Praxis Business School: Assignment On

Praxis Business School
Assignment on
Brand Tracker for Nokia: Stage 3
A report
Submitted to
Prof. Srinivas Govindrajan
In partial fulfillment of the requirements of the course

Product and Brand Management
On September 19, 2008

By
Arihant Singhi
B07009
Richika Sureka
B07032
Rohit Bhardwaj
B07034
Varun Mittal
B07046
Executive Summary
Executive Summary
Nokia: Expressive, Human, Storied, Emotional, Consistent
Long-term solid growth and dominance are determined by myriad factors of markets, marketing,
product development, partnerships and alliances and, not-least-of-all, vision. In sectors that are driven
largely by technology and research, brands play a vital role in translating a companys technical
competencies into market success. Effective management of brands is therefore an increasingly
important element of business strategy and determinant of the valuation accorded to a business by
investors.
Nokia has been steadily working on its corporate brand name and the management of consumer
perceptions over the last few years. Its efforts have paid off. Nokia has succeeded in lending personality
to its products, without even giving those names. It has not created any sub-brands but has
concentrated on the corporate brand. Only numeric descriptors are used for the products, which do not
even appear on the products. Such is the strength of the corporate brand.
Valuation is neither the science that some of its proponents do not make it out to be nor the objective
search for true value that idealists would like it to become. The models that we use in valuation may be
quantitative, but there is a great reliance on subjective inputs and judgments. Thus the final value that
is obtained from these models is colored by the bias that we bring into the process.
Nokia brand value has always been in the World Top10 position since early 2000s, which is vouched by
the valuation results by Brandz and Interbrand. The Book to Market Model gives a valuation of Nokia
which at 65274 million Euros. The model helps us to understand the strength of the companys brand.
The Price Premia Model shows brand premium of Nokia which is 45.32%. Thus, Nokia has the ability to
charge a premium of about 45% for the same product vis--vis unbranded or equivalents which shows
that its marketing and branding strategy has reaped its fruits.
The Brand Value Added Model gives a valuation of Brand Nokia which is 27112 million Euros. The
model provides an accurate assessment of the value of the brand in use. This information is useful for
making investment decisions related to brand renewal and positioning. A strong correlation exists
between the brand value and the innovation factor, i.e. their innovative efforts were correctly
communicated and have led to successful creation of Brand.
What makes the difference between the most successful and less successful brands? It certainly is not
what product features are offered. How, then, do consumers choose? The answer seems to be what the
brand names mean to them.
Brand value is very much like an onion. It has layers and a core.
The core is the user who will stick with you until the very end.
Brand Tracker: Stage 3
Contents
Contents
Stage 3 Brand Valuation............................................................................................................... 4
Introduction .................................................................................................................................... 5
Book to Market Model .................................................................................................................... 7
Price Premia Model....................................................................................................................... 12
Discounted Cash Flow Model ....................................................................................................... 16
Net Take Away .............................................................................................................................. 23
References .................................................................................................................................... 25
Bibliography .................................................................................................................................. 26
Annexure ....................................................................................................................................... 27
Brand Valuation
Brand Valuation
STAGE 3 BRAND VALUATION
Introduction
Introduction
Mobile Market
It took the fixed telecommunications network 125 years to reach 1 billion subscribers, but it only took
around 20 years for the cellular mobile industry to reach the same number of subscriptions and
overtake the number of fixed phones in 2002. Even more remarkably the global mobile total had
reached 2 billion in late 2005, and 3 billion at late 2007.
Mobile subscriptions now equate to half the worlds population and there is every indication that the 4
billion mark will be reached by the end of 2009!
While mobile statistics are complicated by the use of connections and subscriptions rather than
actual users or subscribers, which can lead to numbers 10-20% greater due to users having multiple
subscriptions and the inclusion of inactive pre-paid users, there can be little doubt that wireless access is
taking over the Telecom World.
Mobile phones have been particularly effective in improving telecommunications in developing
countries, which previously had limited reliable means to communicate, and most developed markets
are nearing saturation with some reaching more than 100% penetration based on connections/
subscriptions.
Source: Informa Telecoms and Media Global Mobile Subscriptions-November 2007
With over 6 billion potential users (90% of the worlds population) within the coverage areas of existing
terrestrial cellular networks, the global penetration of reachable users is currently only around 55% so
there is plenty of growth potential in the developing world, if appropriate cost structures can be
achieved. Wireless access clearly offers a very promising technology to address the Digital Divide.
Introduction
Valuation
Brand value is defined as the net present value of future earnings generated by the brand alone. Brands
influence customer choice, but the influence varies depending on the market in which the brand
operates
Intangible assets are crucial to business value and growth and it is important that they are identified
alongside the tangible assets and valued as individual components. From a shareholders perspective,
the value of a brand is equal to the financial returns that the brand will generate over its useful life. Any
financial returns attributed to a brand must be discounted to account for market uncertainty and assetspecific risks. These two principles apply to the valuation of all assets, not just brands.
Brand valuation is a powerful process that captures the present and future value of a brand. Brand
valuation determines how the brand creates value and aligns with customers drive for purchases. Brand
valuation becomes a means of communicating about brand and marketing strategy in shareholder value
terms, both internally and externally.
Uses of Brand Valuation
Mergers and Acquisitions
Rarely will a corporation pay book value to acquire another business

