Pbm term project

Praxis Business School

Project 1: Brand Tracker

A report submitted to

Prof. Srinivas Govindrajan

In partial fulfillment of the requirements of the course

Product & Brand Management

On 15/09/2013

By

Ankan Jyoti Bhattacharyya (B12010)

Lakshman Singh (B12021)

Subhra Dutta (B12050)

Sunil Manchandia (B12051)

PBM Term Project Page 1

S_No Table of Contents Page No.

1 Executive Summary 3

2 Brief History of the Brand 6

3 Quantative Research (BAV) 12

4 Qualitative Research (ZMET) 21

5 Brand Equity: A Definition 27

6 Brand Equity Measurement: the Logic 28

10 Brand Equity v/s Brand Value 30

11 Techniques of Brand Equity Measurement (BEM) 31

12 Tool employed for BEM 36

13 Analysis of Data Collected 39

15 Brand Valuation Basics 47

16 InterBrand Model 50

17 Analysis of the Data (finding RBI, BSS, Brand Value) 55

18 Inferences and Recommendations 58

19 References 59


EXECUTIVE SUMMARY

Nescafé, launched first in 1938, is among the oldest and most reputed brands when it comes to instant coffee. Since its inception, it has enjoyed a stable position in the market and is among the market leaders when it comes to instant coffee.

In terms of market share, Nescafé is a clear winner and even after facing stiff competition from brands like Bru, it has managed to stand its ground in India and abroad.

Young & Rubicam’s Brand Asset Valuator model

This model helps one measure the strength (stature) and vitality of the brand w.r.t four parameters, viz. knowledge, esteem, relevance, differentiation. The scores for Nescafé across the four parameters are:

Bru Nescafé Tata Café

Knowledge 94% 94% 9%

Esteem 29% 66% -2%

Relevance 60% 79% 8%

Differentiation 89% 74% 13%

ZMET

This qualitative model gives the consumers’ mindset and inner values w.r.t the brand in question.

From the analysis, we found that “Nescafé is a clear favorite amongst the people and the positioning followed by Nestle for Nescafé is in line with what the consumers want”

Hence we can conclude that, Nescafé should continue as market leader in the coming years.

Next we calculated brand equity of Nescafe. Brand Equity is as the value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. For each brand, brand equity is very important. For measuring brand equity we have made use of three metrics, viz.

Loyalty Metric Price Premia Metric Leveragability Metric

We also found that brand equity is an important factor because of the following factors:


Understand drivers of brand strength in order to support strategic decision making

To evaluate performance of brand management in increasing equity over time

To evaluate efficacy of brand building programs To assess the value of the brand for purposes of licensing or sale

We used a structured questionnaire to understand the consumer’s perception towards Nescafe and other competing brands.

To measure loyalty we used the Colombo Morrison model and the Shared Tier model. The first model revealed that Nescafe has a loyalty value of 48.75% while the second model revealed that the majority of consumers of Nescafe lie in the Q1P1 and Q1P2 segment which means that the loyalty for Nescafe is more sustainable in the long run.

To measure price premia we used the Van Westendorp PSM and it measured the price sensitivity for different brands and generated a price premia index of 1.29. Also among different brands Nescafe was the most selected as the brand for which customers were willing to pay “whatever it costs”.

To measure leveragability we used the Millward Brown Brand Optimor model (BrandZ™). This model measured the elasticity of the brands across categories and here also Nescafe scored the highest 2.35 (across categories) and 2.97 (in associated categories) & 1.73 (in no related categories).

From the data collected in the different segments we calculated a Brand Equity Index (BEI) using the WINNING B®ANDS™ model of The Nielsen Company. The BEI for Nescafe was found to be 0.980.

Next step was valuing the brand Nescafe.

The 1980’s saw a rise in M&A’s wherein companies were paying a premium for acquiring companies. This premium was at times far greater than the actual book value of the company. To understand this research was conducted and it was found that this premium was more due to the brands in the company which hiked the price paid. This led to the concept of brand valuation and companies started looking more closely at this method.

There are many techniques to brand valuation which are roughly categorized as research based approach and financial based approach. Of the different methods under each approach, InterBrand’s valuation technique is the closest to measuring the actual value of the brand.

The InterBrand method makes use of three pillars to arrive at brand value. These are viz. financial performance of the organization, role of the brand in the purchase decision and strength of the brand to ensure continued and certain cash flows. For


the purpose of our research we used this method with minor variations. We have assigned different weights to the components of the model as per the importance of the component in the brand’s lifecycle.

The balance sheet of Nescafe was analyzed to predict profits for the brand in the future. The growth rate for the future has been taken as the percentage contribution of Nescafe towards the sales of Nestle (equal to 12%). The sales of Nestle have been projected as per the estimated values given (10.2%).

For calculating the RBI and BSS we took a sample to test the brands on the components of the InterBrand model, we used a structured questionnaire to collect data on a sample size of 31 individuals.

Calculating the economic profit and discounting it subsequently by the discount rate we arrived at the brand value of US$ 17.48 billion. The RBI was found to be 87.16% and BSS was found to be 86.97%.

Our recommendation for the brand is that Nescafe should keep its present status and try to understand its consumers better.


BRIEF HISTORY OF THE BRAND

HISTORY & PRODUCT RANGE

“A Nestlé brand that started as an idea to solve the problem of what to do with unsold coffee”

Nescafé is a brand of instant coffee made by Nestlé. It comes in many different product forms. The name is a portmanteau of the words "Nestlé" and "café”.

(First print ad of Nescafé)

(Initial Ads of Nescafé)


In 1929, Louis Dapples, the Nestle Chairman at the time, was presented with and interesting task by his former employer, the Banque Française et Italienne pour l’Amérique du Sud.

Following the Wall Street Crash and the collapse of coffee prices, the bank had a lot of coffee sitting unsold in warehouses in Brazil and Nestle was asked to turn this stock into “soluble coffee cubes” to be sold to consumers. A chemist Dr Max Morgenthaler joined the company to help its researchers find a solution. After three years of research they discovered that café au lait – coffee mixed with milk and sugar- converted into powder kept its flavor for longer. But this powder was not easily soluble, and the milk and sugar caused production challenges.

Dr Morgenthaler concluded that the secret of preserving the coffee aroma lay in creating a soluble coffee with enough carbohydrates. This was anew thought and went against the conventional way.

A year later he used a specific technique to produce a powder that did this, and presented it to the Nestlé Executive Board and technical directors as drinkable soluble coffee samples.

Two years later on April 1, 1938, the soluble coffee product, named Nescafé, was launched in Switzerland. Nestlé set up a large-scale production line of coffee extraction and ‘spray drying’ coffee beans to produce Nescafé at its factory in the Swiss town of Orbe.

The brand was then rolled out in the United Kingdom two months later and by 1939, Nescafé had reached the United States of America. By April 1940, Nescafé was present in 30 countries worldwide.

During the Second World War, three quarters of consumption of Nescafé came from Switzerland, UK and the USA. The primary reason for this was Nescafé’s shelf life which was longer than fresh coffee and this made Nescafé a hot favorite. Its sales figures doubled and bulk of its production was provided to the US Troops as ration. To meet this growing demand, in 1943, Nestle set up two factories in the US

In 1952, the Nescafé factory at St. Menet, France produced another innovation in the form of a coffee powder that didn’t require any carbohydrates. During 1960’s it was re-launched in Europe and Japan in glass containers to help preserve the freshness. This is the present Nescafé Classic variant.


Later, Nestlé introduced a new brand in the US called "Taster's Choice", which supplanted Nescafé for many years. Taster's Choice was also introduced into Canada at the same time, and continues to be sold as a separate product, branded as superior to Nescafé, and is higher priced.


