The Efficacy of the Applications of Valuation Methods in Indian Scenario

8/7/2019 The Efficacy of the Applications of Valuation Methods in Indian Scenario

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The Efficacy of the Applications of Valuation Methods in Indian Scenario

Corresponding Author: Rajdeep Bakshi

Affiliation:

1. Adjunct Faculty Member , International Institute of Business and Media Kolkata,Saltlake 700 091

2. Guest Faculty Member, School of Management Sciences, BESUS3. Guest Faculty Member, St Xaviers College, Department of Commerce, Kolkata4. Guest Faculty Member, J.D. Birla Institute of Management, Kolkata

email:[email protected],

Phone: +91 94331 01364

Professional Biography:

Rajdeep Bakshi is an M.Phil (Business Administration), M.B.A. (Marketing), MIIM which is

recognized as equivalent to B. E. in Metallurgy and B.Sc. (Honours in Mathematics). He is a

professionally qualified member of the All India Management Association and The Indian

Institute of Metals. He has published articles in various national and international journals

and his research area include brand valuation and management. Currently he is currently

involved in teaching Marketing Research and Brand Management as an adjunct faculty

member at International Institute of Business and Media based at Saltlake Kolkata. He is

also a Guest Faculty Member at the School Of Management Sciences, Bengal Engineering

and Science University and St Xaviers College, Department of Commerce. Apart for this he

has also taught Marketing Research, Brand Management as senior faculty member on a full

time basis at various national level institutes like BESUS, CMS JIS Colllege of Engineering,

Department of management and social sciences HIT Haldia and Department of management

Sciences of SMIT a constituent college of the Sikkim Manipal University of Health Medical

and Technological Sciences. H has also worked as senior manager (brand management) in a

leading corporate house based at Kolkata. He has provided consultancy services to leading

corporate houses like Tata Steel which have been well appreciated. Presently he has

successfully completed his doctoral research on brand valuation leading to the Ph.D. degree

in business management of BESUS.
mailto:[email protected]:[email protected]


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Abstract

The paper attempts in a modest way to reflect the utility of brands in contemporary Indian

market focusing attention on the need for brand valuation in the Indian scenario. The review

of secondary data, show the high transfer prices that brands have commanded in the Indian

market. In this paper the techniques of brand valuation practiced worldwide have been

summarized by clubbing them under two approaches viz. the company and the consumer

oriented ones, in the process the benefits and disbenefits of these methods have been

highlighted. During the further progress of the study a two stage research design was adopted

and first hand data was collected from the Kolkata market, as a representation of the Indian

population, from the customers of selected brands of apparels, mustard oils, hospitals and

beauty soaps. The data collected both from the stage one and two have been treated through

the technique of content analysis and factor analysis to arrive into a cycle that has been

named as the positive virtuous cycle of brands and a set of six factors have been identified

respectively. These factors are the basis on which the Indian consumers evaluate brands

leading to consumers trust and love for their preferred brands. Brands foundations are built

on the basis of these factors thus are important for better managed brands.

Key Words:- Brand Equity ~ Brand Valuation ~ Utility and Applicability of Brand

Valuation~ Financial values commanded by brands ~ Brand Valuation Methods currently

adopted~ Operational definition of brands ~ Positive virtuous cycle of Brands ~ Factor

Analysis ~ Hexagonal structure showing brand value contributors

Category: - Research Paper


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01 Introduction

In the days of the post liberalization of the economy the Indian markets are getting flooded

with competitive offerings with little tangible differences. The tangible benefits offered in

products in products are no more sufficient for giving the company the competitive edge as

they are easy to copy forcing the concept ofunique selling proposition1(Reeves, 1961)is in

the pages of history. The marketers are thus compelled to maintain differences in terms of

intangibles. A brand helps the company to add the intangible component in the companys

offerings. But brand building is not easy, as it involves both time and cost. Moreover

brands are known to occupy distinct place in the minds and the heart of the customer. Usually

a brand on becoming older gains strength. But mature markets, with intense competitive

pressure, does not allow the marketer sufficient time for building brands. Thus the marketer,

in an urge for reaping the benefit of mature market, buys and adopts brands of others.

Purchasing others brand may be easy for a company, but to holding the brand in the right

place in the consumers mind even more difficult. Typically the Indian consumers are known

for their sensitivity towards price, they search for products that provide value for money,

making the job for the marketers attempting an entry in consumers purchase basket difficult.