entity. The difference between book value and the acquisition price
paid is called goodwill. Goodwill is often defined as the value of a
business entity not directly attributable to its tangible assets and/or
liabilities. Estimating the financial value of a brand helps determine the
premium over book value that a buyer should pay.
Licensing
One of the ways to cash in on the equity of a strong brand is by

extending or licensing the brand. It is possible for both the licensor and
the licensee to benefit economically from a licensing arrangement. The
licensor benefits from a new source of revenue that requires little
capital investment. The licensee benefits by having lower channel,
advertising and customer acquisition costs.
Financing
While corporations do not carry brands on their balance sheets as longterm assets, financial markets recognize the contribution brands have
on shareholder value. Companies with strong brands regularly obtain
better financial terms than companies with poor brands. The higher the
value of the brand, better the terms.
Book to Market Model
BOOK TO MARKET MODEL

Introduction
Book to market model embraces the intangible asset that the company possesses as Brand Value, is
calculated by deducting Market Value of company with the Book Value. Nokia Brand valuation includes
the contribution of its brand-intangible asset. It embellishes in their financial statements and by Book to
value method we can measure the performance and management of brands over last five years.
Rationale for choosing Book to Market Model

For most of the century, tangible assets were regarded as the main source of business value. These
included manufacturing assets, land and buildings or financial assets such as receivables and
investments. They would be valued at cost or outstanding value as shown in the balance sheet.
Categories of Intangible asset that support the superior market performance of business are:
Knowledge Intangibles: for example patents, software, recipes, specific knowhow, including
manufacturing and operating guides and manuals, product research etc.
Business Process Intangibles: These include unique ways of organizing the business including
innovative business models, technology, R&D, patents, flexible manufacturing techniques etc.
Brand and Relationship Intangibles: These includes trade names, trademarks and trade
symbols, domain name, design rights, logotypes, associated Goodwill general predisposition of
individuals to do business with brand are included.
Market position intangibles: for example, retail listings and contracts, distribution rights,
licenses such as landing slots, production or import quotas, third generation telecom licenses,
government permits and authorizations and raw materials sourcing contracts.
Nokia possesses Next Gen. mobile phone technology, Fashionable designs handsets and low-cost
models for the developing world; to calculate value of its intangible asset the Brand value we used Book
to Market value model. Nokia, a single brand company has shown tremendous brand strength and
people regard the brand. Since the brand is so famous we wanted to check out the book value and
difference between its Book value vis--vis Market value.
Book to Market: Valuation

Objective
To measure the brand value of Nokia using Book to Market Model, estimating the total financial value of
the brand. The brand valuation is done on yearly basis.
Methodology
In Millions of Euro
2003
2004
2005
2006
2007
Total Number of Shares
4,761
4,593
4,366
4,063
3,885
Share Price, EUR (HSE)
14.12
12.84
13.20
15.97
20.82
Market Cap
67,227.01
58,976.69
57,625.26
64,883.40
80,894.24
Book Value (Equity + R&S)
18,420.00
12,387.00
12,761.00
14,674.00
15,620.00
Market Value
67,227.01
58,976.69
57,625.26
64,883.40
80,894.24
Value of Brand = MV BV
48,807.01
46,589.69
44,864.26
50,209.40
65,274.24
Value according to
Interbrand
26,285.71
20,034.17
21,861.16
23,539.84
24,595.62
Under this method we have tried to study strength of the companys brand. Nokia is one of the top
recognized brands in the world, and it is the least expensive large capitalization technology stock, The
Company has a rock solid balance with $10 billion in cash. This lay foundation to large intangible assets
and being a standalone brand we thought of taking Book to Market Model.
Under this model we totaled the Equity part and added Reserves and Surplus then calculated the market
capitalization by multiplying average price during the year Listing HSE (Helsinki Stock Exchange) to
calculate market value and henceforth we subtracted market value with Book value, the figures given in
EURO Millions. The difference between the Market Value and Book Value gives us Value of Intangible
asset or Brand Value of Nokia. From research findings journals and reports, we got the Market
capitalization and compared that value with our method and the values were then converted according
to exchange rates of previous respective years.
10
Limitations
In this approach we have derived earnings that arise from the brand. At the end of the forecast period,
if it has been determined that the brands useful life will exceed the period of the forecast, that is
perpetuity value. Also drawback of this method is trying to determine what part is attributable to brand
and not other intangible factors. It also fails to take any balance sheet implications into consideration
only the Equity and reserves are being source of Book Value.
If we compare our Brand value with Interbrands value we see a difference in both the values which can
be because Interbrands determines the earnings from the brand and capitalizes them after making
suitable adjustments whereas we have just taken book figures which were easy to conceptualize. The
brand is the most loved and admired brand in the world and is perceived differently in different nations.
Observations
Nokia being leader in design innovation and creativity has emerged as highly ranked brand across the
world. The Brand value has grown from year 2005 and has been increasing there after. The reasons for
this could be their belief in Innovation and to create a brand for every segment of society, be it common
man or a high income class corporate. The value proposition offered and right positioning has led to
creation of most loved and admired brand in the world- Brand Nokia.
Conclusion
Above-the-line advertising along with newer forms of brand communication has created the difference
in effectively positioning Nokia as a brand in minds of consumers. Relevance to customer base by the
spread of brand communication through mediums such as entertainment and increased product
placement helped the brand to associate with its customers. The non-brand market share is the factor
of companys share of patents and research and development (R&D) share. The market share
attributable to the brand is a function of relative advertising share and perceived value derived out of
brand along with product offering.
11
Price Premia Model
Price Premia Model
PRICE PREMIA MODEL
Price Premia Model
12
Price Premia Model

