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Brand
Valuation:
Happydent
PBM Project, Part III
Submitted to Prof. S. Govindrajan
Submitted By:
Anton Babu U108009
Ayan Das Gupta U108014
Gaurav Kayal U108019
Ishita goel U108020
"If this business were 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."
— John Stuart, Chairman of Quaker (ca. 1900)
Executive Summary ....................................................................................................................... 3
Brand Value ................................................................................................................................... 5
Brand Valuation Methods .............................................................................................................. 6
Gross Profit Differential ...................................................................................................................... 6
Unbranded Profit Model ..................................................................................................................... 6
The AC Nielsen Brand Balance Sheet .................................................................................................. 7
Brand Performance Model ................................................................................................................. 7
Semion Brand Value Approach ........................................................................................................... 8
SDR’s Brand Value Method ................................................................................................................. 8
Brand Valuation: Happydent ......................................................................................................... 10
Assumptions Considered for Brand Valuation Models ..................................................................... 10
Interbrand’s Brand Valuation Model ............................................................................................. 11
Calculating Brand Value Using the Discount Model ....................................................................... 16
Sales & Premium Model (S&P) ...................................................................................................... 17
Findings of the Customer Surv y ...................................................................................................... 19 e
Conclusion .................................................................................................................................... 21
References .................................................................................................................................... 22
Executive Summary With brands playing an important role in generating and sustaining the financial
performance of businesses, especially with the high levels of competition in every industry,
it becomes imperative for every company to come up with credible ways to value its brands
The key challenges in Brand Value measurement include measuring the importance of
"brand" in the consumer’s product selection process, and to dissect that measure of "brand"
and determine its key contributing components.
Having tracked Happydent over the last two phases of this project in valuing brand imagery
and brand equity, we adopt various methodologies to arrive at a figure for Brand Value for
Happydent.
We evaluated various brand valuation methods, namely, the following:
Gross Profit Differential Method
Unbranded Profit Method
AC Nielsen Brand Balance Sheet method
Brand Performance Model
Semion Brand Value Approach
SDR’s Brand Value Method
One of the constraints we faced while choosing an appropriate model in determining the
brand value for Happydent was the unavailability of financial data pertaining to Perfetti Van
Melle’s India operations for the year 2008. This effectively meant that approaches such as
Brand Performance Model and Semion Brand Value Model which are highly quantitative
and use the balance sheet numbers, cannot be utilized for the purpose of our calculations.
We made use of three models for the purpose of calculating the Brand Value for Happydent
Interbrand’s Brand Valuation Model, the Discount Model for calculating the present value of
future “brand earnings” (for Happydent), and the Sales and Premium (S&P) Model ‐ a
model we developed on our own which is a modification of the Gross Profit Differential
approach.
In using the Brand‐Valuation Technique developed by Interbrand, which depends on two
factors – the Brand Profits and Earnings Multiple – we made a couple of assumptions to
arrive at a sales figure for Happydent (for lack of available balance sheet numbers) and
derived the brand profits based on that. The Earnings Multiple was also determined by
arriving at a brand strength score for Happydent across seven parameters outlined in our
analysis.
The Discount model takes into account the percentage of sales that can be attributed to
‘Brand Earnings’ and in turn using the value arrived at, in figuring the Net Present ‘Brand’
Value for Happydent.
The Sales and Premium model assumes that for any product, the current levels of sales can’t
be sustained if it is stripped off its brand name. Also, the price paid per unit for an
unbranded product which is otherwise similar to the branded counterpart is also less.
Therefore, for brand value considerations, the price differential (premium charged) and the
sales difference (lesser sales for unbranded similar product) have been used to arrive at the
cash flows for unbranded product. The net cash flow difference has been discounted to
arrive at the brand value.
