PROJECT - 2 PRODUCT & BRAND MANAGEMENT

FROOTI PART 3: BRAND VALUE MEASUREMENT

Submitted by:
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 

Bhavna Bhaswati Kiran Thakur

S. No
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TOPICS
Executive Summary Importance of Brand Valuation Rational of Selecting the Models Chip Shafer Model

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 

Punam Garu Saranya Roy

CONTENTS

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Findings of Chip Shafer Model Royalty Method Findings of Royalty Method Recommendations Annexure

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EXECUTIVE SUMMARY
PHASE- I

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In Phase- I of our project, we measured the brand image of the brand Frooti in the mango drink category, using a combination of the BAV model and laddering method. Our last findings indicated that Frooti was the market leader in the mango drink category beating off its competitors. PHASE- II In Phase – II of the project, we measured the brand equity index of the brand Frooti in the mango drink category, using Brand Loyalty, Price Premia, Brand leveragability and Brand Association parameters. Maaza was the leader in all three parameters viz. Brand Loyalty, Price Premia, and Brand Association. Frooti is the second most preferred brand among the proposed brands. PHASE- III Brand valuation is the process used to calculate the value of brands. Historically, most of a company‟s value was in tangible assets such as property, stock, machinery or land. This has now changed and the majority of most company‟s value is in intangible assets, such as their brand name or names.Over recent years, intangible assets have become more important to businesses operating in a wide variety of industries. This in turn has put a premium on being able to come up with credible ways to value brands. With high levels of competition and excess capacity in virtually every industry, strong brands help companies differentiate themselves in the market and communicate why their products and services are uniquely able to satisfy customer needs. Hence it becomes very crucial to estimate the brand value. OBJECTIVE: To measure the Brand Value for the brand Frooti. METHODOLOGY: We took two models to estimate the brand value of Frooti Chip Shafer and Relief-from-royalty method.     Total Sample Size: 22 Method of data Collection: Primary Survey Instrument of Data collection: Questionnaire through online survey Sampling Technique: Here we collected data from correspondents who were present in the survey of phase I & II. The reason to do so is because a lot of questions needed for the Shafer and Relief were already answered in our findings done in Phase I and II of the project.
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Therefore, instead of asking the same question we only asked the questions that were not repeatable. The data of repeated questions are taken from previous two phases.

CHIP SHAFER MODEL We took four parameters i.e. Reputation, Momentum, Vision and Connection to evaluate the intangible value of the brand. We interviewed twenty two respondents on the basis of our questionnaire which contained questions on the above mentioned parameters. FindingsTOTAL SCORE

After assigning scores individually for each of brand across the 4 components and assigning scores as the Shafer model, Maaza has emerged as a leader by a huge margin followed by Frooti and Slice. Maaza was the eader with huge margins in more than one component which clearly shows the strong value the brand has on the consumers.

RELIEF-FROM-ROYALTY METHOD Every brand has a power to charge premium from its customers. Some brands have
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more premiums compared to others. If a company does not own that brand then it has to pay a royalty fee for using that brand. Here we are trying to find that royalty fee of Frooti and its major competitors. In this we can get the following:   The Royalty rate of a brand is % of points scored / Total points Royalty Fees is Royalty rate as % of Total sales.

FINDINGS

The price of a 200ml tetra pack of Frooti (and others) costs Rs 12. Therefore, the sales of Frooti would be Rs 108. Hence the Royalty fees that Frooti can charge is 64.20% of 108 i.e. Rs 69.33. Similarly the royalty fees that Maaza and Slice can charge are Rs. 90.00, and Rs 20.67 respectively. Hence, we see that here also Maaza is the leader in charging a royalty fee.

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IMPORTANCE OF BRAND VALUATION

Brand valuation is the process used to calculate the value of brands. Historically, most of a company‟s value was in tangible assets such as property, stock, machinery or land. This has now changed and the majority of most company‟s value is in intangible assets, such as their brand name or names. The value of brand has been recognized for over a hundred years. John Stuart, Chairman of Quaker said in about 1900, "If this business was split up, I would give you the land and bricks and mortar, and I would take the brands and trademarks, and I would fare better than you."

Why do we need Brand Valuation?
Brands are valued for many different reasons, such as for legal disputes, strategic management, internal communications, business management, brand securitisation and M&A. Brand valuation models follow standard guidelines. Models for valuing brands follow the same principles of valuation that are used for valuing other tangible assets – economic income approach, market approach and cost approach.

