Value of a brand is the sum total of present value

According to present value model, the value of a brand is the sum total of present value of future estimated flow of brand revenues for the entire economic life of the brand plus the residual values attached to the brand. This model is also called Discounted Cash Flow model which has been wisely used by considering the year wise revenue attributable to the brand over period 5, 8 or 10 years. The discounting rate is the weighted average capital cost, this being increased where necessary to account the risks arising out of a weak brand. The residual value is estimated on the basis of a perpetual income, assuming that such revenue is constant or increased at a constant rate.

Brands supported by strong customer loyalty, may be visualized as a kind of an annuity, since, mathematically, an annuity is a series of equal payments made at equal internals of time. Brands backed up by the loyalty of hard-core customers offer strong probability of having steady long –term incomes. Great care must be taken to estimate as much correctly as possible, the future cash flow likely to emanate from a strongly positioned specific brand. A realistic present value of a particular brand having strong loyalty of customers can thus is obtained from summation of discounted values of the expected future incomes from it.

The DCF model for evaluating brand values has got three sources of failure:

(i) Anticipation of cash flow,

(ii) Choice of period, and

(iii) Discounting rate.