PPT from the Brand Valuation workshop with Dr. Rajesh Ingle

1. Brand Valuation
Fundamentals
Presentation by
Dr Rajesh Ingle
At
UWI
O
On
Sept 26th 2015

2. “What cannot be
measured cannot be
managed”
Jack Welch

3. Fundamentals
The Desire
The Willingness
The Ability
The Awareness

4. The word ‘brand’ is derived from old Norse word “brandr” , meaning burn,
and it was by this method that early man marked is livestock
Branding also has negative connotations
in a historical context as a form of public
humiliation i.e. criminals, slaves and
adulteresses were all branded.

5. Prosperity of Brand
• Powerful consumer Insight
Understand and anticipate your consumers.
• Focus
People and resources are concentrated where
they can add greatest values.
• Innovation
Evolve and adapt to changes in consumer needs
and aspirations. The driver for innovation is not
just insight , but foresight.

6. Successful brands
• Have a clear customer benefit
• Make a promise and keep it
• Have simplicity, clarity and honesty
• Have distinctive logos and design
• Are widely available
• Build trust
• Have a price/quality trade off – win/win
• Help consumers make good decisions
• Offer consistently superior value
• Are about the total experience
• Result ? Higher margins, higher volumes, innovation,
better quality
Ref: Professor Malcolm McDonald (Cranfield
University) 9th April 2010

7. Decline of brand
Big five mistakes the company should avoid
• Arrogance- Forgetting that the brand actually
belongs to the consumers.eg endless cycle of
relaunches ,upgrades and extensions.
• Greed-Numerous companies have sought to make
their prized assets more and more profitable.eg
Unilever country soup.
• Complacency –Sitting back and resting on
reputation only to discover that faster, hungrier ,
more innovative competitors have passed them
by.

8. • Inconsistency- Consumer’s expectations of consistency
extend well beyond the quality of the ingredients they
expect to find in a branded product, or the customer
service standard they expect from a branded service.
Increasingly , consumers expect the values of brand to be
reflected in every aspect of business behind the brand.
Decline of brand

9. • Myopia - We live in a world of permanent change.
Those who fail to Understand the consequences
for change for their brands inevitably put those
brands at risk.
(Ref: Ex Unilever Chairman Mr. Nial Fitzgerald’s speech)
Decline of brand

10. What went wrong with many brands?
• Success led to smugness
• Superior margins became the primary purpose
• Cutting corners/reducing costs
• Economical with the truth (eg. ‘low fat’, but no mention of
high sugar content)
• Add some gold to the packaging (illusion of quality)
• Made decision-making harder
• Became the new commodities
Ref: Professor Malcolm McDonald (Cranfield
University) 9th April 2010
What went wrong with many brands

11. Single brand
across organisation
Endorsed brands House of brands
Branding possibilities, few examples………….
Source: Davidson H

12. Did you know??

13. have paid £31 billion for
but have bought only £4 billion of tangible assets
- Gillette brand £ 4.0 billion
- Duracell brand £ 2.5 billion
- Oral B £ 2.0 billion
- Braun £ 1.5 billion
- Retail and supplier network £10.0 billion
- Gillette innovative capability £ 7.0 billion
TOTAL£27.0 billion
(David Haigh, Brand Finance, Marketing Magazine, 1st April 2005)
Intangibles

14. • VW purchased Rolls Royce Motors from Vickers for USD 909
Millions.
• 2/3rd of the amount paid was for Good will.
• This was a celebration time for VW till they
realised…………………………………….
• The trademark Rolls Royce belonged to company named Rolls Royce PLC.
• This trade mark was sold to BMW for only
USD 73 Millions.
Did you know??

