A report submitted to Prof.
Product and Brand Management
By Lakshya Chawla(DM14232) Rashika Binani (DM Sudeep Saini Karthik Bhandary
…………4 Brand Value Measurement – Interbrand Model ………………………..…………………….….………………………….5 Measurement of Brand Value……………………………………………………..……... 3 Defining Brand Valuation…….… 6-8 Recommendation…………………………………………………………………..…….…...……………………………………….…………………………………..……………………………………..………….….……………………………..………………………………….Table of Contents
Executive Summary…………………………………………………..………… 19 -22 Annexure………….. 4 Brand Valuation Approaches.………………… 32
.…………… 23-31 Reference………….……………….….
The CAGR which was used to forecast the future cash flows was assumed by analysing industry reports. role of the brand in the purchase decision and strength of the brand to ensure expected future earnings. This enigma was resolved when experts came up with the theory that the brands have an inherent value of their own.
. Brand valuation is the process in which the total financial value of the brand is estimated. Dell on the other hand must go for an aggressive brand building campaign to differentiate the brand DELL from its products. There are several methodologies that are used for brand valuation but there is no universal methodology that can be used for the valuation of all the brands. The annual report of the three companies were analysed to create a model that will give us the estimated economic profits for the next five years as well as till perpetuity.23 million and DELL stood at meager USD 557. To calculate the role of branding index and brand strength score a survey was undertaken with the help of questionnaire and with a sample size of 50. For the purpose of our research.484 million. This time period was the birth period of the concept of the brand valuation.83 million while IBM was the leader with USD 39980.Executive Summary
During the 1980’s there was spate of mergers and acquisitions wherein a trend was observed that the acquiring companies were paying over and above the book value of the acquired company. financial performance of the organization. Interbrand’s method measures brand value under three pillars viz. IBM should continue with its innovative policies as well as its strategic acquisition policies and incorporate the brand in its operational execution and decision making. a variation of this method was used to estimate the value of the brand HP and two of its competitors (IBM and DELL). From this exercise we recommend that HP should emulate the strategies followed by IBM. HP was valued at USD 23980. The brand value was calculated by multiplying the economic profit or the intangible earnings and subsequently discounting it with the discounting rate derived from the brand strength score. Interbrand’s brand valuation method comes the closest to being a standardised method to value brands.
loyalty. Reason for not choosing comparable approach: Comparable approach is very difficult as the reason for the existence of a brand is to create differentiation and thus there is no comparison possible.
Financially driven approach
1. Also for very old brands like Coca cola which has been in existence for over 100 years. It has been used in more than 3. Comparable Approach
Another approach of valuing a brand is on the basis of comparison.
4. The economic use approach. Reason for not choosing Price Premium approach: Most brands are intended not only top charge a premium but also to secure future cash flows for the company by generating demand. advertising cost.
3. Cost based approaches
This method defines the value of the brand as all the cost incurred to bring the brand to the current state. The values associated with the product or services are communicated through the brand to the consumer.
. This is a flawed method for products which do not have generic competition to which the premium price can be compared. Economic use approach
Approaches that are driven exclusively by brand equity measures or financial measures lack either the financial or the marketing component to provide a complete and robust assessment of the economic value of brands. etc.500 brand valuations worldwide. In return businesses will enjoy an earnings stream secured by loyalty of customers who have ‘bought into’ the brand. The value of the brand is thus defined as the net present value of the future earnings generated by the brand. sales cost and other promotional cost etc. The value generation of these brands is in securing future volumes rather than securing premium prices.Why are brands valued?
Companies are increasingly recognizing the importance of brand guardianship and management as key to the successful running of any business. calculating this cost would not be possible. This is the sum of the developmental costs. Reasons for not choosing Economic use approach: Doesn’t consider important aspects like market share. Price Premium approach
It is the value calculated as the net present value of the future price premiums that the brand can generate over unbranded and generic competition. which was developed in 1988. Consumers no longer want just a service or product but a relationship based on trust and familiarity.
2. marketing cost. combines brand equity and financial measures. Reasons for not choosing cost based approaches: This is not a very accurate method for valuing a brand because there is no direct relation between the costs incurred and the value added to the brand. and has become the most widely recognized and accepted methodology for brand valuation.