In 1965, the brand launched another new product Nescafé Gold which was a freeze dried soluble coffee.

Over the decades, Nescafé has expanded the portfolio of soluble coffee recipes by creating an array of varieties viz. Nescafé Decaffeinated, Nescafé Gold Espresso, Nescafé Frappé, Nescafé Cappuccino and Nescafé Ready-to-Drink.

In the 1990’s the researchers developed a proprietary self foaming solution to improve the texture of the milk froth and this formulation is now being used in Nescafé Cappuccino.

Nescafé also entered the coffee machine market in 2006 with the introduction of Nescafé Dolce Gusto in Switzerland, Germany and UK. By 2007, they had also entered the Spanish market.

The “coffee shop-at-home” machine can switch from hot to cold. Nescafé, Nestea and Nesquik capsules are available for the five machine ranges including Melody, Circolo, Piccolo, Fontana, and Creativa. (Seen in the figure below)


Two years later Nescafé Barista, which is available exclusively in Japan, was developed as the only “at-home coffee by the cup” system of its kind that uses soluble coffee.

ADVERTISEMENTS & POSTIONING

Nescafé has always positioned itself as the first instant coffee brand and its advertisements have always portrayed relationships and creativity as the major themes. The initial advertisements always emphasized on the benefits of using instant coffee over the conventional fresh coffee.

The first Nescafé television ad featured Margaret Draper and portrayed how instant coffee makes the life of a housewife simpler, came on air in the 1960s. In the United Kingdom, a television advertisement campaign, the Gold blend ad starring Anthony Head and Sharon Maughan ran in 12 installments between 1987 and 1993.

“The coffee with life in it. Made in just 5 seconds”. That’s how Nescafé announced its entry into India in 1963. Before the ad campaign hit bill-boards across the country, Indian coffee lovers were stuck with the idea that coffee is something that takes minute attention to prepare and cannot be instant.

COMPETITION

The main challenge for Nescafé in India is Hindustan Unilever’s Bru, which is also been sold in small sachets and packs to woo customers. Bru has in fact been given Nescafé a run for its money and is banking on an old marketing mantra –


straddling the pyramid. In simpler parlance, offering a product at each price point. And Bru is fighting Nescafé everywhere. So when Nescafé roped in Bollywood actor Deepika Padukone, Bru brought in its own brand ambassadors, Shahid Kapoor and Priyanka Chopra.

But industry experts say both can co-exist for some time because of the low-level of penetration of the drink. Compared to tea penetration at 96 per cent, coffee penetration is as low as 16 per cent.

(As per Business Standard report dated January 7, 2013 http://www.business-standard.com/article/management/Nescafé-s-early-bird-advantage-113010700056_1.html)


http://www.business-standard.com/article/management/nescafe-s-early-bird-advantage-113010700056_1.html



QUANTITATIVE RESEARCH METHODOLOGY

(Using a variant of the Young &Rubicam’s BRAND ASSET VALUATOR Model)

THE BAV MODEL: AN INTRODUCTION

The BAV model is used to measure the position of the company in question vis-à-vis its competitors. It is a proprietary tool of Young & Rubicam’s and measures the consumer perception across 4 pillars viz. Brand Knowledge, Brand Esteem (which together give the brand’s stature) and Brand Relevance, Brand Differentiation (which together give the brand’s vitality).


The various pillars of the BAV model can be defined as:

DIFFERENTIATION: the brand’s unique identity w.r.t competition in the market

RELEVANCE: measure of how appropriate is the brand’s offerings for the consumer

ESTEEM: measures how much respect and regard is given to the brand by consumers

KNOWLEDGE: measures the extent of information or knowledge consumers have regarding the brand

Each pillar is assigned a weightage of 100% and the weightage is distributed across the questions pertaining to each pillar. So if brand esteem is measured using 2 questions then the weightage of 100% would be divided amongst the questions either evenly or as per the importance of the question in the overall framework.

RESEARCH METHODOLOGY

o Type of Research: Primary research involving Quantitative techniques

o Sample Size: 40o Target Group: instant coffee consumers in the age group of 21-30o Sampling Technique: convenience samplingo Interview Technique: CAPI (Computer Aided Personal Interviewing)o Brands Selected: Nescafé, BRU, TATA Café


QUESTIONNAIRE DESIGN

The following questionnaire was used for data collection:

(Brand knowledge)

1. Which brand comes to your mind when I say “refreshing beverage”? (40%)

2. Identify the brands associated with these logos (35%)

(DURING ANALYSIS, WE MERGED Q1 & Q2, AND TOOK THE WEIGHTAGE AS 40+35=75%, TO AVOID DOUBLE CALCULATION)

3. Are you aware of the following brands? (25%)

Brand CodeBRU Cappucino 1Nescafé Classic 2BRU Exotica 3Nescafé Sunrise 4Nescafé Gold 5BRU Gold 6Mr. Bean 7TATA Kaapi 8

(Brand Esteem)

4. When a friend comes over, which brand of coffee do you usually prefer? (40%)

a. BRUb. Nescaféc. TATA Café

5. Which factors do you associate with the following brands of coffee? (60%)

Attribute BRU Nescafé TATA CaféPrestigiousOptimisticConfidentHumbleDishonestArrogantRudeUnfriendly


(Brand Relevance)

6. For each brand, rate the attributes given on a 1-5 scale (1 being lowest, 5 being highest) (50%)

Good Flavor

Bitterness

Strength

Aroma

Color of the Brew

Froth

BRUNescaféTATA Cafe

7. Given below is a list of attributes. Select the brand that best describes the attribute: (50%)

Attribute BRU Nescafé TATA CaféHas great tasteGreat aromaGreat with companyIs easily availableHas good varietyHas better vfm

(Brand Differentiation)

8. What color are the packs of the following brands? (50%)

Brands RED GREEN YELLOW BLUE BROWNBRUNescaféTATA Cafe

9. Identify the packs: (50%)

Brands CORRECT INCORRECTBRUNescaféTATA Cafe

BAV METHODOLOGY


o Q1 to Q2 were brand awareness questions while Q3 was a question to test the respondent’s knowledge of the different variants. We assigned 40% to Q1, 35% to Q2, 25% to Q3 thus making the cumulative total of brand knowledge 100%

o Q4 & Q5 were brand esteem questions and we assigned weightage of 40% to Q4 as it only gives an idea of which brand is preferred by the respondent. For Q5 we assigned a weightage of 60% as by selecting the various personality attributes the respondent gives us an idea of which brand he relates to

o Q6 & Q7 were brand relevance questions and we assigned 50% weightage to both questions. Q6 measures ratings (in a 1-5 scale, 1 being lowest) given to various attributes of coffee brand-wise and Q7 asks the respondent to match attributes to brands (multiple choice allowed)

o Q8 & Q9 were brand differentiation questions and we assigned 50% weightage to both the questions. We measured the extent of differentiation by asking the respondent to select the color of the pack and identify the pack shots

Knowledge Measurement:

Brand Wise Awareness

Awareness Measure Bru Nescafé Tata Café OthersTom 23% 78% 0% 0%

Spont 68% 23% 0% 13%Aided 10% 0% 5% 0%Total 100% 100% 5% 13%

Variant Wise Awareness

BrandsBRU

Cappuccino

Nescafé Classic

BRU Exotic

aNescafé Sunrise

Nescafé Gold

BRU Gold

Mr. Bea

n

TATA

Kaapi

# Responden

ts 40 38 22 29 25 28 11 6%-age 100% 95% 55% 73% 63% 70% 28% 15%

Esteem Measurement:

Preference of Brands

Brand Name #Respondents Weighted %-age


(%-age * 0.4)Bru 6 6.00%

Nescafé 34 34.00%Tata Café 0 0.00%

Personality Trait Association

We selected both positive and negative personality traits (4 traits each) to get a clearer picture of how the respondent feels w.r.t different brands. At the time of analysis, we found the percentage of responses (out of 40) for each attribute. Then we added the positive and negative attribute percentages separately and divided by 4. Then we multiplied by the weight (60%) to the values and subtracted negative attribute percentages from positive attributes.