Thus there is also the need for proper management of brands in the Indian settings. To

manage the brand properly, it is indeed needed to know the foundations on which brand

management rests in the Indian soil. Again as buying off brands is always at a price, the issue

becomes how to arrive at a fair price at which brands can be purchased or sold, so that both

the buyer and the seller of brand can benefit. Worldwide, there are several methods that are in

commonly in use for the determination of the transfer price of brands. The methodologies of

some of these methods are known to the public, whereas the others being proprietary in

nature, very little is known about their working methodology. Moreover, there have been

very few attempts that have been put up by various researchers across the world to include

these methods under one umbrella. This paper attempts in a modest way to identify such

foundations for brands.

1 Reeves, R., (1961),Reality in Advertising, New York, Knopf


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02 Objectives

The study attempts to elucidate the following objectives

2.1 Summarizing the existing methods of brand valuation and identifying their

benefits and disbenefits.

2.2 Identification of the factors on the basis of which the Indian consumers evaluate

brands

03 Review of Literature

The review of the literature relating to brands and their valuation has shown the following

facts-

3.1 Brands definitional issues

Brands have been defined by various contributors and institutions differently with

convergences in opinion a few of them are listed in the Table 1 below-

Table 1

Definition of Brands

NAME DEFINITION OF BRAND

American

Marketing

Association2

Name, term, sign, symbol, or design, or a combination of them, intended

to identify the goods and services of one seller or a group of sellers and

differentiate them from those of competitors.

The Dictionary

of Business and

Management3

A name, sign or symbol used to identify items or services of the seller(s)

and differentiate them from the goods of competitors.

Landor4

Simply put, a brand is a promise. By identifying and authenticating a

product or service it delivers a pledge of satisfaction and quality.

Shore5

Branding is ultimately about being in the trust business. A power brand

only exists when consumers know that they can trust in the promise of

the brand

2Cited in: Wood, L., (2000), Brands and Brand Equity: Definition and Management,

Management Decision, Vol. 38, No. 9, pp 662 - 6693

Cited in: Keller, K. L., (1998), Strategic Brand Management: Building, Measuring

and Managing Brand Equity, New York, Prentice Hall4

Cited in: Weinberg, G. S., (2003), The Price to Pay For Peace: Corporate Language

and Culture at A South African University Language Matters, Vol. 34, No. 1, pp 57 -

715 Available at: www.creativityatwork.com/Newsletters/Jan03Brand-equity.html - 45k


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NAME DEFINITION OF BRAND

Keller6

Whenever a marketer creates a new name, logo or a symbol for a new

product, he or she has created a brand

Leuthesser7

A brand is a products additional value (for its customers) compared withwhat would be the value of another identical product without the brand

de Chernatony8 A successful brand is an identifiable product, service, person or place

augmented in such a way that the buyer or the user perceives relevant,

unique, sustainable added values which match their needs most closely.

Marketing

Science

Institute

9

The brand is the strong, sustainable and differentiated advantage with

respect to competitors that leads to a higher volume or a higher margin

for the company compared with the situation it would have without thebrand. The differential volume or margin is the consequence of the

behaviour of the customers, distribution channels and the companies

themselves

The above definitions converge on the issue of brand providing identity and difference

between competitive offerings.

3.2 The Brand Equity Concept

Strong brands compete with the others on the basis of the dimension of intangible brand

equity, that results in a strong differentiated market for the company's brands. It is generally

recognised that brands are important assets of the firms,10

Ambler (2000) the question

arises then why should brands be considered as an important asset? The answer to the

question lies in the compelling power of brands to hold customers through brand loyalty,

which is an important component ofbrand equity11

(Aaker, 1991.) The table 2 below show

some definition of brand equity suggested by the various contributors worldwide.

6Keller, K. L., (1998), Strategic Brand Management: Building, Measuring and

Managing Brand Equity, New York, Prentice Hall7

Cited in: Wood, L., (2000), Brands and Brand Equity: Definition and Management,

Management Decision, Vol. 38, No. 9, pp 662 - 6698

de Chernatony, L., (2001), From Brand Vision to Brand Evaluation Strategically

Building and Sustaining Brands ,Oxford: Butterworth Hanimann, Wobern, pp 99

Srivastava, R. K., and Shocker, A. D., (1991), Brand Equity: A Perspective on Its

Meaning and Measurement, MSI Working Paper Series, Report Number 91-12410 Ambler, T., (2000), Marketing and the Bottom Line, Pearson Education, London11 Aaker, D. A., (1997), Managing Brand Equity, Free Press, New York


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Table 2

Definition of Brand Equity

Suggested by in the

Year

Definition

Aaker12

(1991)

A set of assets and liability linked to a brand, its name and symbol,

that add to or subtract form the value provided by a product or service

to a company and /or to the companies customers

Biel13

(1992)