Introduction
In the price premium method, the value of a brand to charge a premium over an unbranded or generic
equivalent can be tracked. The ultimate purpose of the brand is to secure future demand. The value
generation of these brands lies in securing future volumes rather than securing a premium price. The
major advantage of this approach is that it is transparent and easy to understand. It is possible to
determine the market share for a given product at a given price level. The relationship between brand
equity and price is easily explained. For a brand, the model gives the percentage of premium it can
charge its consumers over the generic substitutes. The brands can even compare their value of the
brand vis--vis competition.
Rationale for choosing Price Premia Model
The premise of the price premium approach is that a branded product should sell for a premium over a
generic product. The value of the brand is therefore the discounted future sales premium. The ability of
a brand which is an intangible asset is tested. By taking out the brand value, the managers can actually
track the performance over time and in case of insolvency, the brand could act as the most saleable
asset.
A strategic buyer is often willing to pay a premium above the market value. This may be a result of
synergies that they are able to develop which other buyers may not be able to achieve. When an asset
is valued, in the absence of a written offer from the strategic buyer, it cannot be assumed that a buyer
will appear and be prepared to pay a premium price. Each case has to be evaluated on individual merit,
based on how much value the strategic buyer can extract from the market as a result of this purchase,
and how much of this value the seller will be able to obtain from this strategic buyer.
The reason for testing this model is Nokia is serving in a category which is undifferentiated; the value of
a brand will actually signify Nokias presence in the category.
Limitations of Price Premia Model
The disadvantages are where a branded product does not command a price premium; the benefit arises
on the cost and market share dimensions. The model may bear little evidence to economic reality or
serve other useful purpose. This method is flawed because there are rarely generic equivalents to which
the premium price of a branded product can be compared. The price difference between a brand and
competing products can be an indicator of its strength, but it does not represent the only and most
important value contribution a brand makes to the underlying business.
13
Price Premia: Valuation

Objective
To measure the brand value of Nokia using Price Premia Model
Methodology
A sample of 30 mobile users was taken for the purpose of evaluation. The respondents were asked to
state the price they would think to pay if a low- end; mid market and premium unbranded mobile is
launched. Then they are asked to quote a price for the same phones with brand names attached to it for
the entire three segments namely low end, mid market and premium mobiles.
Limitations
The survey was carried out among the students of Praxis Business School, Kolkata due to limited
resources.
Data Collection
Of the 30 respondents, 7 were girls and 23 were boys. The respondents were in the age group of 21-25
years and were the users of mobile handsets.
Gender
Age
25 years
7%
21 years
13%
24 years
20%
Female
23%
22 years
27%
Male
77%
23 years
33%
Findings
Low End Phone
Unbranded
Sony Ericsson
1000.00
3836.67
4466.67
3350.00
3171.67
Price Premium
284%
347%
235%
217%
No. of Buyers
23
Avg. Price
Nokia
Motorola
Samsung
14

Midmarket Phone
Unbranded
Sony Ericsson
Avg. Price
5000.00
6676.66
7236.67
6181.67
5955.00
Price Premium
34%
45%
24%
19%
No. of Buyers
22
Motorola
Samsung
High End Phone

Avg. Price
Unbranded
10000.00
Sony Ericsson
Nokia
Nokia
Motorola
Samsung
13833.33
14650.00
12850.00
12403.33
Price Premium
38%
47%
29%
24%
No. of Buyers
14
15
Data Analysis and Interpretation

