various forms (signs) may be registered: for example, a name, a colour or a combination of colours, a slogan, a piece of music, or a smell. Registering a brand guarantees that it cannot be used by another entity without its owner’s agreement.
Registration of a Smell Trademark
Unconventional trademark forms such as sounds, touches, or smells open opportunities to reach consumers differently and therefore offer economic potential to businesses. Smells are strongly associated with memory and can trigger instantaneous consumer responses. In the United Kingdom, in order to achieve smell mark registration, the smell must meet the requirement of “graphical representation” and must not result from the nature of the good itself. For example, an application by Chanel to register its well-known No. 5 fragrance as a smell mark in the United Kingdom was unsuccessful, as the scent of the perfume was indistinguishable from the product. However, some smell mark descriptions have been successfully registered, such as the smell of the Sumitomo Rubber Co, a global tyre and rubber company based in Japan, which applied to register “a floral fragrance/smell reminiscent of roses as applied to tyres.”
In certain countries, such as the United States, for example, it is not necessary to register a brand to obtain exclusive use of it: a company that can demonstrate an extended usage of certain signs to designate its products obtains the exclusive of use of these signs. Registered brand names are identifiable by the symbol ® (registered), and the initials TM (trademark) indicate a commercial brand that is not necessarily registered. However, this is not the case in the United Kingdom or other countries such as France, wh...