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Brand Value
Measurement
Submitted To:
Prof. Govindrajan
Submitted By:
Meghna Singh U108085
Sujit Kumar Sahoo U108111
Table of Contents
Executive Summary....................................................................................................3
Interbrand Model........................................................................................................5
Approaches to brand valuation....................................................................................5
Research-based approach.......................................................................................5
Financially driven approaches..................................................................................6
Justification for using Interbrand model.........................................................................7
Measurement of Brand Value........................................................................................8
Research-based approach...........................................................................................8
Financially driven approach.......................................................................................9
Findings and Recommendations...................................................................................11
References..............................................................................................................12
References
Executive Summary
The objective of this phase of the project is to measure the Brand Value for the brand
“Dove”.
In the last quarter of the 20th century there was a dramatic shift in the understanding of the
creation of shareholder value. For most of the century, tangible assets were regarded as the
main source of business value. The market was aware of intangibles, but their specific value
remained unclear and was not specifically quantified. Even today, the evaluation of
profitability and performance of businesses focuses on indicators such as return on
investment, assets or equity that exclude intangibles from the denominator. This does not
mean that management failed to recognize the importance of intangibles. Brands,
technology, patents and employees were always at the heart of corporate success, but rarely
explicitly valued. Their value was subsumed in the overall asset value.
The increasing recognition of the value of intangibles came with the continuous increase in
the gap between companies’ book values and their stock market valuations, as well as sharp
increases in premiums above the stock market value that were paid in mergers and
acquisitions in the late 1980s. Today it is possible to argue that, in general, the majority of
business value is derived from intangibles. Management attention to these assets has
certainly increased substantially.
The brand is a special intangible that in many businesses is the most important asset. This is
because of the economic impact that brands have. They influence the choices of customers,
employees, investors and government authorities. In a world of abundant choices, such
influence is crucial for commercial success and creation of shareholder value.
Brand Value is the amount that a brand is worth in terms of income, potential income,
reputation, prestige, and market value. Brands with a high value are regarded as considerable
assets to a company, so that when a company is sold a brand with a high value may be worth
more than any other consideration.
There are a number of techniques that are used to measure the value of a brand. The model
that has been used in this report is the Interbrand Model. Two approaches of the model have
been used:
We have used the Inter Brand Method because it is the most objective of all the methods, as
well as it factors in subjective methods.
1) It uses Discounted Cash Flow Method to find the Net Present Value of the Brand, this is
the most objective measure.
2) It considers BRANDING INDEX – which measures the role of the brand in attaining cash
flows.
3) It also considers BRAND STRENGTH – a function of leadership, stability, market
condition, internationality, trend, support and protection.
However the drawback of the method is also the subjectivity part of the Valuation.
The brand is a cash cow for Unilever as Dove is the market leader in a stabilising market
(personal care). The amount of invested in branding should be restricted owing to its high
differentiation (Branding Index of 68.74%) and stable cash flow. There is scope for brand
stretch into similar need qualifying products. Due to the financial size of the brand, its
Brand Value Measurement: DOVE Page 4
Brand Value Measurement
marketing decisions should be taken considering it as a separate brand rather than being a
part of the Unilever brand portfolio. In case of a merger attempt the brand’s value of 1.485
Billion euros will act as deterrent for hostile suitors. Dove should establish brand value
scorecards based on EVA, Brand earnings, role of branding index and brand strength which
are the drivers of brand value to provide focused and actionable measures for optimal brand
performance.
Interbrand Model
Financial values have to some extent always been attached to brands and to other intangible
assets, but it was only in the late 1980s that valuation approaches were established that could
fairly claim to understand and assess the specific value of brands. So to arrive at an
authoritative and valid approach, a number of brand evaluation models have been developed.
Research-based approach
As an asset, a brand is a symbol of the expected future profits of a company; the problem is
how to determine the earning power of a brand. Its set of criteria, chosen subjectively,
includes the business prospects of the brand and the brand’s market environment, as well as
consumer perceptions.
• Market: 10% of brand strength. Brands in markets where consumer preferences are
more enduring would score higher. So for example, a food brand or detergent brand
would score higher than a perfume or clothing brand, because these latter categories
are more susceptible to the swings of consumer preference.
• Stability: 15% of brand strength. Long-established brands in any market would
normally score higher, because of the depth of loyalty they command. So for
example: Rolls Royce would score higher than Lexus.