Low End Phone:
The price of the unbranded new low end phone was kept at a constant of Rs 1000. The respondents said
that they were willing to pay a price of Rs 4466.67 to buy the same phone if Nokia had come up with the
new product. Nokia has targeted and serviced the low end segment because for a majority of people,
the mobile phone is just a utility. The percentage of premium Nokia can charge its customers is 347%.
The closest competition is Sony Ericsson which is gradually increasing its market share and with the
product attributes it is gaining confidence from customers and they are ready to pay a premium to
purchase a Sony Ericsson mobile phone. The percentage of premium customers are willing to pay is
284%.
Nokia is concentrating on very low ends of the market as growth slows in the saturated regions of the
world. The cheapest of the seven new phones from Nokia, is designed to support entrepreneurs in rural
areas primarily in developing markets who may want to run a business by sharing the phone with
neighbors. Low end phones will give a good margin as they are targeted to mature markets.
Midmarket Phone:
The price of the unbranded new midmarket phone was kept at a constant of Rs 4000. The respondents
said that they were willing to pay a price of Rs 7263.67 to buy the same phone if Nokia had come up
with the new product. This was followed by Sony Ericsson, Motorola, and Samsung. Nokia also had the
highest number of consumers. It also commands the highest premium in this category.
The percentage of premium which the customers are willing to pay for Nokia is 48%. The reason for
which Nokia enjoys such a share is because they try and provide the similar features in comparison with
competition but the customers still wants to pay a higher price because of Legacy which is the trust it
has built in the minds of the customers for itself.
The world mobile market is witnessing a slowdown in demand for midmarket phones and will continue
to drop even more in the future as mobile companies are coming up with premium phones at the price
of midmarket phones to attract more consumers. Midmarket phones use closed operating systems, so
15
new software cant be added to the devices.. As the market for such software has begun to grow,
theres been a surge in new applications. Consumers today can use their phones to watch videos, catch
up on Major League Baseball scores, or blog from pretty much anywhere.
Premium Phone:
The price of the unbranded new midmarket phone was kept at a constant of Rs 10000. The respondents
said that they were willing to pay a price of Rs 14650 to buy the same phone if Nokia had come up with
the new product. This was followed by Sony Ericsson, Motorola, and Samsung. Nokia also had the
highest number of consumers. Sony Ericsson has catered to the premium segment in a good fashion
with the introduction of music enabled phones, touch screen phones. Nokia is already gearing up. The
Finnish company, which is the largest maker of mobile phones in the world, is busily developing phones
to meet high-end demand. Its most advanced phones let people play music, take videos, manage their email, and navigate through foreign cities with street-by-street guides.
Calculation of Brand Value for Nokia
Market Share
Low
Medium
High
16%
74%
10%
Weighted Avg. Price

Commodity
Nokia
160
715
2960
5355
1000
1465
7534.8
Revenue
Brand Value (Revenue * Premium %age)
Weighted Avg. premium

Premium
Premium %age
555
2395
465
3155
45.32%
51058
23139.68
The market share is divided in three segments, low end mobile has a 16% share in the total world mobile
market, the midmarket has 74% and the premium segment has a 10% market share. The forecasted
demand from the industry is midmarket phones are expected to account for 23% of sales, while low-end
phones would be 46% and premium would be 31%.
The group calculated the weighted average price of the commodity and Nokia phones if they come up
with new phones as we had the percentage contribution of all the three segments to mobile market.
The weighted average price for Nokia is Rs 7534.8. The premium is the difference which the consumer is
ready to pay for Nokia and the unbranded commodity for all the three segments. The weighted average
premium is calculated by apportioning the premium for every segment with its market share. The
weighted average price premium is Rs 3155.
The brand value is weighted average premium by weighted average of Nokia. Therefore, the brand
value of Nokia is 45.32% which means that Nokia can charge a premium of about 45% for the same
product vis--vis competition. For Nokia, brand value becomes a means of communicating about brand
and marketing strategy in shareholder value terms, both internally and externally.
16
Brand Value Added Model
BRAND VALUE ADDED MODEL
17
Introduction
This approach measures the free cash flows and discounts these over an explicit forecast period and the
continuing value beyond this point. This method is particularly useful where the brand represents a
significant proportion of the assets of a business, as separation of economic benefits and cash flows is
made easier. The advantage of this method over the capitalization of profit differentials method is that
discount rates are applied to the cash flows generated in each year as opposed to capitalizing the
economic benefits measured in a single period and which are assumed to be maintainable in perpetuity.
The discount rate chosen would need to represent the risks associated with the brand. To the extent
that the brand constitutes a major proportion of the assets of a business, the discount rate should be
fairly similar to the weighted average cost of capital (WACC) determined for the business itself.
An advantage of this method is that it would provide an accurate assessment of the value of the brand
in use. This information is useful for making investment decisions related to brand renewal and
positioning.
The capitalization rate is usually selected on the basis of the rate of return that a prudent investor would
require, given the future growth prospects and risks associated with the business or brand being
invested in. The capitalization rate would be based on the Weighted Average Cost of Capital (WACC) and
anticipated nominal growth rate.
The WACC represents the average cost of equity and debt financing weighted by the respective
proportions of these sources of finance. The average costs would represent the opportunity costs
associated with these sources of finance and indicate the returns required by debt and equity providers
as compensation for providing these sources of finance to the business, in the specified proportions and
being exposed to associated business risks.
The focus is on the return earned as a result of owning the brand the brands contribution to the
business, both now and in the future. This framework is based on a discounted cash flow (DCF) analysis
of forecast financial performance, segmented into relevant components of value.
The DCF approach is consistent with the approach to valuation used by financial analysts to value
equities and by accountants to test for impairment of fixed assets (both tangible and intangible) as
required by new international accounting standards.
18