Attribute Bru NescaféTata Café

Bru NescaféTata Café

Posit

ive Prestigious 18 33 3 45.0% 82.5% 7.5%

Optimistic 20 27 4 50.0% 67.5% 10.0%Confident 20 27 2 50.0% 67.5% 5.0%Humble 22 14 7 55.0% 35.0% 17.5%

Neg

ati

ve Dishonest 3 2 6 7.5% 5.0% 15.0%

Arrogant 8 9 5 20.0% 22.5% 12.5%Rude 3 3 4 7.5% 7.5% 10.0%

Unfriendly 4 3 7 10.0% 7.5% 17.5% Positive Attribute (Sum) 200.0% 252.5% 40.0% Negative Attribute (Sum) 45.0% 42.5% 55.0% Positive Attribute (Sum)/4 50.00% 63.13% 10.00% Negative Attribute (Sum)/4 11.25% 10.63% 13.75% Weightage 30.00% 37.88% 6.00% Weightage 6.75% 6.38% 8.25% Positive-Negative 23.25% 31.50% -2.25%

Relevance Measurement:

Attribute Rating (on a 5 point scale, 1 being lowest)

We asked the respondents to rate the attributes on a 5 point scale and based on the responses then we found the average rating for each attribute and how each brand scored on the overall.


Good Flavor

Bitterness

Strength AromaColor of

the Brew

Froth

Avg

Weighted Avg

(%-age* 0.50)

Bru 3.58 2.90 3.63 3.80 3.63 3.28 3.47 34.67%Nescafé 4.23 3.15 4.05 4.25 3.93 3.88 3.91 39.13%

Tata Café 0.63 0.48 0.70 0.75 0.75 0.60 0.65 6.50%

Attribute Association

We asked the respondents to associate a set of attributes to the brands given. Respondents had the option of selecting more than one brand

Attributes

Has great taste

Great

aroma

Great with

company

Is easily

available

Has good

variety

Has better VFM

AvgWeighted

Avg (Avg*0.5)

Bru 60.0%65.0

%37.5% 55.0% 40.0% 47.5%

50.83%

25.42%

Nescafé 85.0%70.0

%80.0% 92.5% 75.0% 75.0%

79.58%

39.79%

Tata Café 2.5% 0.0% 7.5% 2.5% 2.5% 2.5% 2.92% 1.46%

Differentiation Measurement:

Color Identification

Brand Red GreenYello

w BlueBrow

n Weighted Avg(%-age*0.5)Bru 3 31 1 1 4 38.8%

Nescafé 21 0 3 1 15 26.3%Tata Café 0 4 1 1 2 2.5%

Pack Identification

Brand Correct Weighted Avg (Avg*0.5)Bru 40 50.0%

Nescafé 38 47.5%Tata Café 8 10.0%

BAV ANALYSIS

Finally, after finding the values for the different pillars of BAV, we plot the different brands on the various pillars.


Knowledge Esteem Relevance Differentiation

94%

66%

79%74%

Nescafe

Nescafé scores high on Knowledge which means that it has high awareness. It scores relatively lower on Esteem which means it has lost the respect & regard over time. It still scores well on Relevance & Differentiation.


94%

29%

60%

89%

Bru

Bru scores high on Knowledge indicating high awareness. It fares very less in Esteem and indicates that people do not hold this brand in very high regard. Its Relevance score is also low, when compared to Nescafé, which means that Bru has not been able to understand the consumer needs well. But it fares very high on Differentiation which means that people perceive Bru as a highly differentiated brand.



9%

-2%

8%

13%

Tata Cafe

TATA Café fares lowest on Knowledge and Esteem which indicates that the brand has very low awareness and respect amongst customers. It fares lower than Bru & Nescafé on Relevance & Differentiation which means that people do not perceive their product as a differentiated one and they also feel that it doesn’t understand their requirements well. This might also be a result of the fact that it is not so prevalent in the Northern & Eastern regions of India.


QUALITATIVE RESEARCH METHODOLOGY

(Using Zaltman’s Metaphor Elicitation Technique or ZMET)

ZMET HISTORY

ZMET is a qualitative research technique used to discover a person’s conscious & unconscious thoughts about a brand. It is conducted by asking the respondent to select pictures which form a mental representation of the brand for him. Using the pictures as an entry point or a metaphor for his feelings, the research is conducted to understand the softer aspects of the brand. Pictures are an important tool because at times words can miss out certain feelings which a picture can express better.

ZMET was founded in 1990 by Dr. Olson Zaltman while he was on vacation in Nepal. He asked the residents of the village to click pictures to explain “What life was like in their village”. After developing the pictures he went back and asked the villagers to explain the meaning of each picture and the significance of each in their life.

ZMET METHODOLOGY

o Type of Research: Primary research involving Qualitative techniqueso Sample Size: 10o Target Group: instant coffee consumers in the age group of 21-30

Steps followed in ZMET were:

1. Select 10 pictures which would define the meaning of Nescafé for them2. The respondent is then queried on the reasons for selecting the

different pictures3. Then the respondents were asked to select 5 pictures which were the

best representation of their feelings4. Then the respondent was asked to explain the reasons for selecting the

5 pictures and rejecting the remaining5. Then they were asked to create a mental map by collating the pictures

into one image

PICTORIAL ANALYSIS


The various pictures selected by the respondent are shown below along with the final analysis:


Respondent 1 Respondent 2



Respondent 5 Respondent 6 Respondent 7 Respondent 8


The following pictures/themes were found to be a common theme:


Friends, Friendship & F.R.I.E.N.D.S (10)

Apart from these themes, a few common & recurring themes were: (each had 4 responses each)


Coffee in the Morning & feeling of Refreshment (6)

Sugar & Sweet Coffee (5)


Coffee Beans

Couples & Dating

From the above pictures, we can conclude that:

“Coffee is generally preferred with friends rather than family. Be it at CCD or any other coffee shop, coffee is the preferred drink for people when it comes to sitting together, chatting and other such types of gatherings and amongst different brands, Nescafé is the most preferred brand when it comes to such occasions (especially at family gatherings)

People generally start off their day with a cup of coffee as they feel it’s the best way to refresh oneself. People also prefer coffee more in winters rather than summers, which can be a function of the Indian climate. For summers they prefer cold coffee or any other cool drink such as aerated soft drinks or lemon juice or even Ice-Tea. Coffee is also considered a great drink for removing drowsiness, headache and helps students and working professionals alike concentrate better on work or studies especially during exams or late night work.


Winter

NESCAFE- The Brand

When it comes to strength, people usually prefer medium strength coffee which is a bit sweeter than the average cup of tea, though the preference changes according to regions as in South India, people like stronger coffees.”

For positioning their brand in India, Nescafé can make use of the following value propositions which have been a central theme for all our ZMET respondents:

1. Company of friends or family2. Feeling of happiness3. Respect for family members4. Feeling of achievement5. Relaxing, either alone or with someone special

Brand Equity: A Definition

Brands represent enormously valuable pieces of legal property, capable of influencing consumer behavior, being bought and sold, and providing the security of sustained future revenues to their owner. The value directly or indirectly accrued by these various benefits is often called brand equity (Kapferer, 2005; Keller, 2003)

In simpler terms it can be defined as the value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent.