15. In 1996 Plymouth Gin was acquired by private investors led
by John Murphy. During this time Plymouth was again being
produced with grain spirits and Master Distiller Sean
Harrison began his career with Plymouth and is still there
today. Production had dropped to an all time low with
virtually no exporting. By 1999 UK sales had tripled to 18,000
cases and the exports were on the rise. Plymouth Gin
returned to its traditional strength of 41.2% abv.
In 2001 Vin & Spirits (the parent company of Absolut) buys
50 % and global distribution was now available. UK sales
went up to 36,000 cases. By 2002 case sales reached 60,000
and Plymouth Gin was declared the ##1 premium gin by
Impact Magazine in the UK outselling Bombay Sapphire and
Beefeaters. Today Plymouth is fast becoming the favorite
spirit of mixologists world wide.
Did you know??

16. Notes of Caution
a)Drop in the Hutch brand in India must have resulted in direct loss of
USD 6.5 Billion, as this is the perceived value of the brand.
b)Vodafone acquisition of Mannesmann (Germany).
It paid a heavy price for its haste and had announced that it was
writing off £ 28 billion in goodwill from its balance-sheet related to its
Mannesmann acquisition in 2000.
Did you know??

17. • RJR Nabisco sold their brand to
Kohlberg, Kravis and Roberts for
$30 Billion?
• Philip Morris bought Kraft for $12.9
billion ($ 11.6 billion for
“goodwill”)?
• Nestle bought Rowntree (home for
Kit-Kat, After Eight, Polo…) for $4.5
billion. More than five times book
value?
Did you know??

18. Harley Davidson has patented the thumping sound of its engine.
Did you know??

19. • On March 2001, the UK’s Post Office, founded in 1635
by Charles I, changed its name to Consignia.
• On June 13, 2002 the name was changed back to
Royal Mail.
• USD 92,000 was spent on branding exercise and later
USD 2million in consigning the Consignia name to
history, as it alters the signs on 3,000 buildings to
meet company law requirements.
Did you know??

20. Brands are key intangibles in most businesses
Brand
20%
Other
Intangible
Assets
55%
Tangible
Assets
25%
Developed Markets
Brands are estimated to represent at least 20% of the intangible value of
businesses on the major world stock markets. Brands combine with other
tangible and intangible assets to create value
Intangible assets
Brand
Software
Patents
Distribution rights
Tangible assets
Assembled workforce
Business Goodwill
Marketing intangible
Technology intangibles
Customer intangible
Contract intangibles
Illustrative
Source: Brand Finance
Customer relationships

21. Brand Value Added BVA® varies by sector
0
10
20
30
40
50
60
70
80
90
100
Perfumes
FMCG
ConsumerElectronics
WhiteGoods
FinancialServices
Mobile
Utilities
BulkChemicals
Source :Brand Finance

22. There is frequently one line
of revenue and dozens of
lines for costs. Can this be
changed?
The Big Question?

23. • Why does the world need this brand?
• Who are the competitors – near and far?
• How does this brand differ from competitors?
• Who are the customers for this brand?
• Who are NOT customers for this brand?
• What exactly is the product/service this brand
will offer?
• What is the ‘know-how’ of this brand?
• What is this brand NOT?
• Are the company’s processes aligned behind the
brand?
• Can employees articulate the answer to
question one?
Essential Questions

26. Chanakya and Vatsayana

27. ?
Why Value Brands ?

28. Vendor Acquirer Goodwill/
Consideration
Rowntree Nestle 83%
Pillsbury Grand Metropolitan 86%
Trebor Cadbury-Schweppes 75%
Verkade United Biscuits 66%
Identification of
opportunities
Price Negotiation
Mergers and Acquisitions
Competitive pressures
Stock exchange pressures
Availability of resources
Presence of ambitious management team
Rational grounds
Knowing the premium , before hand
Preparing the finance package
Inherent value of the brand
Why Value Brands?

29. Projective visionary
process based on fact
rather than hunch
Brand Extension
International
Branding
Resource
allocation
Financial Appraisal
Management Information
Brand Strategy
Which to milk and
which to dispose off
Understanding the
revenue
producing assets
Modelling tool for the
exploration of various
‘what if? ‘ option
Internationalisation of brands
by identifying key strengths
and weakness
Why Value Brands?