Objective
To measure the brand value of Nokia using Discounted Cash Flow Model
Methodology
This method consists of four work streams:
Financial forecasts
Risk factor i.e. WACC calculation
Brand Value Added (BVA) - analysis of the brand's contribution to demand
Company & Brand Valuation
I.
Financial Forecasts
Typically, explicit forecasts for periods of 5-10 years are used for the basis of such valuations and should
be identical to internal management planning forecasts. An important part of the brand valuation
process involves ensuring that forecasts are credible.
Forecast Revenue
If the valuer is to estimate likely future sales of the brand, it is vital to understand the historical data
relationships that have affected the performance of the brand in each of its markets. This may be based
on observation, market research, correlation or regression. This can involve econometric modeling or
some other form of statistical analysis of past performance to show how certain causal variables have
affected revenues.
This is of vital assistance in building the business case or cases on which brand valuations are based.
Such analysis gives credibility to the underlying assumptions. It creates the framework within which
dynamic and option valuations can be based. One of the key issues in terms of branding is to understand
the causal relationship between total marketing spend, pricing and sales results.
It is equally important to understand the relative effect of different media on the overall level of sales.
The task of the brand valuation team is therefore to ensure that brand and marketing factors are being
accounted for properly in the modeling and analysis taking place, and that results are used to obtain the
most appropriate forecast sales values.
Forecast costs
It is necessary to understand fully the basis on which forecast costs have been determined. The brand
valuation team will need to confirm that the basis of cost allocation is sensible between each of the
geographic, product or customer segments on a current and forecast basis. The same principle applies
to the allocation of capital to different segments and the resulting charges for capital made against the
segmented brand earnings streams to arrive at forecast Economic Value Added.
Economic Value Added is the starting point for the brand valuation. A proportion of the identified
Economic Value Added is ultimately attributed to the brand in the brand valuation calculation.
19
II.
Risk factor (Discounting Factor) i.e. WACC calculation
The next step in the brand valuation is to determine the appropriate discount rate to use in the DCF
analysis. We have used an approach to discount rate determination, which is an adaptation of the
Capital Asset Pricing Model.
We build up the appropriate discount rate from first principles as follows:
Discount rate (WACC i.e. weighted average cost of capital) = (Ke * equity + kd * debt)/ capital employed
Where,
Ke = Cost of equity
Kd = Cost of financing Debt
Equity is the market cap
Debt is the book value of debts employed
Capital employed = Equity + Debt
To calculate Cost of Equity i.e. Ke, we took the total risks attached with the brand i.e. the beta of the
sector and the beta of the company to arrive at Ke.
Ke = Rf + s * c (Rm-Rf)
Where,
Rf = risk free rate
Rm = market rate
s = beta of the sector
c = beta of the company
The cash flows forecasted would be discounted with the wacc to arrive at the present value. This
discounting factor contains the risk attached as it takes into account both the sector beta as well as
company beta.
III.
Brand Value Added (BVA) - analysis of the brand's contribution to demand
This is the heart of any valuation, as it determines the proportion of total Economic Value Added to be
included in the brand valuation. This is the proportion of the total revenue attributed to the intangible
assets such as goodwill, brand name etc.
The BVA factor is calculated by taking into factor the drivers of demand. The parameters or factors
which affect the demand are taken into account and than a survey is conducted in which all the
respondents are asked to award points to the demand drivers on a scale of 100. The following are the
demand drivers taken in our model.
20
Brand Name
Promotional Schemes
Advertising
Product features
Availability i.e. distribution
CRM
Technology
Price
The weighted score is than calculated to find the contribution of each demand drivers. From here, we
take the net contribution of a parameter Brand name which is multiplied with the value of the company
to find the brand value i.e. the value contributed only by the brand name.
The survey was carried out among the students of Praxis Business School, Kolkata, to find out to find out
the perceived proportion of the total expense attributed to the intangible assets such as technology,
brand name etc. The findings of the survey could be skewed towards the brands available in this part of
the world.
Survey Findings
Price
17%
Technology
13%
CRM
2%
Availability
2%
IV.
Brand Name
38%
Features
24%
Advertisement
2%
Promotional
Schemes
3%
Company & Brand Valuation
To arrive at the value of the company the future cash flows are discounted to find the present value.
And the terminal value is added to it. The terminal value is the value taken at the end of the forecasted
period assuming the growth to be same after that year.
Thus, the company value is arrived, which when multiplied by the calculated BVA Index gives the Brand
Value.
21
Calculations
Nokia: Profit & Loss
Valuation Date
0
Year Ending
12/31/2007
Revenue
Total Revenue
Cost of Revenue, Total
Gross Profit
Selling/General/Admin.
Research & Development
Other Operating Expenses
Total Operating Expense
Operating Income
Interest Expense
Interest/Invest Income
Interest Income(Exp)
Net Income Before Taxes
Provision for Income Taxes
NOPAT
Discount Rate
NPV (1-6 years)
Long term growth rate
NPV of Terminal Growth
Value of the Firm
BVA Index
Brand Value
(in million Euros)
(in million Dollars)
19%
Estimated (In Millions of Euro)