Companies can create brand equity for their products by making them memorable, easily recognizable and superior in quality and reliability. Mass marketing campaigns can also help to create brand equity.

Brand equity is strategically crucial, but usually difficult to quantify. Many experts have developed tools to analyze this asset, but there is no universally accepted way to measure it. As one of the serial challenges that marketing professionals and academics find with the concept of brand equity, the disconnect between quantitative and qualitative equity values is difficult to reconcile.

Quantitative brand equity includes numerical values such as profit margins and market share, but fails to capture qualitative elements such as prestige and associations of interest.

Measuring Brand Equity: The Logic?

The value of a brand – and thus its equity – is ultimately derived in the marketplace from the words and actions of consumers. Consumers decide with their purchases, based on whatever factors they deem important, which brands have more equity than other brands. Although the details of different approaches to conceptualize brand equity differ, they tend to share a common core: All definitions typically either implicitly or explicitly rely on brand knowledge structures in the minds of consumers – individuals or organizations – as the source or foundation of brand equity. In other words, the real power of a brand is in the thoughts, feelings,


images, beliefs, attitudes, experiences and so on that exist in the minds of consumers. This brand knowledge affects how consumers respond to products, prices, communications, channels and other marketing activity – increasing or decreasing brand value in the process. Along these lines, formally, customer-based brand equity has been defined as the differential effect that consumer brand knowledge has on their response to brand marketing activity (Keller, 2003).

Reasons to measure Brand Equity:

Understand drivers of brand strength in order to support strategic decision making

To evaluate performance of brand management in increasing equity over time

To evaluate efficacy of brand building programs To assess the value of the brand for purposes of licensing or sale

The metrics derived from the brand equity measurement process, are important tools in each stage of the brand strategy.


Brand Equity versus Brand Value:

Though at times the terms are used interchangeably, the term Brand Value actually refers to the financial measure or value of the brand in question. It gives an idea to an outsider of the value of the brand, where it been sold in the market (useful at times of M&A’s). Brand Equity is more to do with how the brand’s image, perception, positioning etc. in the market impacts the business side of the brand and how it ensures future cash flows for the company.


Techniques of Brand Equity measurement:

The techniques employed to measure brand equity make use of three metrics. They are:

Measure of Brand Loyalty Measure of Price Premia Measure of Brand Leveragability

Brand Loyalty:

Brand loyalty, in marketing, consists of a consumer's commitment to repurchase or otherwise continue using the brand and can be demonstrated by repeated buying of a product or service, or other positive behaviors such as word of mouth advocacy.

Brand loyalty is more than simple repurchasing, however. Customers may repurchase a brand due to situational constraints (such as vendor lock-in), a lack of viable alternatives, or out of convenience. Such loyalty is referred to as "spurious loyalty". True brand loyalty exists when customers have a high relative attitude toward the brand which is then exhibited through repurchase behavior. This type of loyalty can be a great asset to the firm: customers are willing to pay higher prices, they may cost less to serve, and can bring new customers to the firm.

There are two dimensions in play when we discuss about brand loyalty. They are:

Usage Rate, i.e. the amount of usage subjected to a brand by the user. The most common segmentation strategy of consumers, as per usage rates is into “HEAVY”, “MEDIUM” and “LIGHT” users of a brand

Commitment to the Brand, i.e. how “committed” is the consumer towards using his/her brand. Based on commitment the consumers are segmented as “HARD CORE LOYALS (who buy the brand all the time)”, “SPLIT LOYALS (loyal to two or three brands)”, “SHIFTING LOYALS (keeps moving from one brand to another)” and “SWITCHERS (no particular loyalty and keep looking for bargains or value for money)”.

The most common techniques employed to check brand loyalty whilst measuring brand equity are the Colombo Morrison Model and the Shared Tier Model.

We discuss each measure in detail below:


COLOMBO MORRISON MODEL:

The Colombo Morrison model of brand loyalty measure makes use of two questions. These are:

1. Which brand do you prefer?2. Out of the last 3 (or 5) purchases, how many times have you

purchased the brand in question?

This model works best for products and brands wherein the level of loyalty is medium to high.

The output of this model is represented as a 2X2 matrix as shown:

Preferred Brand

Last Purchases.. .. .. .. Row Total =

SHARE OF PREFERENCES

.. .. .. ..

Column Total =MARKET SHARES

This model makes use of two ratios viz. Gravity (given by Purchase/Preference) and Focus (given by Preference/Purchase)

SHARED TIER MODEL:

The Shared Tier model makes use of four quality standards viz.

1. Q1= SUPERIOR2. Q2= GOOD3. Q3= ACCEPTABLE4. Q4= POOR

The model also uses four price standards viz.

1. P1= PRICE IS NOT A BARRIER2. P2= PRICE IS A MINOR BARRIER3. P3= PRICE IS A MAJOR BARRIER4. P4= PRICE IS AN ABSOLUTE BARRIER

These standards are used to map a brand into different price-quality segments and based on the responses from consumers understand which segment is best suited for the brand. An example would be if Nescafe and Bru


both occupy the segment P1Q1 for a consumer, then he is more likely to switch between brands, as he sees both brands as the same, i.e. he is “indifferent” to the brands.

Conversely, if a consumer has Nescafe as a P2Q1 brand and Bru as a P2Q2 brand, then the makers of Nescafe can target this customer with price offers as he feels the brand is superior but is probably not using it owing to price constraints.

Both these models when used together, give a clearer picture of the loyalty position of the brand and also an idea of the means to be employed to retain the existing users of a brand.

For our study, we have combined the findings of both these models and painted a picture of the loyalty levels for Nescafe and competitors.

Price Premia:

Brand equity is also what enables branded products or services to charge premium prices. Many major brands are positioned as quality products, and many people are willing to pay more for a quality product they are familiar with, particularly if the brand has an image with which they would like to be associated. The challenge is to find the point where the premium price is still acceptable in exchange for the confidence embedded in the brand. (Keegan – Moriarty – Duncan 1995)

The price premium due to brand equity provides the additional price the firm is able to charge currently for the brand, while holding the market share fixed. The market share and price premiums constitute meaningful summary measures of brand equity because they closely relate to brand profitability.

Primarily two models are used to gauge price premia. They are viz. the Van Westendorp Price Sensitivity Meter & the Brand Price Trade-Off (BPTO) Model.

(http://lta.hse.fi/1999/1/lta_1999_01_a4.pdf)

VAN WESTENDORP PRICE SENSITIVITY METER (PSM):

This model is a market technique for determining consumer price preferences. It was introduced in 1976 by Dutch economist Peter van Westendorp. The technique has been used by a wide variety of researchers in the market research industry.

The assumption underlying PSM is that respondents are capable of envisioning a pricing landscape and that price is an intrinsic measure of value or utility.


http://lta.hse.fi/1999/1/lta_1999_01_a4.pdf

Participants in a PSM exercise are asked to identify price points at which they can infer a particular value to the product or service under study.