30. IFRS , US GAAP
Goodwill
Gearing
Balance Sheet Benefits
Borrowing
capabilities
Lenders are beginning to look at
Brands as assets on which to secure
borrowings
Gearing ratios are closely watched
by lenders, making it inevitable for
Brand valuations
Why Value Brands?

31. Investor Presentations
Brand Licensing and Franchising
Presentation on strength of brand to its share holders and investor’s community.
Undergoing analysis to draw attention to the particular strengths and features of brands
Royalty rates planned are still largely subjective.
Trademark owner still ask for what is attainable
Brand valuation can assist to provide the framework for setting the royalty
rates
Why Value Brands?

32. International Financial Reporting Standard
(IFRS 3), which came into force at the end of
March 2004, provides for a single international
accounting treatment for acquisitions. Adopting
the precedent set by US Financial Accounting
Standard 141 (FAS 141) of June 2001, IFRS 3
requires that “goodwill” be specifically allocated
to the intangible assets required.
FAS 141 and IFRS 3 is to require companies to
be transparent about the nature and scale of the
assets that they are acquiring. It is no longer
permissible to report a single “goodwill” figure
representing the excess of the purchase price
over the tangible assets acquired.
Current reasons on Brand Valuation

33. Current reasons on Brand Valuation
• Goodwill must be allocated to five
classes of intangible assets-
1)Technology based assets ( such as
Patents),
2)Contract Based assets (such as
Lease and licensing agreements)
3)Artistic assets (such as plays and
films),
4)Customer-based assets (such as
customer lists)
5)Marketing-related assets (such as
trademarks and brands)

34. © Brand Finance plc 2006
“ISO 10668 gives brand valuation analysis the
Institutional credibility which it previously lacked. It
professionalises brand management.”
David Haigh, CEO, Brand Finance Plc

35. © Brand Finance plc 2006
The new ISO 10668 applies to Brand Valuation commissioned for all purposes
including :
• Accounting and financial reporting
• Insolvency and Liquidation
• Tax planning and compliance
• Litigation support and dispute resolution
• Corporate finance and fund raising
• Licensing and JV negotiations
• Internal management information and reporting
• Strategic planning and Brand management
Also can be used for:
• Brand and marketing budget determination
• Brand portfolio review
• Brand Architecture analysis
• Brand Extension planning
ISO 10668 – New International Standards on Brand Valuations

36. © Brand Finance plc 2006
ISO 10668 :Module 1 Legal Analysis
Define what is brand and which Intangible assets to be included
ISO 10668 :Module 2 Behavioral Analysis
To understand and form an opinion on likely stake holder behaviour in each of the
geographical, product and customer segments in which the subject brand operates.
ISO 10668 :Module 3 Financial Analysis
Conducting a thorough financial analysis
ISO 10668 specifies three alternative brand valuation approach: Market, Cost and
Income.
Requirements of an ISO Compliant brand valuation?

37. © Brand Finance plc 2006
The primary valuation approaches
Value estimate
present value of
earnings attributable
to the asset or costs
avoided as a result of
owning the asset
Value estimate
reproduction/
replacement cost-
adjusted for depreciation
and obsolescence
Value estimate
based on multiples or
prices from market
transactions involving
the sale of
comparable assets
Market
Approach
Valuation
Approaches
Cost
Approach
Income
Approach
There are three basic general brand valuation approaches according to
(International Valuation Guidance Note 4 by the IVSC 2003.

38. © Brand Finance plc 2006
Income approach - recognised ‘brand’ valuation methods
Price Premium
Volume
Premium
Income split
Multi-period
excess
earnings
Market
Approach
Valuation
Approaches
Cost
Approach
Income
Approach
Incremental
cash flowRoyalty Relief
Direct Methods Indirect Methods

39. Food for thought
How are brands perceived?