3
12/31/2008
12/31/2009
12/31/2010
12/31/2011
12/31/2012
51,058.00
51,058.00
33,781.00
17,277.00
5,544.00
5,636.00
(1,888.00)
43,073.00
7,985.00
283.00
283.00
8,268.00
1,522.00
6,746.00
61,269.60
61,269.60
73,523.52
73,523.52
88,228.22
88,228.22
105,873.87
105,873.87
127,048.64
127,048.64
61,269.60
6,468.77
6,918.85
(669.00)
52,149.63
9,119.97
(49.40)
362.60
313.20
9,433.17
3,112.95
6,320.22
73,523.52
7,762.52
8,302.62
(802.80)
62,579.56
10,943.96
(46.28)
355.32
309.04
11,253.00
3,713.49
7,539.51
88,228.22
9,315.03
9,963.14
(963.36)
75,095.47
13,132.75
(35.14)
330.18
295.05
13,427.80
4,431.17
8,996.63
105,873.87
11,178.03
11,955.77
(1,156.03)
90,114.56
15,759.31
(34.16)
321.62
287.46
16,046.76
5,295.43
10,751.33
127,048.64
13,413.64
14,346.92
(1,387.24)
108,137.48
18,911.17
(33.00)
330.54
297.55
19,208.72
6,338.88
12,869.84
6,746.00
5,305.32
5,312.52
5,321.28
5,337.99
5,363.74
33,386.85
5%
37,959.92
71,346.77
38%
1.37
27,111.77
37,143.13
22

Assumptions
Till 2012
Growth
20%
Expenditure ratio
85%
Selling & Distribution
11%
11%
Tax Percentage
33%
WC ratio
28%
WACC
25%
Justification of Assumptions
Parameters
Rate
Justification
Discount Rate
19%
This is the risk factor which has been found out by way of
Long term growth rate
5%
Estimated growth rate from knowyourmobile.com
BVA Index
38%
This was found out by way of surveying 30 mobile users
Euro-USD conversion rate
1.37
As on December 31st, 2007
Growth
20%
CAGR over past 5 years
Expenditure ratio
85%
As a %age of average revenue over past 5 years
Selling & Distribution
11%
11%
WACC
25%
Calculated WACC as described in the Methodology
23
Net Take Away
Net Take Away
Brand Valuation of Nokia under different models