The traditional model of PSM makes use of four price-related questions, which are then evaluated as a series of four cumulative distributions, one distribution for each question. The standard question formats can vary, but generally take the following form:

1. At what price would you consider the product to be so expensive that you would not consider buying it? (Too expensive)

2. At what price would you consider the product to be priced so low that you would feel the quality couldn’t be very good? (Too cheap)

3. At what price would you consider the product starting to get expensive, so that it is not out of the question, but you would have to give some thought to buying it? (Expensive/High Side)

4. At what price would you consider the product to be a bargain—a great buy for the money? (Cheap/Good Value)

(http://en.wikipedia.org/wiki/Van_Westendorp's_Price_Sensitivity_Meter)

BRAND PRICE TRADE-OFF (BPTO) MODEL:

Brand Price Trade-Off (BPTO) is a technique used to gain insight into expected purchase behavior at various price points for competitive products.

Within the scope of the technique, the price “attribute” is isolated and traded-off by the respondents against all other fixed properties of the competitive products. Thus, during the interview, the respondent is confronted with a limited number of products or concepts. Each product is given a price and the respondent is asked which product he/she would buy. Then the price of the product the respondent has chosen is raised by a pre-determined increment, and the procedure is repeated several times. The products remain unchanged and only the prices vary.

On the basis of the BPTO technique, conclusions can be drawn concerning expected behavior in a competitive environment. It is also possible to estimate market shares, given any combination of price levels.

(http://www.marketresponse.com/mmt-04-brandpricetradeoff.html)

For our study, we have used the Van Westendorp PSM model to test Nescafe for price premia and price sensitivity. We have used a variation of the standard questions of the PSM model.


http://www.marketresponse.com/mmt-04-brandpricetradeoff.html

http://en.wikipedia.org/wiki/Van_Westendorp's_Price_Sensitivity_Meter

Brand Leveragability:

Brand leveragability is also known as brand elasticity and it represents the brand’s ability to stretch from one offering to another. (e.g., Apple's expansion from Computers—iMac to MP3 players—iPod to telecommunications—iPhone)

(http://www.blackcoffee.com/brand-related/brand-terms/E/elasticity)

Brand extensions are popular among brands wanting to leverage their position in the existing category/market into other category/markets. Consumers tend to respond more favorably to extensions that fit with their perceptions of the parent brand. Perceived fit is usually higher for

Extensions in product categories close to the parent brand (Boush and Loken 1991)

Extensions in product categories in which an appealing attribute can be supplied by the parent brand (Broniarczyk and Alba 1994)

Extensions that can be used with other products sold by the parent brand (Aaker and Keller 1990)

Characteristics of the parent brand dictate the brand’s elastic nature. Of particular importance is the nature of the brand concept associated with the parent brand—prestige versus functional (Park, Milberg, and Lawson 1991).

Brands positioned on the basis of prestige, such as Rolex, have abstract brand concepts that are more elastic and can successfully expand into a variety of product categories, such as clothing and accessories. In contrast, brands positioned on functional attributes, such as Timex (reliability), are less elastic and are more successful if they extend to offerings that conform to the functional nature of the brand.

(http://www.carlsonschool.umn.edu/assets/164421.pdf)

To gauge a brand’s elastic ability, the most commonly used model is the Brand Optimor Model of Millward Brown (brand name BrandZ™). Here the brand is tested across different product categories on three variables:

APPROPRIATENESS LIKELY LEADERSHIP CONSIDERATION


http://www.carlsonschool.umn.edu/assets/164421.pdf

http://www.blackcoffee.com/brand-related/brand-terms/E/elasticity

The product categories selected are grouped into three classes, viz. Similar (Juice &Soft Drinks), Associated (Laptops & Speakers) and No Relation (Jeans & Cars). If a brand scores high in associated and no relation classes, it is considered to be a highly elastic category.

For our study, we have made use of this model and classified the brands into associated and no relation product categories for analysis purposes.

Tool employed for Brand Equity Measurement:

To measure the brand equity of Nescafe on the parameters stated above, we made use of a structured questionnaire which tested the consumer’s outlook towards the brand on the parameters decided. The questionnaire is reproduced herewith:

GENERAL QUESTIONS:

Q.1.Which brands come to your mind when you think of “Instant Coffee”?

Q.2. Which brands do you associate with the following attributes?

Attribute BRU Nescafé TATA CaféHas great tasteGreat aromaGreat with companyIs easily availableHas good varietyHas better VFM

Q.3 Rank these instant coffee brand as per your overall preference. (1 to best , 3 to last)

Brand RankBRU Nescafé TATA Café

Q.5 If you were to recommend a brand of coffee to somebody, which brand would it be?

Brand CodeBRU 1


Nescafé 2TATA Café 3

LOYALTY MEASURE–

COLOMBO MORRISON MODEL

1. What is your preferred brand of instant coffee?

BrandBRUNescaféTATA Café

2. Out of your last 3 purchases of instant coffee how many times have you purchased the following brands?

Brand Purchase 1 Purchase 2 Purchase 3BRUNescaféTATA CaféOther

SHARE TIER MODEL

Q1 How would you rate the following brands on the basis of quality (SUPERIOR = Q1, GOOD = Q2, ACCEPTABLE = Q3, POOR = Q4) and price (PRICE NOT A BARRIER = P1, PRICE IS A MINOR BARRIER = P2, PRICE IS A MAJOR BARRIER = P3, PRICE IS AN ABSOLUTE BARRIER = P4)

Brand Quality PriceBRUNescaféTATA Café


PRICE PREMIA MEASURE-

VAN WESTENDORP METHOD

3. Now I would like you to think about the price of different brands of instant coffee. Kindly tell us which of the following statements best describes how likely you would be to buy your brand of instant coffee.

1. I would buy whatever it costs2. I would buy even if it costs a lot more than the

cheapest brand3. Even if it costs more than any other brand4. Even if it costs a bit more than the cheapest

brand I wouldn’t buy it at all5. Only if it costs the same as the cheapest

brand

Brand 1 2 3 4 5BRU Nescafé TATA Café

LEVERAGABILITY –

BrandZ™ (MILLWARD BROWN OPTIMOR MODEL)

4. If the following brands enter into the following categories, how would you rate your acceptance of the brands? (5 being the highest and 1 being the lowest)

Brand

Soft Drinks

Pens

Edible Oil

Biscuits

Soaps

Chewing Gum

Laptop

Potato Wafers


BRU Nescafé TATA Café

Analysis of Brand Equity Measurement Exercise:

Given below are the different findings from the brand equity measurement exercise undertaken for our brand Nescafe.

Attribute Analysis:

We checked the brands for different attributes as given below, by asking respondents to select the best suited brand:

Has great taste Great aroma Great with company Is easily available Has good variety VFM

The importance of the different factors was found as shown in the table below:

Attribute Has great taste

Great aroma

Great with company

Is easily available

Has good variety

VFM Total

BRU 20 14 8 12 9 14

Nescafé 31 30 29 35 31 30

TATA Café 2 3 5 1 1 4

Sum of responses 53 47 42 48 41 48 279

Importance of factors 19.00% 16.85% 15.05% 17.20% 14.70% 17.20%


ASSOCIATED CATEGORIESNO RELATION CATEGORIES

Has great taste Great aroma Great with company

Is easily available Has good variety VFM

19.00%16.85%

15.05%17.20%

14.70%17.20%

Importance of Factors

The different brands including Nescafe were tested across the different attributes and the performance of the brands is as shown

Brands Has great taste

Great aroma

Great with

company

Is easily available

Has good variety

VFM

BRU 3.80 2.36 1.20 2.06 1.32 2.41

Nescafé 5.89 5.05 4.37 6.02 4.56 5.16

TATA Café 0.38 0.51 0.75 0.17 0.15 0.69


Has great taste Great aroma Great with company

Is easily available Has good variety VFM

3.80

2.36

1.20

2.06

1.32

2.41

5.89

5.05

4.37

6.02

4.56

5.16

0.38 0.510.75

0.17 0.15

0.69

BRU Nescafé TATA Café

Here also we can see that Nescafe scores highest in all attributes while TATA Café fares the lowest, which can be attributed to the fact that it is not widely available.