Additional cash flow achieved by associating a brand with the

underlying product or service

de Chernatony et. al. 14

(1992)

Brand equity consists of differential attributes underpinning a brand

which gives increased value to the firms balance sheet

Upshaw15 (1995) Brand equity is the total accumulated value or worth of a brand; the

tangible and intangible assets that the brand contributes to its

corporate parent, both financially and in the terms of selling leverage

Sikri et. al16. (1992) Brand equity is the added value that is attributable to the brand name

itself which is not captured by the brands performance on functional

attributes

Konapp17

(2000) It is the totality of the brands perception, including the relative quality

of products and service, financial performance, customer loyalty,

satisfaction and overall esteem towards the brand

Govindarajan18

(2007) Brand equity is the added value with which a brand endows a

product.

12 Ibid

13 Biel, A. L., (1992), How Brands Manage Drives Brand Equity, Journal ofAdvertising Research, Nov Dec, pp 12

14de Chernatony L and McDonald M, (1992), Creating Powerful Brands in Consumer

Service and Industrial Markets, Butterworth Heinemann, London, pp 39715

Upshaw, L. B., (1995), Building Brand Identity a Strategy for Success in a Hostile

Marketplace, John Wiley, New York, pp1416

Sikri, S. and Ramaswami, S., (1992), Brand Equity Effects on the Consumers

Responses to Prices in Retail Advertisements, Working Paper No. 92 02, Lowa

State University17

Knapp, D. E., (2000), The Brand Mindset, Mc Graw-hill Inc, , New York pp 318 Govindarajan M., (2007), Marketing Management: Concepts, Cases, Challenges,

Trends, Prentice Hall of India , New Delhi


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Brand equity provides the company a definite advantage, by providing the company the

ability to fight competition by creating a virtual entry barrier for the competitors. A brand

generates equity for itself, through the process of differentiating response from the customer,

in the favour of their trusted brand. Some of the above definition of brand equity indicates the

financial worth or the value of brand. However the traditional marketers were unaware about

the power of the brand for generating financial value for the company.

3.3 The Concept of Brand Valuation

Before moving towards an assessment of the brand valuation techniques it becomes essential

to find out what various researchers worldwide has to say on the valuation of brands. Tracing

the development on the subject in the books of the literature one would find the following

brand value represents what the value means to a focal company

19

(Srivastava et. al,1991), the total value of a brand as a separable asset when it is sold, or included on a

balance sheet 20

(Feldwick, 1996), the value of a brand is indicated by the money paid by

the farms that have acquired consumer packaged goods with strong brand names21

(Motameni, 1998), a more comprehensive than costing technique because it relates to the

outcomes and incorporates projections of future income and cash flows22

" (Cravens, 1999),

determined by the degree of the brand loyalty, as this implies a guarantee of future cash

flows23

(Wood, 2000) and is the job of estimating the total financial value of the brand24

(Kotler, 2006). To the authorbrand valuation is the systematic method of computation of a

fair market price for the brand in the terms of currency. The numerical value thus computed

can either be referred as the base price during negotiation of final price of the brand during

mergers and acquisition of companies or it can be transferred into the companys balance

sheet. Apart form which it would indicate the strength of the brand in the market.

19 Opcit 23

20 Fieldwick, P., (1996), Do We Really Need Brand Equity?, The Journal of Brand

Management, Vol. 4 No. 1, pp 9 - 2821

Motameni, R. and Shahrokhi, M., (1998), Brand Equity Valuation: A Global

Perspective,Journal of Product and Brand Management, Vol. 7 No.4, pp 275-29022

Cravens, K. S. and Gudling, C., (1999), Strategic Brand Valuation: A Cross

Functional Perspective,Business Horizons, Kellog School of Business, pp 53-6223

Wood, L., (2000), Brands and Brand Equity Definition and Management,

Management Decision, Vol. 38, No. 9, pp 662-66924 Kotler, P., (2002),Marketing Management Text and Cases, New Delhi, Prentice Hall


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3.4 The applications of Brand Valuation

The process of valuation of brands can offer a company both tangible as well as intangible

benefits. The intangible benefits of brand valuation include enhancing the confidence among

the people by reflecting the fact that strong brand generate faith and confidence of the

consumers. The second intangible benefit is that high brand value is an indicator of effective

performance of the companys marketing practices. The third intangible benefit is that,

valuating a brand on a continuous basis enhances the credibility of the brand both to the

consumer and to the investor. The fourth benefit is, brand valuation can help in fine-tuning

the marketing strategy for the company, for example the leading Indian watchmaker Titan

carried out brand valuation exercise25

to understand and manage brands before launching

accessories under the brand umbrella.

