The value of nostalgia explained

Nostalgia - an incredibly powerful feeling, but also a potential money-making machine as the runaway success of childhood brands so often shows. Many brands have come to realise the potency of nostalgia and the potential value it can add to their brand - both in terms of upping the numbers when it comes to mergers and acquisitions, and in terms of using it as a weapon in commercial litigation.

In the cut and thrust of retail and consumer-focused businesses, lawyers that act for these big brands need to be able to unlock the power of nostalgia and use it to their client’s advantage. In some mediums, nostalgia allows a company to get ahead in their market by diversifying that target market. An example would be Lego - long considered a children’s toy with little to no appeal to adults, it has turned things around in recent years by producing products themed around films with cult followings of older fans, such as Star Wars and Indiana Jones. The business can then tailor two separate marketing schemes, aiming one at the older fans and one at younger children, to maximise their profit. This is clearly working - in 2011, Lego’s Minifigures and Star Wars ranges were the top two best-selling toys in the UK.

But a business strategy can go beyond the end goal of expanding profit - and when a potential sale or merger is on the cards it of course makes good sense for these brands to tap into all the marketing strengths they can to get the business in the best possible position before negotiations are entered into. For example, brand valuation experts will often be appointed to value the brand of a business that is either being sold or is looking to acquire a competitor, and the outcome of this exercise will be utilised by lawyers looking to leverage the best deal for their clients.

Brand valuation requires the ability to quantify the value earned purely from the brand (defined as a combination of intangible assets including trademark, copyright, design rights etc depending on the specific brand in question). Brands are valued in accordance with accounting standards; both International Financial Reporting Standards and US Generally Accepted Accounting Principles, and they require brands to be valued or considered to be valued on three different bases: income, market and cost. The income methodology discounts future economic income to a current day value, the market methodology looks at market multiples based on market participants and market transactions and the cost basis considers the cost to replace or recreate.

Nostalgia can add significant value to brands that have the opportunity to tap into the heritage of the brand, consider Hornby trains, Fuzzy Felt celebration cards, Corgi models, Harley Davison, Mini, Fiat 500, Volkswagen Beetle, Routemaster buses, retro styling of digital radio brands, Pan American airline bags, vinyl records etc.

Nostalgia is certainly coming back into fashion, especially as retro or vintage elements are combined with successful digital products such as the overnight success Instagram, the photo sharing app. It was started as a way for iPhone, and now Android, users to be able to give their modern digital photos a retro feel as though they had been taken using a Polaroid camera. The idea has proven incredibly successful - with Facebook recently purchasing Instagram for $1bn. But as nostalgia becomes a more powerful bargaining commodity, so too does the likelihood of legal disputes arising over the ownership of that ‘vintage’ feel - does Polaroid have a stake in the success of Instagram, for example, and should it be fighting for that, given the parallels between the effect both products have had?

Knowing the value of what you are fighting for is crucial for litigators locked in battles over brand or intellectual property issues. The power of nostalgia can seem unquantifiable but the use of experts who specialise in putting a value on intangible assets such as the nostalgic power that a brand can hold will help forward your case immeasurably and help provide commercial certainty to back up your legal arguments.

Stuart Whitwell is joint managing director of a brand valuation consultancy Intangible Business Ltd