There are a number of methods which use this approach like Cost-based approach,
Comparables, Premium price, Economic use etc.
We have calculated Brand value by using the Net Present Value technique:
Brand value is the net present value (NPV) of the forecast brand earnings, discounted by the
brand discount rate. The NPV calculation comprises both the forecast period and the period
beyond, reflecting the ability of brands to continue generating future earnings. This
calculation is useful for brand value modelling in a wide range of situations, such as:
We have used the Inter Brand Method because it is the most objective of all the methods, as
well as it factors in subjective methods.
1) It uses Discounted Cash Flow Method to find the Net Present Value of the Brand, this is
the most objective measure.
2) It considers BRANDING INDEX – which measures the role of the brand in attaining cash
flows.
3) It also considers BRAND STRENGTH – a function of leadership, stability, market
condition, internationality, trend, support and protection.
The Interbrand model uses a formula based approach at arriving at a brand value. The
Interbrand formula approach is based on the financial reports of the company. The three
year weighted average of PAT is an indicator of brand profitability. Profitability is taken as a
function of all the factors which constitute the brand’s identity. This approach allowed the
use of the publicly listed financial statements to be used for the calculation of brand value.
This approach is useful, part, because it’s a step closer to putting a financial value on the
brand—in fact, Interbrand uses its brand ratings to determine a multiplier to apply to
earnings. The Interbrand model of brand strength - part of their valuation methodology - is a
useful framework to consider the performance of your own brand. A brand manager can
reflect on these seven points and would get a better sense of the strength of the brand, as well
as some ideas on how to move forward by answering the following questions:
Research-based approach
Score
Implication & Maximum for Score for Score
Factors Explanation Score Dove Garnier for Lux
Total 100 80 69 55
Weighted Average of profit for the last three years= 0.1449 billion euros
1) Unilever Company Turnover was taken from the financial data from the company
website.
2) The Total Turnover was given for the year from 2004 to 2008. The turnover for the
years from 2009- 2013 was forecasted using the excel formula, which is a good
statistical estimate without considering any macro-economic factors. One of the
shortcomings of this method is that it is purely a statistical value and it doesn’t factor
in Macro-economic factors.
4) According to one of the Unilever Presentations also found (from the company
website), top 25 brands of Unilever contribute 75% of the total turnover of Unilever.
One of the top 25 brands is Dove.
6) All the other financial data has been derived from the Balance Sheets of Unilever (ie
cost of sales, admin expenses etc).
8) The NoPat has been calculated from the balance sheet, (corresponding figure for
Brand Dove has been calculated).
9) Wacc = 8% (derived from Internet sources for Unilever, assumed to be uniform over
the years.
10)Role of Branding Index has been calculated in the attached excel sheet. The drivers
for the demand of Dove has been considered and what effect does the brand play in
the corresponding driver has been taken from our second part of the project ( Brand
Equity part ).
11)The discounting rate has been assumed to be 6.2% based on the Brand Strength score.
For Example (if 66% strength, Discounting Rate =7.4%, for 80% strength,
Discounting Rate=6.2%, assumed).
12)The Net Present Value of the Brand in 2009 has been calculated ( from 2009-2013).
13)The Net Present Value at terminal has been calculated (with a forecasted long term
growth rate of 1.3 %).
• The branding index is 68.74. This proves the brand is the biggest generator of cash
flows for Unilever. The brand is a cash cow for Unilever as Dove is the market leader
in a stabilising market (personal care). The amount of invested in branding should be
restricted owing to its high differentiation and stable cash flow.
• The brand also enjoys high degree of differentiation. But the brand derives it strength
not from any particular product as such but the entire brand portfolio. Hence there is
scope for brand stretch into similar need qualifying products.
• The brand is bigger than many big companies in Asia and Europe. Hence its
marketing decisions should be taken considering it as a separate brand rather than
being a part of the Unilever brand portfolio.
• Dove’s brand value should be communicated to the capital markets in order to
support share prices and obtain funding for expansion plans. Hence if the brand wants
to diversify into new products or areas the brand value will be able to fund the plans.
• In case of a merger attempt the brand’s value of 1.485 Billion euros will act as
deterrent for hostile suitors. Hence it should be used as such in case of such attempts.
• Establish brand value scorecards based on EVA, Brand earnings, role of branding
index and brand strength which are the drivers of brand value in case of Dove. These
will provide focused and actionable measures for optimal brand performance.
References