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Brand Value Measurement

Brand Value
Measurement

Submitted To:
Prof. Govindrajan

Brand [Type text] Page 1


Brand Value Measurement

Submitted By:
Meghna Singh U108085
Sujit Kumar Sahoo U108111

Swarup Kumar Kar U108112

Uday Bhanu Satpathy U108116

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

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Brand Value Measurement

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

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Brand Value Measurement

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:

• Research based Approach


• Financially driven approach

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
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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.

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Brand Value Measurement

Interbrand Model

Approaches to brand valuation

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.

Most have fallen into two categories:

• Research-based evaluations, and

• Purely financially driven approaches

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.

Interbrand’s seven core criteria consist of the following:

• 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.

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Brand Value Measurement

• Leadership: 25% of brand strength. A market leader is more valuable: being a


dominant force and having strong market share matters. So for example on this score,
it is likely that the Coca-Cola brand would out-perform Pepsi on a global basis.
• Profit trend: 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,
according to Interbrand.
• Support: 10% of brand strength. Brands that receive consistent investment and
focused support usually have a much stronger franchise, but the quality of this
support is as important as the quantity.
• Geographic spread: 25% of brand strength. Brands that have proven international
acceptance and appeal are inherently stronger than regional brands or national brands,
as they are less susceptible to competitive attack and therefore are more stable assets.
• Protection: 5% of brand strength. Securing full protection for the brand under
international trademark and copyright law is the final component of brand strength in
the Interbrand model.

As evinced by these criteria, Interbrand takes a business-oriented rather than consumer-


oriented view of brand. This model is not perfect. For example, several of the components
have a built-in preference for older brands and so may not give adequate recognition to the
value of newer brands such as Amazon or Starbucks. The subjectivity of both the criteria and
assessment of the brands, however, makes the dimensions difficult to defend and affects the
reliability of the resulting measures. Moreover, the Interbrand method treats different types
of brands in the same way. For example, it treats Gillette as a single entity, even though it
has many sub-brands and extensions, and treats Marlboro, which is a single brand, by the
same rules.

Financially driven approaches

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:

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Brand Value Measurement

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:

• predicting the effect of marketing and investment strategies;

• determining and assessing communication budgets;

• calculating the return on brand investment;

• assessing opportunities in new or underexploited markets; and

• tracking brand value management.

Justification for using Interbrand model

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

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Brand Value Measurement

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:

• How do my brands currently perform?


• Does the model suggest any ways in which I could strengthen my brand?

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Brand Value Measurement

Measurement of Brand Value

Research-based approach

Calculation Of Brand Strength

Score
Implication & Maximum for Score for Score
Factors Explanation Score Dove Garnier for Lux

Is the brand a leader


in market share,
1 Leadership pricing? 25 19 15 5
Is there brand
loyalty? Does the
brand have stable
2 Stability market share? 15 12 10 7
What is the brand's
acceptance level
3 Internationality internationally? 25 23 22 20
Is the brand actively
promoted and
supported by the
4 Support company? 10 8 7 7
Is it adequately
protected by
5 Protection trademark? 5 3 2 1
Is the market in
which brand
6 Market operates stable? 10 7 7 7
What is the long
term future for the
7 Trend brand? 10 8 6 8

Total 100 80 69 55

Assumption: The segment considered is the premium products segment.

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Brand Value Measurement

Brand Strength Score for Dove: 80/100 = 0.8

Brand Strength Score for Garnier: 69/100 = 0.69

Brand Strength Score for Lux: 55/100 = 0.55

P/E for the industry is 12.

Brand Strength Score X P/E= 9.6

Weighted Average of profit for the last three years= 0.1449 billion euros

Brand Value= 1.4 billion euros

Financially driven approach

Steps Involved In Brand Valuation Calculation

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.

3) The growth rates have been calculated based on company turnover.

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.

5) So Dove Turnover=(0.75*Unilever Company Turnover/25).

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Brand Value Measurement

6) All the other financial data has been derived from the Balance Sheets of Unilever (ie
cost of sales, admin expenses etc).

7) The corresponding financials of Brand Dove has been calculated as a percentage of


the company turnover. For Example Cost of Sales of Brand Dove = (Cost of Sales of
Unilever/Turnover of Unilever)*(Turnover of Brand Dove).

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 Financial Analysis Excel Sheet has been attached below.

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Brand Value Measurement

Final Brand Valuation


sheet1.xls

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Brand Value Measurement

Findings and Recommendations

• 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.

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Brand Value Measurement

References

• Brand Valuation: A Chapter from Brands and Branding


• http://www.buildingbrands.com/didyouknow/11_brand_valuation.php
• http://brandnbranding.blogspot.com/2007/10/interbrands-brand-equity-model.html
• http://knol.google.com/k/narayana-rao-kvss/management-accounting-brand-
valuation/2utb2lsm2k7a/116#
• http://dictionary.bnet.com/definition/brand+value.html
• http://www.allbusiness.com/retail/retailers/5697711-1.html
• http://www.allbusiness.com/retail/retailers/5697711-1.html
• http://www.unilever.com/
• http://annualreport08.unilever.com/financial_statements/notes/note3.html
• http://pages.stern.nyu.edu/~adamodar/New_Home_Page/dam2ed.htm#ch12
• http://www.netmba.com/strategy/matrix/bcg/

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