Interbrand’s Brand Valuation

Model
The Brand-Valuation Technique developed by British company Interbrand Group is based on
‘earnings multiple’ which is determined by Brand Strength. The Brand Strength analysis
involves a scoring system based on seven key criteria together with their maximum scores.
The Brand Strength variables are correlated to a multiple to gauge the level of confidence of
the brand in the future. The brand multiple must then be multiplied with the brand profit to
determine the true value of the brand. The Brand Strength model is used to determine the
value of a brand based on the assumption that a strong brand is more reliable for future
earnings with less risk. Under this approach, a brand’s strength comprises of seven
variables:

Leadership: A brand that dominates the market in its category using economies of scale. 

Stability: It is etched in the consumer’s mind since its inception. 

Market: Brands in markets such as convenience food items, soft drinks and consumer
durables score high over brands in technology-driven (computers) or highly fashionable
(apparel) categories, since these markets are more vulnerable to technological or taste
changes. A brand in a stable but growing market with strong entry barriers will score high in
brand strength. Colgate-Palmolive, for instance, has got a strong foothold in the toothpaste
market making it difficult for competitors to enter.

Geographic: The value of a brand is measured in terms of its attractiveness and acceptance

in multiple markets. Making a mark internationally adds to brand strength. 

Trend: The over-all long-term trend (of the brand) is a measure of its ability to remain
contemporary and retain consumers by being relevant to their needs and wants. 

Support: The assessment of qualitative and quantitative support provided by the company

to the brand. 

Protection: The extent of legal support a brand possesses is very crucial in its assessment.
In this model first of all the unbranded profit i.e., earning that would have accrued on a
basic unbranded version of the product is eliminated and the historical profit at present day
value is restated and adjusted for taxes. To calculate the actual brand earnings the profit
attributable to other intangible associated with the business of the brand is deducted.

When the seven criteria have been considered and scored, the final figure is converted to a
multiple which is then applied to a multiple that is then applied to the net profits of the
brand.

Thus, Brand value = Earnings Multiple * Brand Profits

The first step is to calculate how much capital was employed to produce the brand. To do
this, the median ratio of capital employed to company sales must be estimated.

Perfetti India Revenues for 2009-10 was Rs 850 crores. It has 16 brands in its Indian
portfolio. Of these 80% was contributed by top 10 brands namely : Center Fresh, Center
Fruit, Big Babol, Happydent, Alpenliebe, Creamfills, Chlor-Mint, Chocoliebe, Mentos and Marbles

And among these their are three brands which sell over Rs 100 crore each: Alpenliebe, Center Fresh and
Big Babol.

So for rest 7 brands the approx sales each can be calculated as: (850x80% -300)/7 = Rs 54.2 crore

Based on the data about Perfetti Van Melle India available to us, we figured that in 2010
PVM India had invested about Rs. 250 crore in achieving a sales turnover of Rs 850 crore.
This implies a median ratio = 250/850 = 0.29. We will be using the same median ratio for the
brand Chlormint as well

Capital employed (in 2008) = (Sales * Median ratio)

= Rs. (54.2* 0.29) crores = Rs. 15.88 crores

The next step is to look how much better than generic brand this return is. A generic brand
should produce a 5 percent profit on capital employed i.e. 5% of 15.88 crore So for
Chlormint this would produce a return of Rs. 0.80 crores.
The ‘Premium Return’ is therefore = (15.88 crore – 0.80 crore) = Rs. 15.08 crores. Deducting
tax from this, a figure of Rs. 15.08 crores will be arrived at, which will be the final net
adjusted income.

Next we determine the ‘Earnings multiple’ (which is found to be within the range 4.4 to 19.3
for most brands)

Weightages assigned to the various parameters of Brand Strength, as assigned by the

Interbrand model are as follows:

Strength Maximu
m Value
Leadership 25
Stability 15
Market 10
Geographic Spread 25
Trend 10
Support 10
Protection 05
Total 100

The related questions that can be asked to determine the values for the different
parameters would be:
 Is the brand a market leader?
Leadership (25%)

How long has the brand been established?

Stability (15%)
stable than high-technology or fashion products)?
Market (10%) Is the market stable (consumer products tend to be more

Internationality Is the brand known internationally?

(25%)
Is the brand contemporary and relevant to consumers?
Trend (10%)
refreshed?
Support (10%) Is the brand well supported with investment? Is it regularly

Is the brand well protected with patents and copyrights?

Protection (5%)

The scores for Happydent, in percentage terms, across the various parameters stated above
could be assigned in the following manner:

Leadership: In the Indian context, Chlormint faces stiff competition from Mint and Polo in
the functional mint category, while it still lags behind other brands in the gum market. Our
results from Phase II have shown that it does well vis-a-vis other brands in terms of
stochastic share and operational share. A conservative score of 23 would be a realistic figure
to estimate its leadership score.

Stability: Although Perfetti entered India in 1994, the brand Chlormint was rolled out in
1997. So while calculating stability in terms of how long the brand has been established, a
score of 12 (out of 15) should suffice.

Market: It is known that consumer products generally tend to be more stable than high-
technology or fashion products. Since Brand Chlormint falls in the category of consumer
products, the market can be considered to be stable and thus a score of 10 (that is, in
percentage terms) would be accurate.

Internationality: No presence outside India the internationality score for Chlormint would
be equivalent to 0 out of a possible 25.
Trend: As far as the functional mint category is considered, Chlormint competes with
strongly entrenched brands with high awareness; the brand has also been successful in
increasing bad breath or say fresh breath awareness amongst consumers thus making
functional mint the most exciting sub-category within confectionery. This means
incremental business for confectionery players with increased relevance to the customer.
Previous results from Phase I (using the BAV model) have also shown that Chlormint scores
high on the relevance factor. A score of 10 can be attributed to Chlormint for this
parameter.

Support: The category of mints being an impulse purchase and brand parity tending towards
1, the investments in developing Chlormint as a brand has been on the higher side. A score
of 10 for this parameter will be justified.

Protection: In terms of protection with patents and copyrights, a 5-on-5 score for Chlormint
can be a safe estimate.

The scores for the Brand Strength variables as stated above, when added up would amount
to a total of 70 (in percentage terms). Now since values for Brand Strength fall in the range
4.4 to 19.3 (as mentioned earlier) and assuming 19.3 will be the value for a brand that
would score highest (=100) in terms of brand strength, Chlormint’s score of 70 would return
a value equivalent to 13.51.

Therefore, Average Score = Multiple * Brand Profits

= 13.51 * Rs. 15.08 crores

= Rs. 203.71 crores

A measure of the brand value for Chlormint as arrived at using the Interbrand model is Rs.
203.7 crores.

The Inter brand approach for valuing examines brands through the lens of financial strength,
importance in driving consumer selection, and the likelihood of ongoing branded revenue.
This methodology evaluates brand value in the same way any other corporate asset is
valued – on the basis how much it is likely to earn for the company in the future.