The tangible benefits of brand valuation include its role in Merger and Acquisition, where it

is critical for both the purchaser and the seller to have a fair idea on the brands worth before

negotiating the final transfer price. Again such value can be recorded as a collateral security

while borrowing term loans from banks. For example Glenmark Pharmaceuticals

purchased three brands Alex, Flucort and Sensur from the Mumbai based Lyka

Laboratories at a price of Rupees 34.25 Crores in the year 2000 under term-loan from

ICICI Bank26

. The second tangible benefit is brand valuation can help the company to

identify those brands that cannot be supported properly or identify those that do not match the

companies portfolio. Such brands could be bringing in benefits more to others rather than to

the current owner. For example Tata Sons decided to sell off Tomco along with their brand

like Nihar to Unilever as the business was not in lines with the Tatas core business

philosophy. The fourth benefit of brand valuation is, during licensing the brand to third -

parties or internally to its own subsidiary brand valuation can identify the license fees that

can be charged.

The primary benefit of brand valuation is in that it helps the company direct the resources

required in brand building in the right direction. Again brand value measurement could be

used as an indicator of market power27

(Wood, 2000). Currently as per the Indian

25Titan Plans Brand Valuation To Launch Accessories, (2001),

Business Standard, December 1st

26Das, N., (2003), Glenmark May Buy Known Therapeutic Brands, The Hindu

Business Line, New Delhi April 11th27 Wood, L., (2000), Brands and Brand Equity Definition and Management,

Management Decision, Vol. 38, No. 9, pp 662-669


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Accounting Standards 26, the value of the brand can be disclosed in the balance sheet if it has

been not self generated. The uses of brand valuation can be split into two broad categories

shown in table 3 below.

Table 3

Applications of Brand valuations

Brand Valuation Applications in accounting Applications in marketing

1. Recording and disclosing thevalue of the brand in the

financial statement of the firm

2. Tax planning3. Mergers and acquisitions

1. Brand Performance tracking2. Resource allocation in

marketing

3. Budget determination for thebrand

3.5 Values commanded by brands in Indian markets

Today global brands are becoming popular in the Indian market making domestic

competition stiffer. To harvest the benefits of the mature markets companies are adopting the

shortcut route of buying and adopting brand of others. In India the practice of brands being

purchased and sold has become very common recently. Like the markets all over the world,

the Indian markets has also noticed the purchase of the brands and assets of Parle Soft

Drinks by Coca Cola and the popular brand of ice-cream Kwality has been purchased by

HLL.28

But it is not only the foreign companies that are taking over the Indian brands; the

Indian companies too are also taking over international brands. Very recently Tata Motors

has taken over the internationally reputed brands like Land Rover and Jaguar from Ford

Motors. Tata Steel has taken over the Brazilian steel giant Corus. The table 4 given below

composed on the basis of data obtained from various published documents indicate few brand

transfers that has taken place in the Indian market over the last decade.

Table 4

Transfer of Indian and International Brands in Indian Market

Date Purchaser Seller Brand Sale Price

(Rs Million)

Mar-08 Tata Motors Ford Motors Land Rover, Jaguar 9430

28 Available at: www.magindia.com/manarch/news/man8487,M&As: Good, bad or

ugly?( July 14, 2002,HBL) www.magindia.com/manarch/news/man8487


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(Rs Million)

Oct-06 Tata Steel Corous Corous 50840

Feb-06 Mittal Steel Arcelor Arcelor 9307Feb-05 Tata Steel Nat Steel Nat Steel N.A.

Dec-02 United Breweries Guinness UDV Gilbey's Green Label 600

Dec-02 East Asiatic Pifzer Protinex 350

Sep-02 Raymond Colour Plus Colour Plus 600

Jun-02 Ranbaxy P&G Healthcare Verdatide 250

Jun-02 Dr. Morepen Yash Pharma Lemolate 110

May-02 Desai Brothers ADF Foods Mothers Recipe 60

Dec-01 Morepen Labs Reckitt Piramal, Burnol 90

Sep-01 Zydus Cadila Kopran Aten 950

Nov-00 E. Merck Glaxo Smithkline Nivogen 90

Sep-00 US Vitamins Glaxo Smithkline Anovate, Derobin 60

Sep-00 Universal Medicare Glaxo Smithkline Multivite, FM,

Macraberin

100

Jun-00 Glenmark Pharma Lyka Labs Alex, Flucort, Sensur 350

Mar-99 Ranbaxy Gufic Gufic 700

Jan-99 International Best

Foods

DCW Home Products Captain Cook 785

Jan-99 Hindusthan Lever

Limited

Lakme India Limited Lakme 1101

Jun-98 Knoll Pharma

(Abott India)