Loyalty Analysis:

To measure the loyalty of the brands we used a combination of the Colombo Morrison model and the Share Tier model. The findings of the research are as shown:

Brand\Frequency of purchase

Purchase 3

Purchase 2

Purchase 1

Did not Purchase Total

BRU 5 5 10 20

160Nescafé 15 13 7 5

TATA Café 0 0 1 39

Other 0 1 2 37


Then we assigned weights to each of the purchases in the order of 3, 2, 1, and 0 respectively. Then we found loyalty score for each brand. This is shown as follows:

Weighted 3 2 1 0 Sum Loyalty

BRU 15 10 10 0 35 21.88%

Nescafé 45 26 7 0 78 48.75%

TATA Café 0 0 1 0 1 0.63%

Other 0 2 2 0 4 2.50%

Using the Share Tier model we have calculated the loyalty as follows:

Total P1 P2 P3 P4Q1 23 11 2 0Q2 21 17 2 0Q3 5 3 0 2Q4 0 0 0 0

Bru P1 P2 P3 P4Q1 3 5 1 0Q2 12 12 0 0Q3 3 0 0 0Q4 0 0 0 0

Bru P1 P2 P3 P4

Q1 13.04% 45.45% 50.00% n/aQ2 57.14% 70.59% 0.00% n/aQ3 60.00% 0.00% n/a 0.00%Q4 n/a n/a n/a n/a

Nescafe P1 P2 P3 P4

Q1 20 6 1 0

Q2 6 5 2 0

Q3 0 0 0 0


Q4 0 0 0 0

Nescafe P1 P2 P3 P4


TataCafe P1 P2 P3 P4

Q1 0 0 0 0Q2 3 0 0 0Q3 2 3 0 2Q4 0 0 0 0

TataCafe P1 P2 P3 P4


(n/a represents columns with undefined values)

From analyzing the data from above, we can see that Nescafe’s customers are primarily centered around the Q1P1 & Q1P2 segment, who feel the quality of the brand is superior and for them price is not a barrier or at best a minor barrier.

For customers in the Q1P3 segment we suggest price offers, as Bru also has equal percentage of customers in this segment and if they enter into a price discount, customers would shift to Bru seeing that they presume both brands to be of equivalent quality.

Nescafe has a large chunk of customers in the Q2P3 segment who feel even after Nescafe’s good quality the price of the brand is a major barrier. For these customers we suggest price discounts which are not too extreme, so as to shift those to Q3/Q4 segments (quality suspect) but bring them to P1/P2 segment.


Price Premia Analysis:

We checked the brands for ability to charge price premium using the Van Westendorp model. We used the following statements to test the price sensitivity of the consumer’s w.r.t Nescafe and its competitors:

A. Whatever it costsB. Even if it costs lot more than the cheapest brandC. Even if it costs more than any other brandD. Even if it costs a bit more than the cheapest brand I wouldn’t buy it at allE. Only if it costs the same as the cheapest brand

The performance of the different brands in this module is:

A B C D E0

2

4

6

8

10

12

14

16

18

4

8

10

7

11

16

109

32

0

45

17

14

BRUNescaféTATA Café

The ability to charge price premia is explained by the price premia index given below:

Brand Price PremiaBRU 0.89Nescafé 1.29TATA Café 0.66

Leveragability Analysis:

We checked the elasticity of Nescafe, Bru and TATA Café across the following product categories:

Soft Drinks


Biscuits Chewing Gum Potato Wafers Pens Edible Oil Soaps Laptop

The categories have been further sub divided into two classes, viz. Associated & No Relation. The product categories under each class are:

Associated:

Soft Drinks Biscuits Chewing Gum Potato Wafers

No Relation:

Pens Edible Oil Soaps Laptop

The scores for the brands across categories for elasticity and category vulnerability are as shown below:

Brands

Associated No RelationBrand

Elasticity Score

Soft Drink

s

Biscuits

Chewing Gum

Potato Wafer

s

Pens

Edible Oil

Soaps

Laptop

Bru 3.05 2.925 1.975 2.2 1.65 1.775 1.5 1.4 2.06

Nescafe 3.525 3.5 2.35 2.5 1.8 1.875 1.675 1.575 2.35

Tata Café 2.35 2.125 1.625 1.95 1.825

1.85 1.55 1.675 1.87

Mean(category wise)

2.98 2.85 1.98 2.22 1.76 1.83 1.58 1.55 Mean(class-

wise)2.36 1.68

(We have tabulated the mean score of each category w.r.t the different brands)


Going by the contents of the table, we can make the following conclusions:

Nescafe with a score of 2.35 is the most elastic brand when compared to Bru (2.06) and TATA Café (1.87). But when we compare to standard value of 5 (indicating most elastic brand) we can see that none of the brands are elastic enough to enter different categories. TATA Café is the most inelastic brand.

Among categories, soft drinks (with a score of 2.98 ) is the most vulnerable followed by biscuits (with a score of 2.85 ) while laptops are the most inelastic (with a score of 1.55 ) followed by soaps (with a score of 1.58 ) .

For the brands we studied associated categories is the best segment to enter since it has a score 2.36.

On checking for elasticity across brands, we can see that not a single category is vulnerable enough to be easily entered because the score should be nearer to 5 for the category to be vulnerable. For all categories the highest score is 2.98 which is a fairly low score.

Checking the brands across classes we see:

Brands Associated No Relation

Bru 2.54 1.58

Nescafe 2.97 1.73

Tata Café 2.01 1.73

Here again we see Nescafe scores the highest with a score of 2.97 followed by Bru with a score 2.54 which is consistent with the previous findings.

We can conclude that Nescafe is the most elastic amongst the different instant coffee brands and has the advantage of its brand name and trust generated amongst consumers. If it wants to enter into some other category, then soft drink (with 3.525) and biscuits (with 3.5) is the best sector to expand into.

WINNING B®ANDS™

To measure the brand equity index we made use of the model called WINNING B®ANDS™.


WINNING B®ANDS™ is the brand management service from The Nielsen Company that measures the effect that ALL your marketing activity has on brand equity.

The issues that WINNING B®ANDS™ covers are comprehensive - from understanding the category that brand competes in from the consumers perspective, through detailed brand measurement, to an understanding of how the whole range of marketing activity has influenced consumer perception of the brand.

Nielsen Winning Brands tracks the underlying strength of the relationship between the customer and the brand, and uses this to create effective strategies to enhance that relationship. At the same time, it provides monitoring to protect and improve the brand’s health as often as is required.

As per the data collected in the different segments we calculated a brand equity index as shown:

Brand BRU NescaféTATA Café

Recommended brand 9 29 2Favorite brand 5 34 1

Recommended brand 0.225 0.725 0.05Favorite brand 0.125 0.85 0.025Loyalty 0.21875 0.4875 0.00625

Weights BRU NescaféTATA Café

0.3 Weighted recommended brand 0.0675 0.2175 0.0150.3 Weighted favorite brand 0.0375 0.255 0.00750.4 Weighted loyalty value 0.0875 0.195 0.0025

Net Loyalty 0.1925 0.6675 0.025

According to Winning Brands

Weights BRU NescaféTATA Café

0.5 Net Loyalty 0.1925 0.6675 0.025

0.5 Ability to charge price premia 0.89 1.29 0.66

Brand Equity Index(BEI) 0.542 0.980 0.342


We assigned 30% importance to recommended brand & favorite brand of the respondent. The overall loyalty score generated from purchases was given a weightage of 40% since that reflects the actual buying behavior of the consumer and is a more durable measure of consumer loyalty in the long run.