This is the most adopted respected economic use approach and thus it forms the basis of our work in this part of the project • Brand’s function to create cost synergies • Brand’s function to generate demand for the product and services Brand’s function to secure future demand and therefore reduce operative and financial risks. Inter brand valuation method uses Brand Role Index which is a percentage of super loyal customers.
Inter-brand approach is on the following 3 economic functions.COGS .Indirect Expenses •Capital Charge = Industry WACC
ROLE OF BRAND
•Measures that portion of the decision to purchase that is attributal to the brand. It is reported on a 0-100 scale where 100 is perfect based on evaluation across 10 dimentions of Brand Activation
Justifications for choosing Inter-Brand Valuation Methodology: Inter-brand valuation uses discounted cash flow in order to calculate brand value.Inter-brand Brand Valuation Methodology
•Measures the organisation's raw financial return to its investors •Operating Profit = Net Revenue . DCF is a better method of calculating Brand Value. This is exclusive of other aspects of the product like price or feature
•Measures the ability of the brand to secure the delivery of the expected future earnings. This method takes into account all of the many ways in which a brand touches and benefits its organization from attracting and retaining talent to delivering on customer expectations. Inter brand valuation considers Brand Strength score to calculate Discount rate which is further used to calculate future cash flows. The brand
. Inter-brand method looks at the ongoing investment and management of the brand as a business asset.
the market share of Mercedes & its competitor was considered.80
Protection (5%) 5 5 5 5 5
Market (10%) 5 5 5 5 5
Support (10%) 10 10 10 10 10
Total 89.94 15
Profitability (10%) 9. There are 3 key aspects that contribute to the assessment. BMW having the highest market share scored the maximum in Leadership.29 5.99 2.66 12.54 38.23 13. A market leader is more valuable: being a dominant force and having strong market share matters.78 11.23 58.78 1.56 25 21.11
Stability (15%) 12.
. This was done to find out the role of branding index and the brand strength score
Calculation of Brand Strength Score
The Interbrand model of brand strength – part of their valuation methodology – is a useful framework to consider the performance of your own brand.83
Geographical spread (25%) 23. Reflect on these seven points and you should get a better sense of the strength of your own brand. To come up with the leadership scores. • For the purpose of the research a questionnaire was designed and 50 respondents were surveyed.51 2. The share of market leader was taken as base and weights were assigned to all the 5 cars (market shares of USA were considered). as well as some ideas on how to move forward
Leadership (25%) Mercedes BMW Jaguar Porsche Audi 23.79 6.81 58.
Measurement of brand value
(For detailed workings please check the excel sheets attached) • A variation of the Inter-brand brand valuation model was used to calculate the brand value of Mercedes and its competitors.46 92.value obtained can be used to guide strategic brand management so that the businesses can make better and more informed decisions.76
Leadership: 25% of brand strength.25 11.99 25 1. the financial performance of the branded products and services.24 10 1. the role of the brand in the purchase decision process and the strength o the brand.
So for example. all the brands scored full score in Support. Audi being the oldest brand got the maximum score in Stability. The brand with the maximum profit was kept as base and relative scores were calculated of the other brands. Profit trend: 10% of brand strength. Thus. we arrive at conclusion that Mercedes has a very high brand strength score of 89. but the quality of this support is as important as the quantity. BMW having the highest cumulative profits got the maximum score in Profit Trends. Brands in markets where consumer preferences are more enduring would score higher. The maximum age was kept as base and relative scores were calculated of the other brands. Long established brands in any market would normally score higher. Analysis of Brand Strength Score After summing up all the components.42. Geographic spread: 25% of brand strength. Brands which receive consistent investment and focused support usually have a much stronger franchise. Brands that have proven international acceptance and appeal are inherently stronger than regional brands or national brands. Hence. because these latter categories are more susceptible to the swings of consumer preference. To get the geographical spread scores. The high brand strength score signifies that the discount rate of Mercedes would be very close to WACC. Thus. This signifies a higher net present value of the future
. because of the depth of loyalty they command. The share of Global market leader was taken as base and weights were assigned to all the 5 cars. Securing full protection for the brand under international trademark and copyright law is the final component of brand strength in the Interbrand model. The cumulative profits of past 5 years of all the brands were calculated. the global market share of Mercedes & its competitor was considered. According to the survey the consumers feel that all the 5 cars receive consistent investment and focused support & strong franchise. Protection: 5% of brand strength. As per our survey we figured out that all the luxury car market had few consumer preferences. according to Interbrand. In this case the year of establishment of Mercedes & its competitor was subtracted from current year and the age of the brand was figured out.Stability: 15% of brand strength. All the brands scored equal score in Market. as they are less susceptible to competitive attack and therefore are more stable assets. Support: 10% of brand strength. all the brands scored full score in Protection. the market itself has a low score. BMW having the highest global market share scored the maximum in Geographical Spread. a food brand or detergent brand would score higher than a perfume or clothing brand. Market: 10% of brand strength. The long-term profit trend of the brand is an important measure of its ability to remain contemporary and relevant to consumers.