Reckitt India Epilex 100

Dec-97 Reckitt & Colman Knoll Burnol 125

Dec-97 Johnson & Johnson Knoll Coldarin 210

Aug-97 International Best

Foods

Hindusthan Lever

Limited

Dalda 50

Jan-96 Smithkline Becham Duphar Crocin 420

1995 Heinz Limited Glaxo Food Division Nycil, Glucon D, 2100


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(Rs Million)

Complan, Farex

Oct-94 Colgate Palmolive Hindusthan Ciba -

Geigy

Cibaca 1309

1994 Godrej Transelektra

Electronics

Good Knight 1200

3.6 Methods of Brand Valuation Currently under practice

The review of literature show that the practice of brand valuation can be broadly classified

under two approaches viz. the company oriented approach and the customer oriented

approach.

3.6.1 Company oriented brand valuation methods

These methods attempt to compute the financial value of brand by taking input form the

records available within the company. Further these methods require very little input from the

consumers. The following methods shown in the table 5 can be clubbed under the company

oriented approaches.

Table 5Company oriented brand valuation methods-

Method Suggested Based on Benefits Disbenefits

Investment in

the Brand29

- Recording all historicalcosts incurred like

development cost,

marketing cost, advertising

and promotions cost and all

other associated costs

Financial valueof the brand is

determined

Easy tounderstand and

compute

Reinvestment cannot recreate

brands.

Brands are builtover time.

Cost of brandbuilding is usuallyless than brand

value

29Cited in: Lindermann, J., (2004), Brand Valuation in Clifton, R and Simmons J.,

(2003),Brands and Branding, London, The Economist


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Economic use

method30

Brand

FinanceSeparating and isolating the

net income from the brands

associated income.

Estimating the future cashflows due to the brand

Applying a discountingfactor

Determination of theeconomic value added by

the brand.

Financial valueof brand can be

determined.

The brand riskis calculated.

An estimate ismade on the

brands future

earning.

The power ofthe brand to

add economic

value to

business is

identified

Process difficult tounderstand and

apply.

Time and costinvolved is high

Srivastava

Method31

Srivastava Computation of index scorebased on set of identified

factors

Multiplied with the brandssales


determined

Easy to applyand understand

The salesgenerated by the

brand may not be

totally due to the

impact of the

brands

contribution

Interbrands

Method32

Inerbrands Brands strength iscomputed on the basis ofeight identified attributes.

A multiple is fixed from theS curve on the basis of the

brands strength.

The multiple is applied tothe intangible earnings from

the brand. Brand value is

computed

Financial valueof the branddetermined.

Process simpleto understand

and apply.

Widelypracticed

S curve needsfurther elaboration.

In the cases wherethe companys

investment in fixed

assets are high

computation of

brand earnings on

the basis of

weighted average

cost of capital can

results in

misleading brand

value.

30Heigh, D.,(1998), The Future of Brand Value Reporting A Survey of City Analysts

Views, Brand Finance in association with The Institute of Practitioners in

Advertising and The Chartered Institute of Marketing, pp 20-2431

Srivastava, R K. (2005), Valuating Brands and Their Equity, Indian Management,

Vol. 44, No. 432 Available at: www.interbrands.com


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Houlihan

Valuation

Advisors33

(Free CashFlow Method)

Houlihan

Valuation

Advisors

Considers the present cashflows

Less assets employedMultiplied by the required

returns on investments

The method iseasy to apply

Uses a methodthat is similarto the

Economic

Value Added.

It replaces the cashflow attributable to

a generic product

company by theassets that is been

employed by the

branded company

multiplied by

assets making the

process difficult to

justify.

The error in themethod lies in the

determination of

terminal value

Damodaran34 Damodaran Based on growthReturn on Assets.Return on Equity.Withholding ratio.Sales ratio.Sales equity ratio


obtained

Computation islogical

At timesmisleading due to

strong assumptions

Market Based

Method35Kapferrer The method is based on the

comparison of the brand

whose value is to be

determined with an othercomparable brand in the

same market

Financial valueof the brand

determined.

