Businesses have known for hundreds of years that there’s value in a trademark: the shape of a Coke bottle, the swoosh on a Nike shoe, the McDonald’s golden arches. Just how much value, however, has been hard to pin down.
While it costs only a few hundred dollars to register a name, symbol, or other device to identify a product or service in the United States, getting it just right can be worth plenty. To be precise, it can be worth $22.5 million for the median trademark, according to Nova School of Business and Economics’ Pranav Desai, Ekaterina Gavrilova, Rui Silva, and Margarida Soares.
Collectively, the production of assets that are trademarked annually in the US account for about 3 percent of total assets per company studied, or roughly $128 million, the researchers estimate. Moreover, they find, companies that create trademark output tend to subsequently launch more new products, expand sales, invest more in physical capital, hire more people, increase production, generate more profits, and take greater market share.
Trademarks, along with other intangible assets such as patents and trade secrets, have become a significant source of economic value, despite the challenges associated with how to account for them. According to US generally accepted accounting principles, their fair value is tested and reassessed annually, but that involves plenty of subjectivity. Moreover, traditional accounting methods that are based on costs of producing the assets or based on aggregate measures have understated the value of trademarks, write the researchers.
They modeled a new system for valuing trademarks based on the stock market reaction to individual trademark registrations. Starting with data from the US Patent and Trademark Office, the researchers linked 1.3 million trademarks to nearly 19,000 publicly traded companies. They then tapped into market data to determine the reaction to trademark registrations. Their analysis tracked outcomes for companies from 1961 through 2021 for trademarks registered up until 2016.
The researchers also used NielsenIQ Retail Scanner Data from Booth’s Kilts Center for Marketing to study how trademarks affect product dynamics. They compiled data on sales, quantities, and prices for each product in the database between 2006 and 2020 and investigated the impact of trademarks on product sales, launches, retirements, prices, and quantities sold.
Their analysis yields evidence of two sources of trademark value: product innovation and product differentiation. Companies that registered more trademarks filed more patents, and vice versa. “We find that valuable trademarks are associated with subsequent introduction of new products, increases in market share, and increases in quantities sold,” the researchers write. However, trademarks were also associated with more product obsolescence, which suggests companies filed trademarks as they refreshed their offerings. And when they filed trademarks for products already on the market, prices and sales tended to rise.
The researchers demonstrate that trademarking activity increased twelvefold to more than 2.5 million US applications between 2011 and 2021, from 208,000 between 1971 and 1980. The surge applied to businesses in almost all industries, they find. But trademarks appeared particularly valuable in industries where consumers had many similar product options. “In these industries, having a trademark may allow a firm to differentiate its products in the eyes of potential consumers,” the researchers write.
Ultimately, trademarks have value because they improve a company’s performance, the research suggests. In general, a 1 standard deviation increase in trademark output led to an almost 2 percent increase in profits, calculate Desai, Gavrilova, Silva, and Soares. For the median company in the sample studied, this amounted to $2 million in higher profits.
Pranav Desai, Ekaterina Gavrilova, Rui Silva, and Margarida Soares, “The Value of Trademarks,” Working paper, November 2022.
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