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Information asymmetry

Emotional value, status symbol, etc

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What is the Value of this Used Car?

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Car

Car in Good

Condition

Car in Bad

Condition

Price Rs.80K

Price Rs.40K

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Headache Remedies

Toothpaste

Corn Flakes

Ketchup Soup

Skimmed Milk Powder???

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Expensive Watches

Fashion Products

Expensive Cars Club Membership

Coke/Pepsi??

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Brand Management and Development

Mergers and Acquisitions RHM (Ranks Hovis McDougall) first company to have

valued a brand

Balance Sheet Reporting

Peer Pressure???

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Valuing a Brand

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For Whom? The Owner

Some other company

For What Purpose? For Sale

Collect a Series of Royalties

Brand Management

Capitalize it

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Colgate took over Cibaca brand for Rs.40.83 crores.The total value of the oral care division ofHindustan Ciba Geigy was Rs.131 crores.

HLL took over Lakme brand for Rs.78 crores. Thetotal value of Lakme was Rs.140.4 crores.

International Best Foods acquired the CaptainCook brand name from DCW Home Products for a

consideration of Rs.45.52 crores. The total value ofthe division was Rs.78.49 crores.

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The price of International Best Foods increased byRs.100 after the announcement that it is buyingCaptain Cook.

The price of Smithkline Beecham increased in Jan 96when it acquired the famous Crocin Brand fromDuphar Interfran for Rs.47 crores.

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Replacement Cost Method

Interbrand Method ( most popular)

DCF Approach ( popular)

Damodarans Approach Real Options Approach

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Present Value of Historic Investment in Marketing andPromotions

Estimation of Advertisement Required to Achieve thePresent Value of Brand Recognition

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DISCOUNTING CASH FLOW (DCF) METHOD

To calculate :

1. Brand earnings from future cash flows

2. Brand earnings at constant money

3. Discount rate/factor from risk/interest rate

4. Brand value

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DISCOUNTING CASH FLOW (DCF) METHOD

Steps

1. Calculate the brand earning for the future years( say 10years) by deducting charges for capital employed ,taxpayable etc.

2. Adjust for inf lation for all years from Year 1 to Year 10.

3. Te result of the above is Brand earning constant

moneyfor each year.

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4. Fix a base discount rate. This discount rate usuallyreflects the brand strength, in terms of riskiness or the

bank interest rate.

5. Find out the discount factorfor each year which is amultiple of the base discount rate ( multiplied that

much no. of times)for the corresponding year.

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6. Calculate the discounted cash f low for each year ie. DCF =Brand earning / discount factor.

7. Add all the discounting cash f lows of all the 10 years.

That will give the NPV of cash f low to 10 years. This willbe the brand value considering the cash flow for thenext 10 years.

8. It can also be calculated for period infinity.

End.