Process issimple to

understand and

apply

Limitedapplicability as it

is difficult to find

out a comparablebrand in the same

market as brands

are perceived to be

unique

Royalty

Method36

Murphy Fixes the royalty that can becharged by the company

possessing the brand while

licensing it to the other

Financial valueof the brand

determined

Process issimple to

understand and

apply

Royalty that is tobe charged may

not give the actual

reflection of the

brands financial

worth

33Available at: www.houlihan.com/services/brand_article/brand_article.htm

34Damodaran, A., (1994), Damodaran on Valuation, John Wiley, New York

35 Kapferrer, J. N., (1998), Strategic Brand Management, London , Koogan Page36 Cited in: Murphy, J., (1991), Brand Valuation, London, Business Books


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Market Value

of Shares

Method37

- Difference of market valueand book value of

companies share

Minus intellectual capitaldifference of brand

replacement value and

present value of historical

investment in brand building

Difference between value ofbranded company and

similar company selling

generics

Preset value of extra volumeSum of all differentials and

specific investment


determined

Conceptualmethod

Difficult toestablish the

differential

parameters

3.6.2 Customer oriented brand valuation methods-

The customer based brand valuation is based on the fact that brand operates in the customers

minds and it is the customers love for the brand that make brand powerful. Thus the

identification of factors that contribute towards brand equity is considered for the

determination of brand. These methods are represented in table 6

Table 6

Customer oriented brand valuation methods


Parameswaran38

ParameswaranBrand value

pentagonal model

Indicates thecontributors of

brand value

Cannot be used tocompute brand value

Indicates notionalvalue

37Marker Value of Shares Method for Determination of Brand Value, cited in:

Fernandez, P., (2001),Valuation of Brands and intellectual Capital, Available

at:www.ssrn.net38

Parameswaran, M. G., (2006), Building Brand Value Five Steps to Building

Powerful Brands, New Delhi, Tata Mc Graw Hill, pp21


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Conservationmodel

39 Market Facts

Strength ofpsychological

commitment

between brands.

Consumersdividing both the

users and non users

of brands into

groups of four each

States that thedifference in size

between the

convertible and

the approachable

segments as

indicator of

brands future

wealth

Difficult to map thestrength of

psychological

commitment of brands

and consumers

Differential

Brand Earning

Approach40

(Income basedapproach)

Based on thepremise that the

price that is agreed

to be paid by the

customers over the

generic price of theproduct that can be

determined by blind

test.

Financial valueof the brand can

be determined

Easy to applyand simple to

understand

Finding out a genericcompetitor is difficult

Prices charged for theproduct varies across

locations

Price escalationfactors influence are

high

Customer

Oriented Brand

Equity41Keller

Based on the ideaof differential effect

of the customers

brand knowledge

on the attributes of

brand awareness

and image

Recognisescustomers brand

association.

Indicates thebrands lag and

the lead

indicators

It is an indicativemethod that can not be

used for the

computation of brand

value

39 Market Facts Conversion Model, cited in: Fernandez, P., (2001),Valuation of

Brands and intellectual Capital, Available at:www.ssrn.net40

Cited in: Elwood, I, (2000), The Essential Brand Book Over 100 Techniques to

Increase Brand Value, London, Koogan Page, pp 20641

Keller, K.L. (2003), Strategic Brand Management Building, Measuring and

Managing Brand Equity, 2nd Ed, New York, Prentice Hall, pp 58-117


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Young and

Rubicams

Brand Asset

Valuator42

Young and

Rubicam

Brand assets areidentified in four

key components

namely

differentiation,

esteem, relevance

and knowledge, the

first two are called

the brand vitality

and the last two are

called the brand

stature.

The brandsperformance is

recorded placed onthe power grid

having four

quadrants.

Based thisEconomic Value

Added analysis is

applied to

determine brand

value

Financial valueof the brand can

be indicated

Widely used.

Economic ValueAdded analysis is

difficult to understand

and apply.

Approach complicated

04 Persisting gaps

The review of the literatures relating to brand valuation brings out the under mentioned facts

1. The methods of brand valuation have their individual benefits and disbenefits2. As a result of globalization worldwide one companys brands are being taken over by

the others thus there is a need for better evaluation of brands to fine tune it to the

changing marketing conditions.

05 Research Methodology

To achieve the objectives listed above a two stage research had been adopted. In the first

stage primary data is collected form thirty household using a structured questionnaire having

twelve open ended questions from households in the region covered by the Kolkata

Corporation in January 2008, in order to know the basis of purchase of the brands selected for

the purpose of the study using a judgemental sampling plan. The judgmental sampling plan

42Young and Rubicam, (1994), Brand Asset Valuator, Cited in: Keller, K.L. (2003),

Strategic Brand Management Building, Measuring and Managing Brand Equity,

2nd Ed, New York, Prentice Hall, pp 509 - 517


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was used as the intention was to collect high level of response from the respondents who have

exposure to the brands selected for the purpose of the study. During the second stage of the

study the following brands were selected from four sectors like Apparels, Mustard Oil,

Hospitals in Kolkata and Beauty Soaps as per the breakup provided below.