Based on the values we have calculated a BEI of 0.980 for our brand Nescafe.

BRAND VALUATION:

What are Brands?

“A distinguishing symbol, mark, logo, name, word, sentence or a combination of these items that companies use to distinguish their product from others in the market.”

That is how Investopedia™ describes a brand. A brand is a product, service, or concept that is publicly distinguished from other products, services, or concepts so that it can be easily communicated and usually marketed. A brand name is the name of the distinctive product, service, or concept. Branding is the process of creating and disseminating the brand name. Branding can be applied to the entire corporate identity as well as to individual product and service names.

Brands are usually protected from use by others by securing a trademark or service mark from an authorized agency, usually a government agency.

Why measure Brand Value?

A brand is an asset for the company and like all assets, it too is bound by the definition of an asset i.e. a resource with economic value that an individual, corporation or country owns or controls with the expectation that it will provide future benefit.

Brands are intangible assets which actually are the most important asset for some companies. 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. Competition in the marketplace has made the brand as the single most important factor when it comes to differentiating between companies.


Strong brands enhance business performance primarily through their influence on three key stakeholder groups:

Customers (current and prospective)

Employees

Investors

They influence customer choice and create loyalty; attract, retain, and motivate talent; and lower the cost of financing. The influence of brands on current and prospective customers is a particularly significant driver of economic value. By expressing their proposition consistently brands help shape perceptions and, therefore, purchase behavior, making products and services less substitutable. In this way, brands create demand, allowing their owners to enjoy higher returns. Strong brands also create continuity of demand into the future, thus making expected returns more likely – or less risky. Brands, therefore, create economic value by generating higher returns and growth, and by mitigating risk.

Do Brands appear in the Balance Sheet?

Surprisingly, brands, even after being such important assets, do not appear in a company’s balance sheet. Only acquired brands are shown in the balance sheet (from the 1980’s) which was also the result of the fact that companies started to question the high premiums paid to acquire companies during merger & acquisitions. This revealed that companies acquiring companies with strong brands had to pay a hefty price and so these acquired brands were allowed to appear on the acquiring company’s balance sheet. But the company’s own brands can’t be shown on the balance sheet.

What are the methods to measure Brand Value?

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.


Unlike other assets such as stocks, bonds, commodities and real estate, there is no active market in brands that would provide comparable values. So to arrive at a value, primarily two methods are employed

• Research-based brand equity evaluations

There are numerous brand equity models that use consumer research to assess the relative performance of brands. They measure consumer behavior and attitudes that have an impact on the economic performance of brands. They all try to explain, interpret and measure consumers’ perceptions that influence purchase behavior. They include a wide range of perceptive measures such as different levels of awareness (spontaneous & aided), knowledge, familiarity, relevance, specific image attributes, purchase consideration, preference, satisfaction and recommendation. Some models add behavioral measures such as market share and relative price.

• Financially driven brand equity evaluations

The financial models are subdivided into the following categories:

Cost based approach takes all costs incurred in building the brand into account and all costs are added to arrive at the brand value. These measures are not quite successful as there is no direct relation between brand value and the financial investments made into the brand.

Book to Market approach is ideal for single brand companies (e.g. McD). Here book value of the company is subtracted from the market capitalization to arrive at the brand’s value. The intrinsic flaw in this method is that it assumes that the brand’s value is only the excess of the book value and ignores the strength of the brand which also adds a premium.

Discounted Cash Flow (DCF) approach is the method where the Net Present Value (NPV) of the brand (arrived at by discounting the estimated cash flows) is taken to be the brand and firm’s value.

Price Premia approach the value is calculated as the net present value of future price premiums that a branded product would command over an unbranded or generic equivalent. However, the primary purpose of many brands is not necessarily to obtain a price premium but rather to secure the highest level of future demand and herein lies the flaw in this technique.


Economic Use approach combines brand equity and financial measures, and has become the most widely recognized and accepted methodology for brand valuation. It has been used in more than 3,500 brand valuations worldwide.

What are the uses of Brand Value measurement?

Brand value measurement is required in the following scenarios:

a) To assess the value of the company and its brands at the time of M&A

b) To decide on business investments and to benchmark performance by comparing brands to other assets in the conventional fashion

c) To decide on investment decisions subject to a brand (like channel investments, diversification etc.)

d) To arrive at the cost of licensing while interacting with third parties

e) To acquire funds from the market, by keeping brand as collateral

Now for our study, we shall discuss the InterBrand model of Brand Valuation which the model we have used to measure our brand Nescafe.

INTERBRAND MODEL OF BRAND VALUATION

The value of a brand lies in its economic benefit – brand value is therefore defined as the net present value of future earnings generated by the brand alone. InterBrand approach is based on the following three economic functions:

1) The brand’s function to create cost synergies

2) The brand’s function to generate demand for the products and services

3) The brand‘s function to secure future demand and thus reduce operative and financial risks.

The method employed to evaluate brands comprises five steps: segmentation, financial analysis, demand analysis, brand strength analysis, and, finally, the calculation of the net present value of brand earnings. This can be shown in a diagram as follows:


The different steps in the InterBrand model are explained as follows:

Segmentation: Consumers’ purchasing behavior and attitudes towards brands differ from one market sector to another, depending largely on product-, market- and distribution-related factors. For this reason, the value of a brand can only be determined precisely through the separate assessment of individual segments that represent a homogenous customer group. Apart from this, brand management can only obtain the insights it needs to increase the brand’s value systematically if the brand has been evaluated in all its segments.

Financial Analysis: InterBrand brand valuation begins with an assessment of the company's value and then determines the value contributed by the brand. The first step towards isolating brand earnings from other forms of income is to determine the Economic Value Added (EVA) which tells whether a company is able to generate returns that exceed the costs of capital employed. As both value creation and its counterpart, risk, lie in the future, the analysis is based on a five-year forecast of future revenues generated in the brand segment being assessed.

Demand Analysis: In this step, InterBrand analyzes the brand’s value chain and identifies the position of the brand in the minds of customers. To determine the


brand’s share of EVA, InterBrand examines what factors influence demand and motivate customers to purchase. These factors are weighted in terms of their bearing on demand and for each; the contributions of the specific associations with the brand are statistically calculated. The sum of these brand contributions on the demand drivers is expressed as the Role of Brand Index (RBI) which, multiplied with the EVA, yields the brand earnings.

Brand Strength Analysis: The stronger a brand, the lower is its risk, and thus the more certain are future brand earnings. InterBrand assesses this risk by analyzing the strength of a brand compared with its competitors on the basis of seven factors (i.e. market, stability, brand leadership trend, brand support, diversification, and protection). In fact, a broad range of measured attributes explains the seven factors and facilitates an all-round diagnosis of a brand’s competitive position. This step results in the Brand Strength Score (BSS).

Net Present Value Calculation: The economic value of future brand earnings is inversely correlated with the brand’s estimated risk and this risk is directly linked to brand strength. The transformation of brand strength into brand risk (or into discount rate,) is completed using an S-curve. The procedure reflects the dynamism of the market, where brands at the extreme ends of the scale react differently from brands in the middle range as regards changes in their strength. The strongest brands are discounted with the risk-free rate of the total market while average-strength brands are discounted with the industry WACC (cost of equity in the financial service industry). Discounting the forecast period (present value) and the calculation of an annuity (terminal value) results in the total value of the brand.