Different approaches for estimating value of a brand are1. Valuation based on the aggregate cost of all marketing, advertising and research and development expenditure devoted to the brand over a stipulated period. 2. The replacement cost method 3. Gross Margin Approach: Valuation based on premium pricing of a branded product over a non branded product. 4. Valuation at market price 5. Valuation based on customer related factors such as esteem, recognition or awareness. 6. Valuation based on potential future earnings discounted to present day values 7. Royalty relief method: We assume what royalty the firm would have to pay if the brand was not owned by them as a percentage of sales

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RATIONAL FOR SELECTING THE TWO MODELS

We have selected the Chip Safer and Relief Royalty model for valuing the brand. The other methods cannot be used due to non-availability of financial data. Parle Agro is a Private Limited Company. Because of this its balance sheet is not available online. Keventer Agro a Limited Company is a full fledged franchisee for Frooti and few other Parle brands. It manufactures, packages, distributes and markets Parle‟s Frooti. Though Keventer is a Limited Company, its balance sheet is not available on its website. It says it‟s under construction. Hence, by using Chip Safer and Relief Royalty model, which does not requires financial data and can be done through survey we were able to find the Brand Valuation of Frooti.

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CHIP SHAFER MODEL
Chip Shafer model is used to estimate the brand value. According to Shafer, CEO of Trajectories Grouping Irvine, California; only a third of Fortune 500 company market value can be accounted for by shareholders‟ equity (assets- liabilities+ earnings). The rest is called “intangible assets,” which consists of such things as patents, intellectual property, goodwill and brands. Shafer estimates only about 5% of these intangibles are quantifiable assets such as patents and intellectual property. A majority of this 5% value is do with the expectations and perceptions about how a company will do in future. BRAND VALUATION FORMULA Formula: B = (R + M + V) C, where   

R equals reputation M equals momentum V equals vision C equals connection

Brand valuation has been broken into these four components that largely have to do with     What you‟ve done in the past What you‟re doing right now What we can expect you to do in the future How familiar we are with your brand.

The past performance components deals primarily with things that have been done to build trust in your brand.     Do we like you? Do you offer high quality? Do you deliver on your promises? Are your customers satisfied?

The present performance component attempts to determine your momentum in the market place. Shafer refers the old physics law of mass*speed= momentum. Big companies don‟t have to move too fast to have huge momentum, whereas fast-moving companies don‟t have to be big to make sizable gains in market position. The objective in this section is to determine how well you are implementing your game plan. The future, or vision component, looks not only at measures of whether customers and prospects regard your enterprise as a forward-thinking company, but more importantly, whether

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they think you have the credibility to pull off your vision of the future. “Having a clear, compelling vision based on a deep understanding of customer dynamics is incredibly important,” The fourth area concerns connection to the marketplace. It‟s more than simple awareness because it deals with familiarity, understanding of company values and the likelihood of doing business with your company. As you can see from the formula, if you score well in all three basic performance areas (past, present and future) but fail to show connectedness to customers and prospects, your brand score will suffer accordingly.

• Reputation is a measure of trust, and trust is a fundamental necessity in all human and business interactions.

• This performance component attempts to measure the momentum in the market place

Reputation

Momemtum

• The future, or vision component, looks not only at measures of whether customers and prospects regard you as a forward-thinking company, but more importantly, whether they think you have the credibility to pull off your vision of the future

Vision

Connection

• Th

• The fourth area concerns connection to the marketplace.

PROCESS OF MEASURING BRAND VALUE   Respondents were asked questions related to the four components of this model. A comparative study was done and the brands were assigned scores in each of the component. Then by putting the formula B = (R + M + V) C , the brand value score was assigned to each of the brand.

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FINDINGS
REPUTATION

The component „Reputation’ which measures the past performance of the brand, includes questions judging the brand on its attribute i.e. taste, and brand image. Frooti is the leader, scoring 163 points followed by Maaza with 161 points and Slice with 145 points.

MOMENTUM

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On the component Momentum, there is a new leader, Maaza scoring 49points, followed by Slice with 32points & Frooti with 23points. For this particular question we asked respondent to assume the tetra pack size to be 200ml and purchase rate of the brand to be for 1 week and then we arrived at the score applying the formula of Mass * Speed = Momentum. This component was included to have an idea of how strong the brand is doing in terms of actual and potential sales in volumes. VISION

On the Component Vision, Maaza is way ahead of the three brands. This component included questions like brand‟s ability to innovate and keep consumers interested and anxious to have something new and their willingness to recommend this brand to family and friends. Here Maaza emerged as the leader with 104 points, followed by Frooti with 79 points and Slice with 45 points.

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CONNECTION

This was the last component to judge the familiarity of the consumers that they had with the brand and the willingness to get associated with the brand. This was to basically judge the kind of trust the consumer showed on the brand and the level of knowledge the consumers had about the brand. Here Frooti slightly edged Maaza as the leader of the pack with 56 points followed by Maaza with 54 points and Slice with 24 points.

TOTAL SCORE

After assigning scores individually for each of brand across the 4 components and assigning scores as the Shafer model, Maaza has emerged as a leader by a huge margin followed by Frooti and Slice. Maaza was the eader with huge margins in more than one component which clearly shows the strong value the brand has on the consumers.

