You already know intangibles are the difference between one brand and another. But do you know how much those intangible assets add to the financial value of your brand?

It used to be that brands were valued based primarily upon their hard assets, such as buildings, equipment, and inventory. However, in the last several years, valuation has changed in favor of intangibles, such as intellectual property, business processes, market share, and brands.

This shift is discussed in a recent article in Advertising Age by Bob Liodice, president-CEO of the Association of National Advertisers, Jez Frampton, global chief executive of Interbrand, and James Gregory, founder-CEO of CoreBrand.

They point out, as an example, that Coca-Cola’s total hard assets, according to its 2009 annual report, were $48.6 billion, yet its year-end market capitalization was $132.8 billion. The $84 billion difference “represents the value of the company’s intangible assets, largely its brands.”

In another oft-mentioned example, Volkswagen bought Rolls-Royce in 1998 for $790 million, but didn’t buy the Rolls-Royce name. BMW snapped it up for a mere $66 million. Today, BMW’s Rolls competes head-to-head with VW’s Bentley.

So how is the value of an intangible determined?

A number of methods exist, which consider everything from how much the brand has spent on marketing in the past to how much cash it might generate in the future.

Brand valuation companies such as Interbrand and CoreBrand have developed their own proprietary formulas. However, there is no universally accepted method.

Liodice, Frampton and Gregory would like to change that. They ask, “Isn’t it time for the marketing and financial communities to establish generally accepted brand-valuation standards?”

Seems like a good idea for a lot of reasons. Here are three:

• A standard would change the perception by some business managers that marketing is an investment in the future value of the brand, and not simply an expense.
• A standard would inform marketing strategy, such as the trade-off between achieving short-term cash flow vs. building long-term brand value. Discounting to drive sales would be viewed in light of its impact on brand equity.
• A standard would guide decisions to merge, acquire or partner with other brands.

Not to mention that, with a generally accepted valuation standard, CMOs would wield more power and shoulder more accountability.

Note: For more on how intangibles differentiate brands, see “Why intangibles are the more sustainable competitive advantages” and “The 9 criteria for brand essence.”