Apparels brands includes Peter England, John Players, Arrow, Louis Philippe,Koutons, Westside

Mustard Oils brands include the brands Ganesh, Engine, Dhara, Panna, Arati The brands of hospitals selected for the purpose of study are Woodlands, Bellevue

Hospitals, Kothari Medical Research, Calcutta Hospital and Research, B M Birla

Heart Research, Apollo Hospitals, Suraksha Hospitals, Pearless Hospitals and

Ruby General Hospitals

The brands of beauty soaps selected for the study are Neem, Lifebuoy, Dettol,Lux, Palmolive, Hamam, Breeze, Vigil, Santoor, Cinthol, Liril.

In the second stage of the study 400 households were initially selected for the purpose of the

study here the respondents who were interviewed during the first stage were not included.

The primary data for the second stage was collected during February and March 2008. The

respondents of the second stage were divided equally into four groups of 100 each to

accommodate equal number of brand users from the selected segments of apparels, mustard

oils, hospitals in Kolkata and beauty soaps. The data had been collected with a questionnaire

prepared by taking inputs form the responses obtained from the respondents in the stage one.

The procedure adopted for the construction of the questionnaire is highlighted below.

06 Data collection instrument

6.1 Stage 1

The questionnaire used in the first stage was having twelve open ended questions relating to

the objectives of the study. The questionnaire for the first stage was reviewed by two senior

academicians and one expert from the industry and necessary corrections were made. This

questionnaire was pretested on three respondents who were not included in the final data

collection and necessary adjustments were made. The data collected at this stage was

analyzed using content analysis. The results are described in the subsequent sections..

6.2 Stage 2

The questionnaire composed for the second stage of the study was where the measurement

was made on twelve variables listed from the responses that were obtained from the

respondents during the first stage of the study using content analysis. The respondents were


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asked to indicate their rating for the twelve variables on a Likert type five point scale where a

score 1 was awarded by the respondent if the attribute under measurement was considered as

not at all important for brand purchase and a score of 5 was awarded if the respondent felt

that the factor was very much important in the purchase of brands.

07 Analysis and Discussions

7.1 Results obtained from stage one

The raw data collected from the stage one of the study attributes that were exposed to content

analysis, where the help of another senior person having prior experience in research was

taken in order to avoid the entry of subjective bias in the processing of the responses. The

analysis identified a set of 12 attributes that are considered by the respondent as important for

the purpose of selection of their selected brands. These are listed as follows

i. Satisfaction of Usageii. Attractive design of the branded product

iii. Attractive design of the package of the branded productiv. Satisfaction to reference groupsv. Power of the advertisement of the brand to attract customers

vi. Satisfied with the brands functional performancevii. Honesty of Business and reputation of the corporate house selling the brand

viii. Endorsement of the brand by superstars and eminent personalityix. Satisfied with the quality of the product offered by the brandx. The power of the brand to attract the customers toward the purchase of the brand

xi. The brand is comes from a company that is trusted by the customersxii. Satisfaction with the shopping experience with the brand.The other part of the result of data analysis is presented in the subsequent sections as a

positive virtuous cycle of brands. The processing also indicate the fact that a brand compels

the customer to try out the brand and once the customer has tried out the brand then his or her

satisfaction that generates the brand experience that leads to the development of the brand as

the reputational capital for the company.


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7.1.1 The Positive Virtuous Cycle of Brands

The figure 1 below shows the positive virtuous cycle of brands. The figure 1 suggest that a

brand begins with a promise, that generates the consumers trust for the brand, which leads

them to try out the brand, once they have used the brand the satisfaction with the usage of the

brand generates repeat purchase through brand loyalty, generating the perception of the

brands in one hand and on the other hand it leads the customers to refer the brand to others

through positive word of mouth referrals, that attracts new customers to brand trial, bringing

in new business to the company. As a result of which there is an assured future business for

the company in the highly competitive market. Thus the company can charge a stable price

and also premium price in certain cases that leads to esteem to both the customers and also to

the company offering the brand that again leads to the brand promise thus completing the

positive virtuous cycle of brands.

7.2 Results obtained from stage two

The primary data obtained from the 332 sample in four groups (breakup as discussed above)

was treated with the statistical technique of Factor Analysis by adopting the method of

Principal Component Analysis and with Varimax rotation with Kaiser Normalization. Overall

Six components were extracted during the process. In three cases six factors had Eigen values

over 1, these factors were matching in three cases and in one case that is in the mustard oil

category five factors were extracted these five factors extracted matched with the other

groups while only the design factor was missing for mustard oil this is due to fact that the


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product is liquid nature and thus the design is rated to be least important by the respondents.