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RELIEF-FROM-ROYALTY METHOD
(Also, known as royalty savings method) The relief-from-royalty method determines the value of an intangible asset by reference to the capitalised value of the hypothetical royalty payments that would be saved through owning the asset, as compared with licensing the asset from a third party, where you have to pay a license free. It involves estimating the total royalty payments that would be needed to make over the asset‟s life, by a hypothetical licensee to a hypothetical licensor. Royalty rates are typically applied as a percentage of the turnover expected to be generated when using the asset. HOW TO GO ABOUT IT The turnover is calculated on the basis of no of brands the correspondence buys. This is question 1 in the „Royalty Method‟. In the subsequent question 2,3, 4 the brands are answered on a scale of „yes and no‟. They gather maximum point of 3x1=3 The 5th question gives us maximum point of 5x3=15 Therefore, the maximum a brand can gain in total is 15+3 = 18 From the above,  The Royalty rate of a brand is % of points scored / Total points  Royalty Fees is Royalty rate as % of Total sales. How to calculate: (The below data is only given as an example and does not represent the actual findings) Royalty Rate:    Total points scored by Frooti = 5 point All total points = 18 Royalty rate of Frooti = (5/18)*100 = 27.77%

Total Sales  As per the correspondents if 10 persons prefer to buy Frooti and a 200ml pack of Frooti comes for Rs.12.  Therefore, total sales is 10x12 = 120

Royalty Fee
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Royalty Fee of Frooti = 27.77% x 120 = 33.32%

FINDINGS

Out of the 22 respondents, 9 of them preferred Frooti over other brands. The maximum points that an individual can give is 18. Therefore the maximum score Pepsi can that Pepsi can obtain is (9*18) 162. Therefore royalty rate of Frooti = (104/162)*100 =64.20% Similarly the royalty rate for Maaza and Slice are75.00% and 57.41%respectively.

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There are 9 users of Frooti. The price of a 200ml tetra pack of Frooti (and others) costs Rs 12. Therefore, the sales of Frooti would be Rs 108. Hence the Royalty fees that Frooti can charge is 64.20% of 108 i.e. Rs 69.33. Similarly the royalty fees that Maaza and Slice can charge are Rs. 90.00, and Rs 20.67 respectively. Hence, we see that here also Maaza is the leader in charging a royalty fee.
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RECOMMENDATIONS

RECOMMENDATION 1: Frooti should concentrate on improving its distribution Network Rational 1 According to the Shafer Model we see that Frooti is the highest in reputation and connection. This means that consumers have very high esteem towards Frooti as compared to its competitors also they connect more to Frooti than Maaza and Slice. This indicates given a choice maximum consumers would buy Frooti. How ever, the momentum of Frooti is the least. This strongly indicated that there are some problems regarding the distribution network of Frooti Rational 2 Also, as per Royalty method the purchase rate of Frooti is lesser than Maaza.

RECOMMENDATION 2: Frooti should be more innovative and have broader brand values. Should not strict itself to narrow brand values. Rational 1 In the Shafer model its seen that Maaza has higher Vision than Frooti. This means consumers think Maaza to be more innovative as a brand. This gives Maaza better leveragability than Frooti. Rational 2 Also, as per Royalty Method Frooti is the least in innovation.

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Annexure
SHAFER MODEL QUESTIONNAIRE 1. Rate the following brands in terms of the attribute TASTE. (5 being the highest 1 being the lowest) (This is a measurement of Reputation) a. Maaza b. Frooti c. Slice 2. Rate the following brands in terms of its brand image? (5 being the highest and 1being the lowest) (This is a measurement of Reputation) a. Maaza b. Frooti c. Slice 3. How many packs of mango drinks out of the following brands do you consume in a week? (Pack size: 200ml tetra pack) (5 being the highest 1 being the lowest) (This is a measurement of Momentum) a. Maaza b. Frooti c. Slice 4. Rate the following brands according to their ability to diversify to other areas and products. (5 being the highest 1 being the lowest) (This is a measurement of Vision) a. Maaza b. Frooti c. Slice 5. Which of the following brand would you recommend to others? (This is a measurement of Vision) a. Maaza b. Frooti c. Slice d. None of the above 6. Match the taglines: Write the corresponding serial number against the correct tag line: 1-Frooti 2-Slice 3-Mazza (This is a measurement of knowledge i.e connection with the brand) a. Pure Mango Pleasur
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b. Amm ki Pyas Bujao c. Fresh „n‟ Juicy

ROYALTY METHOD QUESTIONNAIRE 1. Which of the following brand of mango drinks would you buy? a. Maaza b. Frooti c. Slice d. Others

Following questions are related to the brand that you have selected to buy in the previous question. 2. Would you continue to buy the brand even if it is not easily available? a. Yes b. No 3. Would an increase in price become a barrier in purchase? a. Yes b. No

4. Would a reduction in promotions of your chosen brand affect your purchase consideration? a. Yes b. No 5. Rate your brand according to the given parameters. (5 being the highest 1 being the lowest) a. Taste b. Innovation c. Leadership

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