The three models used for calculating Brand Value returned values ranging from Rs.344
crore to Rs. 469 crore. This value that we arrived at is nearly three times the sales figure for
Happydent in India. The relatively high brand value only goes to show that Happydent, and
the Parent company Perfetti Van Melle, in particular is a strong player in the Indian
confectionery market. Brands such as Happydent with a high value can be regarded as
considerable assets to a company, so that when a company is sold a brand with such a high
value may be worth more than any other consideration.
Brand Value A brand is a name or trademark connected with a product or producer. Brands have
become increasingly important components of culture and the economy, now being
described as "cultural accessories and personal philosophies”.
The amount that a brand is worth in terms of reputation, prestige, income, potential
income, and market value would constitute its brand 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. On the other hand, Brand
value can be defined as the net present value of future cash flows from a branded product
minus the net present value of future cash flows from a similar unbranded product—or, in
simpler terms, what the brand is worth to management and shareholders.
The value of every asset, whether tangible or intangible, can be estimated. Some assets are
easier to value than others, and some evaluations are more precise than others. Intangible
assets, such as brands, often fall in the more difficult, less precise valuation category. While
the valuation of brands requires techniques that are quite different from those used to
value stocks or fixed assets, the basic principles are the same. First, from a shareholder’s
perspective, the value of a brand is equal to the financial returns that the brand will
generate over its useful life. Second, any financial returns attributed to a brand must be
discounted to account for market uncertainty and asset‐specific risks. These two principles
apply to the valuation of all assets, not just brands.
Successful brands create value through strong business basics, a clear and relevant value
proposition that is communicated powerfully and consistently (avoid positioning the brand
exclusively around price or specific product features), delivery of a great experience that
matches the brand’s promise and effective leadership of trends or aspirations. The
subsequent section details the various methods of brand valuation.
Brand Valuation Methods
Gross Profit Differential
For some brands, the simplest way to determine brand value is by using the gross profit
differential approach. In this, the value of a branded product is equal to the difference
between the price of that particular product and the average price of a similar non‐branded
product.
In mathematical terms the above can be expressed as: bv = (p – n) x, where bv is brand
value, p is the price of a branded unit, n is the average price of similar, non‐branded
products and x is the number of branded units sold.
Suitable in case of many brands in a product category, but doesn’t capture the effect of
brand on sales.
Unbranded Profit Model
In another model, the unbranded profit (i.e., earning that would have accrued on a basic
unbranded version of the product) is eliminated and the historical profit at present day
value is restated and adjusted for taxes. To calculate the actual brand earnings the profit
that can be attributed to other intangibles associated with the business of the brand are
subtracted.
The model makes use of brand earnings and the brand strength multiple. The brand
strength multiple is a function of multiple of factors like leadership, stability, market,
internationality, trend, support and protection. These factors are evaluated on a scale of 1
to 100 to calculate the brand multiplier.
Based on these parameters, value of brand is determined. The discount rate is also
determined that needs to be applied to the adjusted estimates of the brand’s earnings for
determining its present value.
[Brand Value = Brand profit x Brand multiplier]
The model is useful when historical data, annual report of the product is available, also
the competing products in the category.
The AC Nielsen Brand Balance Sheet
The AC Nielsen brand balance sheet method relies on six basic criteria groups which contain
a total of 19 individual criteria that are considered good indicators of the brand value. The
fundamental idea behind this is to determine a correlation between complex market
environments, the significance of long‐term brand cultivation and successful brand
management. However, it was felt that the method was not the absolute model for brand
valuation and hence there was a search for a better brand valuation model.
It is useful when the market research data is available for the product in consideration and
the related products in the category. However, in case of Happydent, the market
environment is assumed to be not “complex.”
Brand Performance Model
It endeavours to deliver an integrated consumer and company‐oriented brand valuation
system. It provides moulded data to the decision‐makers for any specific information
needed. The modular structure makes it possible to complement gauges of brand value with
analyses for the purpose of brand steering, financial brand valuation and tracking of brand
leadership. The four modules are brand steering system, brand value system, brand control
system, and the central element – brand monitor.