Valuation date : 31st December, 2007
Model
Denomination: In Million Euros

Source
Brand Value
Secondary
24596
Book to Market
Primary
65274
Price Premia
Primary
23139
Primary
27112
Interbrand
Interbrands valuation for Nokia shows that it has a brand value of 24596 million Euros. The group
tested three models of valuation. The book to market model shows that Nokia has a brand value of
65274 million Euros. This approach has numerous advantages in that it recognizes that it is based on
empirical evidence. The shortcomings are that it assumes a very strong state of the efficient market
hypothesis (EMH), and that all information is included in the share price, number of shareholders, total
equity of the company.
The Price Premia Model reflects a valuation of 23139 million Euros which is around 45% of total value of
Nokia. The disadvantages of this model are where a branded product does not command a price
premium, the benefit arises on cost and market share dimensions.
The Brand Value Added Model reflects the brand value of Nokia to be 27112 million Euros. The
advantages of this approach is that it is widely accepted and it takes all aspects of branding into account;
by using the economic profit figure all additional costs and all marketing spend have been accounted
for. Here two valuation bases are muddled. On the one hand there is an in use basis and on the other
hand, there is an open market valuation.
The appropriate discount rate is very difficult to determine as parts of the risks usually included in the
discount rate have been factored into the Brand Index score. Even the appropriate rate for the capital
charge is difficult to ascertain.
No single approach will give all the answers to a correct valuation. The starting point is to understand
the purpose of the valuation and what benefits the brand delivers. Due to a lack of transparency of the
workings and the underlying assumptions, some firms are not prepared to accept brand equity
valuations. Provided that information on the assumptions is made available to firms, they can make
their own judgments on what the correct value should be.
Net Take Away
24
Recommendation
When management is embarking on an exercise to value their organizations brands, it is recommended
that they do the following:
Management must firstly understand the nature of their firms intangible assets. If one of the
organizations intangible assets is marketing related, they must determine on what attribute the brand
derives its benefit. The purpose of the valuation must then be determined. A method must then be
chosen that meets managements needs in terms of the attribute it measures, the information
requirements and the models shortcomings.
Management must also ensure that an appropriate discount rate, growth rate and useful life are used.
They must ensure that the model used is robust enough to deal with the peculiarities of the
organization. A key issue is to check and question the underlying assumptions. Lastly, management
should ensure that the mathematical calculations have been done correctly.
25
References
References
REFERENCES
26
Bibliography
Bibliography
Primary
Price Premia Model
The interviews were carried out among the students of Praxis Business
School, Kolkata.
Secondary
en.wikipedia.org/wiki/Nokia
www.nokia.com/
www.nokia.com/NOKIA_COM_1/About_Nokia/Sidebars_new_concept/Annual_Accounts_2007/Nokia%2
0in%202007.pdf
www.knowyourmobile.com/blog/8640/nokia_takes_a_40_share_of_world_mobile_market.html
www.reuters.com/finance/stocks/ratios?symbol=NOK.N#growth
www.bankofcanada.ca/cgi-bin/famecgi_fdps
www.unit-conversion.info/currency.html
www.businessweek.com/technology/content/jul2008/tc2008079_912540_page_2.htm
www.pcworld.com/article/124529/highend_mobile_phones_prove_popular.html
www.brandchannel.com/brand_speak.asp?bs_id=193
27
Annexure
Annexure
Annexure 1: Profit and Loss Account: Nokia
Nokia: Profit & Loss, Source: Reuters
Year Ending
Revenue
Other Revenue
Total Revenue
Cost of Revenue, Total
Gross Profit
Selling/General/Admin.
Other Operating Expenses
Total Operating Expense
Operating Income
Interest Expense
Interest/Invest Income
Interest Income(Exp)
Net Income Before Taxes
Provision for Income Taxes
NOPAT
Actual (In Millions of Euro)

