Concept Of Cost Based Approach Of Brand Valuation
The actual sum of money spent to create a brand is analyzed under the cost based approach of Brand Valuation. This is a valuation approach that estimates brand value based on the cost incurred to create the item.
It is not easy to segregate and compute all historical expenses incurred in creating the brand but it is often possible to identify external marketing expenditures including promotional expenditures. The subsequent task is to adjust these expenditures for inflation.
This valuation approach is often a greatly conservative estimate of the brand value since the cost approach does not factor all expenditures incurred in creating the brand.
Labor expenses and other overheads might not be identifiable with any brand building or its maintenance. But still, it is feasible to value a brand on the basis of what it actually costs to create or re-create.
Complexity in valuing as per cost incurred is that many a times when building a brand, a big part of long-term investments cannot be traced from advertisement layouts.
It lies on steps like Quality Control, accumulated knowledge, specific expertise, involvement of personnel