BV = [Annual sales of respective brands] x [Net operating margin] x [Relative brand
strength] x [Perpetual annuity NPV discount factor]
The model is highly quantitative and uses the balance sheet numbers to arrive at the
brand value. It can be highly useful when the financial data of the company or the brand is
available.
Semion Brand Value Approach
This method relies strongly on behavioural and image data in addition to financial values.
He defines four brand values – financial value of the company, which is determined by
earning before taxes and earning trends, brand strength that is determined by market
share, market influence, marketing activities, distribution rate degree of familiarity, identity
and potential, brand protection determined by product classification, brand environment
and intern protection and brand image determined by consumer association, image position
on market among consumer and vis‐à‐vis product.
BV = Financial Value x [Financial value factor + brand protection factor + brand strength
factor] + [brand image factor]
The market‐oriented system of brand valuation, which combines a consumer‐based
perspective with a company‐based perspective, operates on the assumption that brand
value is derived from brand strength and brand earnings, both assessed on the basis of
market prices. It is a comprehensive, integrated approach to build brand valuation that
takes into account all the special requirements of brand appraisal and gives a tangible
monetary value.
SDR’s Brand Value Method
Buyers develop a hierarchy of brands based on their assessment of Price, Product or Service
Features, and Brand Name. They are most likely to choose a brand that is at the top most of
their hierarchy, if it is available. If a brand is consistently at the top of their hierarchy, the
buyer will be loyal to that brand. The brand value can thus be calculated from the
relationships between the individual values of price, performance attributes and brand
equity.
The brand value can be said to be composed of three parts.
• The first part attributed to the physical and readily identifiable features of the brand
that deliver tangible benefits to the consumer. This directly impacts the purchase
decision. This is called the tangible product features component.
• The second part can be attributed to the intrinsic value associated with the brand
name. This could depend on things such as trust, longevity, image, consistency and
so on. This is referred to as the Brand’s equity.
• The third part is the price or cost of the product.
Therefore, the brand value of the product is said to be a function of the product’s tangible
features, its brand equity and price.
The brand value is also directly related to the customer loyalty towards the brand. The
customers loyalty can be determined by his repurchase behaviour and recommendations to
others to purchase the product. However, this method determines the brand value of the
product relative to other brands in the same product category.
However this method determines the brand value of the product relative to other brands
in the same product category. There is lot of subjectivity involved in the analysis. No
objective definite brand valu (money value) is obtained for the product. e
Brand Valuation: Happydent
Assumptions Considered for Brand Valuation Models
• The brand valuation is done for Happydent within India
• PVM India had a market share of 30% in the Rs. 2000 crore worth confectionery
market in the year 2008, which amounts to a sales turnover of Rs. 700 crore.
• Perfetti Van Melle India has overall sales of Rs 700 cr (Source: News Reports)
• Out of the total sales, 40% is from the chewing gums (Source: Perfetti Website)
• There are three major brands of chewing gums, Centre Fresh, BigBabol, Happydent
• Functional Gums contribute to nearly half the chewing gum market (Source: News
Reports)
• Therefore, the sales figure for Happydent is found to be approximately Rs 140 cr
(50% of 40% of Rs 700 cr)
Interbrand’s Brand Valuation Model The Brand‐Valuation Technique developed by British company Interbrand Group is based on
‘earnings multiple’ which is determined by Brand Strength. The Brand Strength analysis
involves a scoring system based on seven key criteria together with their maximum scores.
The Brand Strength variables are correlated to a multiple to gauge the level of confidence of
the brand in the future. The brand multiple must then be multiplied with the brand profit to
determine the true value of the brand. The Brand Strength model is used to determine the
value of a brand based on the assumption that a strong brand is more reliable for future
earnings with less risk. Under this approach, a brand’s strength comprises of seven
variables:
Leadership: A brand that dominates the market in its category using economies of scale.
Stability: It is etched in the consumer’s mind since its inception.