The percentages of variances explained as 70.327, 60.884, 67.317 and 66.531 respectively.

The software used for processing of the raw data was SPSS 13.0. Based on the initial

attributes considered the extracted factors are named as satisfaction, Design, Price,

Endorsement, Advertisement and

Honesty these are represented in an

hexagonal model given in the figure 2.

The components constituting the factors

are discussed below. The factor

satisfaction consists of the components

like satisfaction to self with respect to

the products functional and emotional

performance (for example repeat

purchase of the preferred brands due to

superior performance in the earlier

purchases), satisfaction to the reference groups with respect to the products functional and

emotional performance (for example purchase of household products by a new housewife

taking reference of the experienced generations), usage satisfaction (for example enzyme

based detergents are preferred to be used in washing machines as it thought to be damaging to

the hands during traditional hand wash), and shopping satisfaction (for example people

preferring to shop at organised retail outlets like Big Bazaar for ambiance, discounts and low

price and availability of a wide range of products under one roof).

The second factor identified is design this factor includes the components like product

design (for example younger generations preferring Fastrack wrist watches for their new

fashionable design), the package design (for example there is a tendency of people to judge a

book by its cover), the colour of both the product and package (for example companies

offering brand variants suiting the taste of different target segments), the size of both the

product and the package (for example different products variants are sold at different target

markets segments to appeal to different class of people like HMV offering the brand

economy for the music that is expected to have a low shelf life and superior for the music

that are intended to have a high shelf life.

The third factor identified is price this factor includes the components high price paid for

acquiring the branded products (for example people buying Rolls Royce for its high price) ,


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the low price paid for acquiring the brand and the value for money received for purchasing

and using the brand. The fourth factor identified is endorsement this factor includes the

components like the superstar endorsement and role model endorsement.

The fifth factor identified is advertisement this factor includes the components the media

channels used for the communication of the brand message, the media vehicles used for the

brand communication, the place in which the outdoor transient media is preferred, the

innovative design of the advertisement, the advertisement that attractscustomers and

the advertisement that provokes for brand purchase.

The sixth factor identified is honesty this includes the components like the companies

offering of the brand concern towards customers, whether the company is the peoples

business house of trust, the reputation of the manufacturer and the reputation of the

marketer, the companies concern towards the environment, the companies concern

towards their employees, the honest methods of business adopted and the companies

concern towards the society and public health. These are the yardsticks under which the

brands are critically assessed by the consumers. Thus consumers experiences of the brands

are generated from the above factors thus these forms the foundation to the success of the

brand in the Indian markets.

7.2.1 Testing Validity of the results of Factor Analysis

To see whether the factor analysis has been capable of generating meaningful result the

validity tests have been performed by conducting a couple of tests called the Kaiser Meyer

Olkin (KMO) test and the Bratlett list of Sphericity (BLS) test has been performed. It is

interesting to underline that the data analysed have subscribed to the tenets of the validity

scores namely, that if the limits are exceeding 0.5 on one hand and get closer to 0.0001 on the

other respectively then the tests are taken as valid The scores of KMO test for the brand of

apparels, mustard oils, hospitals and soaps 0.553, 0.53, 0.58 and 0.59 respectively and the

BLS values are 0.0003, 0.0002, 0.0002 and 0.005 respectively. Thus, the results of factor

analysis made in the present paper appear substantiated and validated.

08 Conclusions

In the study a comparison has been made between the existing methods of brand valuation

currently under use for the purpose of determination of brand value, the benefits and

disbenefits of the methods are highlighted and an operational definition of brand has been

suggested. The study has revealed a set of six factors which are taken to be the indicators of


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the brand performance in the market and are further taken as the contributor of the customers

perception towards brands.


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09 References

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10 Acknowledgements

[1.] Dr. Aloke Kumar Sen (Director, Heritage Business School, Formerly Professor andDirector, School of Management Sciences, Bengal Engineering and Science

University, Shibpur)

[2.] Dr. Paresnath Chattopadhyay (Formerly Professor Department of Management,Burdwan University)

[3.] Mr. Kabir Seth (Formerly Chief of Brand Management and Corporate Marketing,Tata Steel Limited)

[4.] Mr Utkal Kanti Bakshi and Mrs Emeli Bakshi, my beloved and respected parents fortheir constant encouragement and motivation otherwise the paper would not have

reached the present shape.

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The Efficacy of the Applications of Valuation Methods in Indian Scenario

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