South Africa: Brands: A Company's Most Valuable Asset

Last Updated: 16 November 2011
Article by Gaelyn Scott

Interbrand recently published its ranking of the top 100 brands for 2011. Coca-Cola was once again ranked as the world's most valuable brand, with an attributed value of $71.8 billion. The top 7 brands were unchanged from last year's ranking. These are Coca-Cola, IBM, Microsoft, Google, GE, McDonald's and Intel with values of between $35 billion and $71 billion.

Brands serve a variety of functions including identifying origin, and thus distinguishing a brand owner's goods or services from those of another, and serving as a stamp of quality. These valuable intangible assets, and other forms of intellectual property, can, however, perform various other functions which are financially beneficial to the proprietor of the brand.

Registered brands may be hypothecated by a deed of security having the effect of a pledge of movable property, conferring security over the hypothecated brand. The use of brands may be licensed to third parties in exchange for payment of a royalty, thereby creating a valuable income stream for the brand holder. Brands, and the goodwill attaching to them, contribute substantially to the value of a company. A brand holder is well advised to register its brands as trade marks and to conduct a valuation of its brands. If brands are purchased, as opposed to internally generated, it is appropriate to recognise their value on a company's balance sheet, thus increasing the asset value of the company. For internally generated brands, that are not recognisable on the company's balance sheet, a separate valuation should be conducted to determine the value of the brands being sold. This makes the purchase of the company more attractive to purchasers who are interested in the future cash flows that may emanate from the brands. In addition, any due diligence being conducted on a target company should, of necessity, involve an assessment of the nature, extent and value of the brands and other intellectual property owned by the target.

The brand that experienced the most significant increase in brand value is Apple, which increased in value by some 58% over the past year and moved from position number 17 to position number 8 in the Interbrand ranking. The value of the Apple brand is some $33,4 billion. One of its major competitors, Nokia, fell from position number 8 to position number 14 on the rankings and dropped in brand value by 15% to $25 billion. Another competitor, Blackberry, having a brand value of $6,4 billion, similarly lost brand value but remained in the mid fifties position from last year. The IT / technology / electronics industries account for the largest total brand value, with the financial services and automotive industries following close behind. The top financial services brand values include American Express, J.P. Morgan, HSBC and Goldman Sachs with Toyota, Mercedes Benz, BMW, Honda and VW ranking as the top automotive brands by brand value.

Not surprisingly, 49% of the total brand value is attributed to American companies with Germany (10%), France, Japan (both 7%) and the UK (5%) featuring far less significantly than the USA

What is also noteworthy is that the vast majority of the top 100 brands consist of distinctive words, namely words that do not describe the goods or services in respect of which they are used. One of the best examples of this is the Apple brand. In fact, our trade mark legislation requires a brand to be distinctive, and non-descriptive of the goods or services in respect of which registration is sought in order to be registrable as a trade mark. Descriptive brands may become distinctive, and therefore registrable over time through use, but inherently non-distinctive brands are not registrable. For obvious reasons, all invented words are inherently distinctive and therefore registrable. In fact, brands consisting of invented words are often the most memorable, effective and therefore valuable. Google (ranked 4), Nike (ranked 25), Xerox (ranked 57) are three such examples. Careful consideration should therefore always be given to brand selection. The temptation to describe your good or services in your brand name should be avoided.

A further observation from the top 100 ranked brands is that most of the brands are used, and therefore associated with, an instantly recognisable logo or icon. In some cases, these devices enjoy the same recognition as the main brand to which they attach. Apple's apple icon, Nike's swoosh, Investec's zebra, and Audi's four interlinked circles are good examples. It is important to recognise that these devices also serve a distinguishing function and constitute brands of significant value that should be registered as trade marks. The same goes for slogans / pay-off lines which should similarly be registered. Avis' "We try harder", Nike's "Just do it" and KFC's "Finger lickin' good" are examples.

Choose your brand wisely, register and enforce it, have it valued and make use of it for financial gain.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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