Market: Brands in markets such as convenience food items, soft drinks and consumer
durables score high over brands in technology‐driven (computers) or highly fashionable
(apparel) categories, since these markets are more vulnerable to technological or taste
changes. A brand in a stable but growing market with strong entry barriers will score high in
brand strength. Colgate‐Palmolive, for instance, has got a strong foothold in the toothpaste
market making it difficult for competitors to enter.
Geographic: The value of a brand is measured in terms of its attractiveness and acceptance
in multiple markets. Making a mark internationally adds to brand strength.
Trend: The over‐all long‐term trend (of the brand) is a measure of its ability to remain
contemporary and retain consumers by being relevant to their needs and wants.
Support: The assessment of qualitative and quantitative support provided by the company
to the brand.
Protection: The extent of legal support a brand possesses is very crucial in its assessment.
In this model first of all the unbranded profit i.e., earning that would have accrued on a
basic unbranded version of the product is eliminated and the historical profit at present day
value is restated and adjusted for taxes. To calculate the actual brand earnings the profit
attributable to other intangible associated with the business of the brand is deducted.
When the seven criteria have been considered and scored, the final figure is converted to a
multiple which is then applied to a multiple that is then applied to the net profits of the
brand.
Thus, Brand value = Earnings Multiple * Brand Profits
The first step is to calculate how much capital was employed to produce the brand. To do
this, the median ratio of capital employed to company sales must be estimated.
(Based on the data about Perfetti Van Melle India available to us, we figured that in 2004
PVM India had invested about Rs. 150 crore in achieving a sales turnover of Rs 450 crore.
This implies a median ratio = 150/450 = 0.33. We will be using the same median ratio for the
brand Happydent as well)
The next step is to look how much better than generic brand this return is. A generic brand
should produce a 5 percent profit on capital employed. So for Happydent this would
produce a return of Rs. 2.31 crores.
The ‘Premium Return’ is therefore = (46.2 crore – 2.31 crore) = Rs. 43.89 crores. Deducting
tax from this, a figure of Rs. 28.97 crores will be arrived at, which will be the final net
adjusted income.
Next we determine the ‘Earnings multiple’ (which is found to be within the range 4.4 to 19.3
for most brands)
Capital employed (in 2008) = (Sales * Median ratio)
= Rs. (140 * 0.33) crores = Rs. 46.2 crores
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Leadership: In the Indian context, Happydent faces stiff competition from Orbit in the
functional gum category, while it still lags behind other brands in the confectionery market.
Our results from Phase II have shown that it does well vis‐a‐vis other brands in terms of
stochastic share and operational share. A conservative score of 15 (in percentage terms, out
of 25) would be a realistic figure to estimate its leadership score.
Stability: Although Perfetti entered India in 1994, the brand Happydent was rolled out much
later. So while calculating stability in terms of how long the brand has been established, a
score of 5 (out of 15) should suffice.
Market: It is known that consumer products generally tend to be more stable than high‐
technology or fashion products. Since Brand Happydent falls in the category of consumer
products, the market can be considered to be stable and thus a score of 10 (that is, in
percentage terms) would be accurate.
Internationality: Perfetti launched the brand ‘Happydent’ in 1970 along with Alpenliebe, Big
Babol and the brand has been growing ever since. Considering that other top brands which
are known internationally were established much earlier, a safe assumption can be made
that the internationality score for Happydent would be equivalent to 15 out of a possible 25.
Trend: As far as the functional gum category is considered, Happydent competes with
strongly entrenched brands with high awareness; the brand has also been successful in
increasing health awareness amongst consumers thus making functional gums the most
exciting sub‐category within confectionery. This means incremental business for
confectionery players with increased relevance to the customer. Previous results from
Phase I (using the BAV model) have also shown that Happydent scores high on the relevance
factor. A score of 10 can be attributed to Happydent for this parameter.
Support: The category of chewing gums being an impulse purchase and brand parity tending
towards 1, the investments in developing Happydent as a brand has been on the higher
side. A score of 10 for this parameter will be justified.