Increasing market share 3.cash flows. 2010. • The overall growth of the industry was taken from a Forrester industry report and keeping that as the base the assumed YoY growth rate for the next 5 years was arrived at.
Recommendations Mercedes should concentrate on its decreasing market share.e 89. thereby increasing the NPV of the terminal value of the brand & hence increasing the overall brand value. Market share is declining by approx 1 percent every year since the Mercedes’s market share since past 3 years has been declining by an average of 1% every year & we assume that this would continue in the future years.6%) which signifies. Mercedes should concentrate on brand strength score.
Financial Analysis External Information & Assumptions
• The annual reports of the parent companies of the 5 brands were analyzed to develop the Discounted Cash Flow model. 2011 & 2012. Increasing investments and offer more franchise support
. The brand strength score of BMW is higher than Mercedes which would increase its brand value. the figures were directly picked up from the audited financial statements. The future market growth rate has been determined using the average of past 3 years market growth.Capital Charge = Intangible earnings Intangible Assets*Role of Branding Index = Brand Earning After calculated the discounted brand earnings for 5 years. This could be done in the following way: 1. the revenues are rising since the overall market share of the luxury car market is growing. higher number of super loyals.4%. • The cost has been considered as 76% of the revenue for the next 5 years.2009. Methodology • The discount rate is calculated as per the brand strength score Capital Employed – Working Capital = Net Plant Property and equipments • NOPAT . • For the financial years ending . The Brand Strength score is very high i. Increasing global presence 2. The market growth rate has been kept constant. terminal value(beyond 5 years is calculated) Final Brand value is calculated by adding NPV of Terminal Brand Value & NPV of discounted brand earning Analysis Despite the decreasing market share of Mercedes. Hence. higher brand value. Higher brand role index(74. which signifies lower discounted rate leading to higher discounted brand earning and hence.
22.33.20% 25% 16.04.33.720
25.10.02.04.00.27.22.0 8.956 11.639
Cost of Sales
YEAR 2015 73.96.72.000
Selling Expenses General Administrative Expenses
9.39.57 29.20% 24% 17.06.027
81. as a higher brand role index would help in increasing their overall brand earnings.157 126.96.36.199.522
4. 188.8.131.52.19. 60
3.392 184.108.40.206.75.34. 808
220.127.116.11.20% 23% 18.104.22.1680
7.02.75.42.127 22.214.171.124.53.089 3.846
The brand role index is 126.96.36.1990
PARTICULARS Market (Units) Market Growth Rate Market Share(Volume) Volume
RATES IF APPLICA BLE
YEAR 2013 59.68.02.655.880
YEAR 2017 90.454.76.866
6.20% 22% 188.8.131.52.03.15.735
4. 184.108.40.206.92. Even though it’s on the higher side but Mercedes should aim for a higher brand role index.41.750
YEAR 2014 65.509
YEAR 2016 81.97.420
Brand Earnings Brand Strength Score Brand Discount Rate
71.8 8.43.320 4.9 5
95.805 220.127.116.11. 91.54.02.45.03.71.37.39.46.189
1.65.20. 58. 40
NPV of DBE Long Term Growth Rate NPV of Terminal Brand Value ( Beyond Year 5)
Discounted Brand Earnings
1.28.842 18.104.22.168.17.01.80.31.81.1 8. 50.032.11.629
Intangible Earnings Role of Branding Index