This conversion using an S-Curve is shown below:


The InterBrand model measures a brand across the following components:

1. CLARITY: The brand's values, positioning and proposition must be clearly articulated and shared across the organization, along with a clear view of its target audiences, customer insights and drivers. It is vital that those within the organization know and understand all of these elements, because everything that follows hinges on them.

Weightage assigned: 15%

2. COMMITMENT: A measure of an organization’s internal commitment to/or belief in its brand. Commitment is the extent to which the brand receives support in terms of time, influence and investment.


3. PROTECTION: This component examines how secure a brand is across a number of dimensions – from legal protection and proprietary ingredients to design, scale or geographic spread.


4. AUTHENCITY: This component is about how soundly a brand is based on an internal capability. Authenticity asks if a brand has a defined heritage and a


Weak Brand

Medium Brand

Strong Brand

Brand Strength

Discount Rate

Relationship Between Value and Strength

well-grounded value set, as well as if it can deliver against customers' expectations.


5. RESPONSIVENESS: This component looks at a brand’s ability to adapt to market changes, challenges and opportunities. The brand should have a desire and ability to constantly evolve and renew itself.


6. RELEVANCE: This component estimates how well a brand fits with customer needs, desires and decision criteria across all appropriate demographics and geographies.


7. DIFFERENTIATION: This is the degree to which customers perceive the brand to have a positioning that is distinct from the competition.


8. CONSISTENCY: This measures the degree to which a brand is experienced without fail across all touch-points and formats.


9. PRESENCE: This measures the degree to which a brand feels omnipresent and how positively consumers, customers and opinion formers discuss it in both traditional and social media.


10. UNDERSTANDING: Not only must customers recognize the brand, but there must also be an in-depth understanding of its distinctive qualities and characteristics, as well as those of the brand owner.



ANALYSIS OF NESCAFE USING InterBrand MODEL

How to get Role of Branding Index (RBI)?

We checked the brands (Nescafe, Bru, and TATA Café) across the components in the InterBrand model (Clarity, Commitment, Protection etc.) on a 5-point scale. The average value of each component for each brand is calculated. This score is then added for each brand across each component. The sum is divided by the maximum value achievable by any brand 50 (score of maximum 5*10 components). The weights assigned to each component are not applicable in this case. Based on these calculations, the Role of Branding Index (RBI) of Nescafe and competitors is as shown:

Role of Branding Index

Nescafe Bru Tata CaféSum 43.58 37.26 30.32 RBI 87.16% 74.52% 60.65%

Nescafe Bru Tata Café0.00%

10.00%20.00%30.00%40.00%50.00%60.00%70.00%80.00%90.00%

100.00%

Role of Branding Index

How to get Brand Strength Score (BSS)?

The average values for each component per brand, is then multiplied by their respective weights which have been assigned based on their relative importance from a brand’s perspective. Hence relevance has a weight of 12% while clarity has a weight of 15%. The values after multiplication are then summed for each brand and divided by the maximum score for any component i.e. 5. Based on these


calculations, the Brand Strength Score (BSS) of Nescafe and competitors is as shown:

Brand Strength Score

Nescafe Bru Tata Café

Sum 4.35 3.71 3.03

BSS 86.97% 74.10% 60.70%

Nescafe Bru Tata Café0.00%

20.00%

40.00%

60.00%

80.00%

100.00% 86.97%74.10%

60.70%

Brand Strength Score

Taking the values calculated in each of these phases we then calculate the Economic Value Added (EVA) for Nescafe which gives the value of the brand in the market.

How to arrive at EVA?

2013 2014 2015 2016 2017

Revenue (Nestle) 101,

588.97 111,951.05

123,370.05

135,953.80

149,821.09

Revenue (Nescafe) 12,

190.68 13,434.13

14,804.41

16,314.46

17,978.53

Cost of sales 6,

217.25

6,851.40

7,550.25

8,320.37

9,169.05

Gross Margin

5,973.43

6,582.72

7,254.16

7,994.08

8,809.48

Marketing Costs 2,

438.14

2,686.83

2,960.88

3,262.89

3,595.71

Depreciation

271.85

299.58

330.14

363.81

400.92

Distribution expenses 1,

058.15

1,166.08

1,285.02

1,416.09

1,560.54

Research and development costs

219.43

241.81

266.48

293.66

323.61


Other trading expenses

153.60

169.27

186.54

205.56

226.53

EBITA

1,832.26

2,019.15

2,225.10

2,452.06

2,702.17

Applicable taxes18.01

%

329.99

363.65

400.74

441.62

486.66

NOPAT (Net Operating Profit After Tax)

1,502.27

1,655.50

1,824.36

2,010.45

2,215.51

Capital Employed 1

0,497.12

11,756.77

13,167.5

9

14,747.7

0

16,517.4

2

Working capital (

425.76)

(476.85)

(534.07)

(598.16)

(669.94)

Net PPE 1

0,071.36

11,279.92

12,633.5

1

14,149.5

4

15,847.4

8

Capital Charge 8%

839.77

940.54

1,053.41

1,179.82

1,321.39

Intangible Earnings

662.50

714.96

770.95

830.63

894.12

Role of Branding Index87.16

%

Brand Earnings

577.44

623.17

671.97

723.99

779.32

Brand Strength Score86.97

%

Brand Discount Rate 5.50%

Discounted Brand Earnings

547.34

559.89

572.26

584.42

596.29

NPV (Net Present Value) ofDiscounted Brand Earnings (Years 1–5)

2,860.19

Long-term growth rate 1%

NPV of terminal Brand Value (beyond Year 5)

13,

383.36


BRAND VALUE (In millions of CHF) 16,243.55

Assumptions: (basic, rest in excel file)

Considering the fact that coffee has achieved a healthy value of penetration in global markets, we have assumed a long term growth rate of 1% (to check for maturity in the product category)

The capital charge is equal to the WACC value of 8% The discount rate is taken as 5.5% which is the highest value of the risk-

free government bonds of the Switzerland bonds (since the balance sheet details have been taken from the parent company which are in Swiss Franc (CHF))

Based on these assumptions, the brand value of Nescafe has been found to be CHF

16243.55 million which translates to US$17485.04 million ( US$17.48 billion ) . This value is in line with the valuation undertaken by Thomson Reuters Fundamentals and Worldscope via FactSet Research Systems; Forbes.

(http://www.forbes.com/companies/nescafe/)

INFERENCES & RECOMMENDATIONS

1. Nescafe scored low on Understanding in comparison to other factors which means that consumers feel that it might not be getting the perceptions of the consumers correctly. We recommend that Nescafe work on this attribute.

2. The brand value of Nescafe was fairly high and in global indices it is ranked higher than the parent company Nestle which shows the strength of the brand.

3. Bru is a close second in many aspects and Nescafe needs to work in this aspect. Being the oldest instant coffee brand it needs to maintain its position.

4. Seeing the current status of Nescafe we can suggest that it should maintain it’s hold over the coffee market (i.e. DO NOTHING!).


http://www.forbes.com/companies/nescafe/

REFERENCES AND BIBLIOGRAPHY

The Story - NESCAFÉ MY

NESCAFÉ | Life Without Compromise.

Nescafé Brand | Coffee and Beverage Industry | brandchannel.com

1938 Nescafé - The first drinkable instant coffee | Nestlé Global

Nescafé - Wikipedia, the free encyclopedia

Nescafé's early-bird advantage | Business Standard



http://en.wikipedia.org/wiki/Nescaf%C3%A9

http://www.nestle.com/randd/innovations/allinnovations/1938-nescafe

http://www.brandchannel.com/features_webwatch.asp?ww_id=26

http://thenescafeway.wordpress.com/

http://www.nescafe.com.my/the_story_en_com_my.axcms