Protection: In terms of protection with patents and copyrights, a 5‐on‐5 score for
Happydent can be a safe estimate.
The scores for the Brand Strength variables as stated above, when added up would amount
to a total of 70 (in percentage terms). Now since values for Brand Strength fall in the range
4.4 to 19.3 (as mentioned earlier) and assuming 19.3 will be the value for a brand that
would score highest (=100) in terms of brand strength, Happydent’s score of 70 would
return a value equivalent to 13.51.
The Inter brand approach for valuing examines brands through the lens of financial strength,
importance in driving consumer selection, and the likelihood of ongoing branded revenue.
This methodology evaluates rand value in the same way any other corporate asset is
valued – on the basis how much it is likely to earn for the company in the future.
b
Therefore, Average Score = Multiple * Brand Profits
= 13.51 * Rs. 28.97 crores
= Rs. 391.38 crores
A measure of the brand value for Happydent as arrived at using the Interbrand model
is Rs. 391.38 crores.
Calculating Brand Value Using the Discount Model Here we will utilize a technique wherein we estimate the brand value by calculating the
present value of all future “brand earnings”. To calculate the brand earnings we will make
use of the brand equity score derived in the second phase of this project on the basis of the
‘stochastic share’ for brand Happydent.
From the assumption stated earlier, the sales of Happydent is Rs 140 cr.
With the operational share of Happydent being 15.17 % in the chewing gum market, which
can be termed as the percentage of the sales attributable to the brand recognition, the
brand earnings can be calculated thus, = Rs. (0.1517 * 140 crores) = Rs. 22 crores.
The Brand Value = (22 * 1.1) / 16% ‐ 10%) = Rs. 469.9 crores (
Now using Discount Model, the present ‘brand’ value will be equivalent to
= B (1 + R) / (R‐G)
Where, B = Brand Earnings,
G = Growth Rate for the brand = 10% (assuming constant growth),
R is the required rate of return = Rf + β (Rf ‐ Rm) Assuming the values, Rf = 7.5%, Rm = 16.5% and β = 0.85 (assumed)
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on Happydent out of
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chewing Gums
8.44
From the above arrived figures, the sales of the product (chewing gum) without Happydent
brand name associated with it is affected because of the following reasons:
• The customers are willing to pay less for the same quantity (per unit)
• The customers are willing to purchase less overall
Therefore the net sales of unbranded product is estimated to be:
Now, another assumption based on the loyalty score in brand equity calculation, it is
assumed that the sales of unbranded product will decrease at 2 % Y‐o‐Y, and the sales of
Happydent will increase by 12% Y‐o‐Y for next 10 years and constant thereafter.
Also, a general assumption that Happydent makes 12% profit on sales and the unbranded
product makes a profit of 8.5 % on sales.
140 * (0.384/0.5)*(4.16/8.44) = Rs 52.44 cr
NPV of the projected profits has been calculated at a discounting rate of 10 %.
The NPV comes out to be Rs 344.09 cr. Therefore the brand value of Happydent based on
the Sales and Premium model is found out to be Rs 344.09 cr.
pbm3.xlsx
Conclusion Brand Valuation Method Calculated Brand Value
Interbrand’s Brand Valuation Model Rs 391.38 cr
Brand Value Using the Discount Model Rs 469.90 cr
Sales and Premium Model Rs 344.09 cr
The three models used for calculating brand value give the value in the range of Rs 344 cr to Rs 469
cr. The parent company of Happydent, Perfetti, is a strong brand in Indian confectionery market and
the product Happydent is one of the best selling brands in the functional gum category. The brand
valuation is nearly three times the total sales of Happydent in India. Although Perfetti Van Melle
India is not listed, still high brand value indicates a stable market and the brand being relatively safe
from hostile acquisition attempts.
References [1] Laboy, Pedro; "The importance of Measuring Brand Value and Brand Equity,
Tocquingy [2] 2007 Brandz, MillwardBrown Optimor [3] Brandz Top 100 Brand Ranking, 2008, Millward Brown