12/31/2003
29,533.00
29,533.00
17,325.00
12,208.00
3,292.00
3,788.00
84.00
24,489.00
5,044.00
(65.00)
399.00
334.00
5,378.00
1,697.00
3,681.00
12/31/2004
29,371.00
29,371.00
18,179.00
11,192.00
3,175.00
3,776.00
(181.00)
24,949.00
4,422.00
(102.00)
481.00
379.00
4,801.00
1,446.00
3,355.00
12/31/2005
34,191.00
34,191.00
22,209.00
11,982.00
3,570.00
3,825.00
(52.00)
29,552.00
4,639.00
(40.00)
373.00
333.00
4,972.00
1,281.00
3,691.00
12/31/2006
41,121.00
41,121.00
27,742.00
13,379.00
3,980.00
3,897.00
14.00
35,633.00
5,488.00
(40.00)
277.00
237.00
5,725.00
1,357.00
4,368.00
12/31/2007
51,058.00
51,058.00
33,781.00
17,277.00
5,544.00
5,636.00
(1,888.00)
43,073.00
7,985.00
283.00
283.00
8,268.00
1,522.00
6,746.00
28
Annexure
Annexure 2: Balance Sheet: Nokia
In Millions of Euro
Total Current Assets
Property/Plant/Equipment, Total - Net
Goodwill, Net
Intangibles, Net
Long Term Investments
Note Receivable - Long Term
Other Long Term Assets, Total
Total Assets
Accounts Payable
Accrued Expenses
Notes Payable/Short Term Debt
Current Port. of LT Debt/Capital Leases
Other Current liabilities, Total
Total Current Liabilities
Long Term Debt
Deferred Income Tax
Minority Interest
Other Liabilities, Total
Total Liabilities
Common Stock, Total
Additional Paid-In Capital
Retained Earnings (Accumulated Deficit)
Treasury Stock - Common
Other Equity, Total
Total Equity
Total Liabilities & Shareholders' Equity
12/31/2003
20,083.00
1,566.00
186.00
722.00
197.00
354.00
812.00
23,920.00
12/31/2004
19,508.00
1,534.00
90.00
487.00
369.00
681.00
22,669.00
12/31/2005
18,951.00
1,585.00
90.00
471.00
439.00
63.00
853.00
22,452.00
12/31/2006
18,586.00
1,602.00
532.00
549.00
512.00
19.00
817.00
22,617.00
12/31/2007
29,294.00
1,912.00
1,384.00
2,736.00
666.00
10.00
1,597.00
37,599.00
Average
21,284.40
1,639.80
456.40
993.00
436.60
89.20
952.00
25,851.40
2,919.00
2,468.00
387.00
84.00
2,422.00
8,280.00
20.00
241.00
164.00
67.00
8,772.00
288.00
2,272.00
14,046.00
(1,373.00)
(85.00)
15,148.00
23,920.00
2,669.00
2,604.00
215.00
2,488.00
7,976.00
19.00
179.00
168.00
96.00
8,438.00
280.00
2,366.00
13,733.00
(2,022.00)
(126.00)
14,231.00
22,669.00
3,494.00
3,320.00
377.00
2,479.00
9,670.00
21.00
151.00
205.00
96.00
10,143.00
266.00
2,458.00
13,132.00
(3,616.00)
69.00
12,309.00
22,452.00
3,732.00
3,493.00
247.00
2,689.00
10,161.00
69.00
205.00
92.00
122.00
10,649.00
246.00
2,707.00
11,109.00
(2,060.00)
(34.00)
11,968.00
22,617.00
7,074.00
6,611.00
898.00
173.00
4,220.00
18,976.00
203.00
963.00
2,565.00
119.00
22,826.00
246.00
644.00
17,192.00
(3,146.00)
(163.00)
14,773.00
37,599.00
3,977.60
3,699.20
424.80
51.40
2,859.60
11,012.60
66.40
347.80
638.80
100.00
12,165.60
265.20
2,089.40
13,842.40
(2,443.40)
(67.80)
13,685.80
25,851.40
29
Annexure
Annexure 3: Data for finding Role of Branding Index for DCF Model
S.No
Respondents
Brand Name
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
Tarun Daga
Sandeep Shah
Santu Chakraborty
Govind Prasad
Hardik
Vineet
Piyush
Rohit
Raj
Uma
Saurav
Vinay
Priyanka
Ankita
Gunjan
Ruchika Rawat
Parikshit Ghoshal
Saurav Jalan
Ritesh
Sahill Shaha
Sourabh Dhariwal
Sumit Jalan
Nabendu Kar
Harish
Yatharth Bhuwalka
Pratik Gupta
Sampat Bhansali
Shabnam Roy
Donald White
Farhana Chowdhury
35
30
40
30
25
40
50
25
20
35
40
25
50
20
45
50
40
40
50
35
50
20
40
35
50
30
40
60
40
50
Divide 100 as a score which you would give to any of the parameters mentioned
Promotional
Advertisement
Features
Availability
CRM
Technology
Schemes
10
10
40
25
30
5
25
15
25
20
10
10
10
10
10
10
10
30
20
35
30
25
50
20
35
25
10
30
20
15
25
25
40
20
35
25
20
10
25
20
10
25
10
10
20
10
10
10
25
10
20
20
20
25
30
30
20
50
20
10
20
15
20
10
20
Price
Total
20
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
30
20
25
20
30
20
10
30
20
25
20
25
10
30
20
25
25
10
10
20
10
20
20
20

Praxis Business School: Assignment On

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Praxis Business School: Assignment On

Uploaded by

Copyright:

Available Formats

Praxis Business School

In partial fulfillment of the requirements of the course

On September 19, 2008

Product and Brand Management

Brand Tracker: Stage 3

Product and Brand Management

STAGE 3 BRAND VALUATION

Brand Tracker: Stage 3

Product and Brand Management

Source: Informa Telecoms and Media Global Mobile Subscriptions-November 2007

Product and Brand Management

Rarely will a corporation pay book value to acquire another business

One of the ways to cash in on the equity of a strong brand is by

Brand Tracker: Stage 3

Product and Brand Management

Book to Market Model

Book to Market Model

BOOK TO MARKET MODEL

Brand Tracker: Stage 3

Product and Brand Management

Book to Market Model

Book to Market Model

Rationale for choosing Book to Market Model

Brand Tracker: Stage 3

Product and Brand Management

Book to Market: Valuation

Book to Market: Valuation

Total Number of Shares

Share Price, EUR (HSE)

Book Value (Equity + R&S)

Brand Tracker: Stage 3

Product and Brand Management

Book to Market: Valuation

Brand Tracker: Stage 3

Product and Brand Management

Price Premia Model

Price Premia Model

PRICE PREMIA MODEL

Brand Tracker: Stage 3

Product and Brand Management

Price Premia Model

Price Premia Model

Brand Tracker: Stage 3

Product and Brand Management

Price Premia: Valuation

Price Premia: Valuation

Brand Tracker: Stage 3

Product and Brand Management

Price Premia: Valuation

High End Phone

Data Analysis and Interpretation

Product and Brand Management

Price Premia: Valuation

Weighted Avg. Price

Weighted Avg. premium

Brand Tracker: Stage 3

Product and Brand Management

Brand Value Added Model

Brand Value Added Model

BRAND VALUE ADDED MODEL

Brand Tracker: Stage 3

Product and Brand Management

Brand Value Added Model