Tata Tea Limited (A)

When something goes wrong!

• What should brands do when something goes

wrong?
• Tylenol, Toyota, Intel, Pepsi, Cadburys, Maggi
• Uber, Pedigree, and so many others

• When a brand is old….Oldsmobile, Levi’s, Sony,

Sharp, Grundig, Videocon
 Brand Equity

• What do we mean by brand equity, and how do

we measure it?
• Identify some of the methods used to measure
brand equity
• What does a good measure of brand equity give
the company?
Basic Framework for measuring Brand
Value/Equity

Building your After building Using the brand

brand brand asset
Asset equity

What can you do

“Investing” Now you have with it?
an asset

Measuring
brand value
 Brand Audit

• Comprehensive examination of a brand

in terms of its sources of brand equity
– Series of procedures to assess the strength of the brand
– Uncover its sources of brand equity
– Suggest ways to improve and leverage its equity
– Perspective of both firm and consumer
 Brand Inventory

• How are current products marketed and branded?

• Need to identify all brand elements
– Names, logos, symbols, characters, packaging, slogans, other trade marks
– Product attributes and all the marketing activities
– Can identify competitive brands and their characteristics also.

• Analysis can also be done

– Consistency of products with same brand name
– Consistency of brand elements
– Consistency across related brands
– Consistency across time
– Consistency across geographical areas
 Brand Exploratory
• What do consumers think about the brand?
• Brand awareness and brand image.
• Measure brand awareness, strength, favorability,
and uniqueness of brand associations.
• Can study inferences made by consumers about
– Brand name, Price, Packaging, Logo, other brand elements

• Purpose is to assess sources of brand equity

• Suggest how the brand should move forward
 Valuation Approaches

• Cost based approach

• Market based approach
• Economic or income based approaches
 Brand Valuation Approaches:
Overview

Description Comment
Price premium ◼ Values a brand on the basis of the ◼ Practical approach
valuation premium consumers are willing to ◼ Neglects margin perspective
pay for it

Royalty-based ◼ Establishes brand value as net- ◼ Royalty rates difficult to obtain

valuation present value of (likely) annual
royalties

Brand margin ◼ Derives brand value from brand ◼ Reflects a brand's net earnings
valuation profitability (brand revenue minus value to its owner
brand investment) ◼ Relatively complex

◼ Values a brand by discounting ◼ Establishes net present value of

Brand discounted cash
total net cash flows attributable to brand
flow valuation
the brand over lifetime of brand ◼ Dependent on identification of
discount rate and of future revenue

Interbrand approach ◼ Discounted cash flow valuation ◼ Detailed and informative

approach ◼ High degree of subjectivity
◼ Includes market, brand strength
and legal aspects in analysis
 PRICE PREMIUM VALUATION
Brand premium approach—description
Based on the premium consumers are willing to
pay for a brand relative to a non-branded
product
• Brand value = Price premium x volume
• Summed over categories
• A non-branded benchmark does not
always exist
- Proxy benchmark price = average of
three lowest price competitors
(joint market share > 1.5%)
Brand premium approach—assessment
Great for tracking purposes
• Easy to calculate at frequent intervals
• Information readily available (also for
competitors)
• Outcome similar to more complex
methods with regard to ranking
• Volume-premium change analyses help
understand market dynamics and
possible growth strategies
… but must be used with some caution
• Absolute values change depending on
benchmark and base year
• Neglects level of brand investment, i.e., a
margin perspective
 ROYALTY-BASED VALUATION

Royalty approach—description Royalty approach—assessment

Net present value of the annual royalties the Used extensively in the valuation of intellectual
company could hope to receive if it licensed the property but less suitable for brand valuation
right to use the brand due to several reasons
• Royalty rates uncommon in most markets
 (owners will want to exploit successful

S
• Brand value = (Royalty rate x sales)n brands themselves)
(1+r)n
n=I
• Often only covers small fraction of total
brand sales
◼ Royalty rate (expressed as % of annual • Generally reflect market conditions
sales) dependent on several conditions markedly different from brand's main
◼ type of market (often markets
underdeveloped)
◼ agreed level of advertising and

marketing expenditure
◼ minimum sales level margin included
 BRAND MARGIN VALUATION
Brand margin approach—description
• Brand value = Brand revenue -
incremental brand investment
Brand revenue
• Result of price premium and volume
• Using brand premium approach
Brand investment
• Sum of all brand-related costs
• Includes ATL, BTL, incremental product
costs (product quality, R&D) as well as
brand-related investments in sales,
distribution, etc.
Brand margin approach—assessment
More "correct" reflection of the value of a brand
to the company …
• Values a brand's net earnings
… but requires too detailed and often not
available information
• Difficult to separate brand investments
from other investments—particularly in
multi-brand company
• Limited data availability especially for
competitors
• Necessary to make major assumptions
which consequently make the outcome
questionable
BRAND DISCOUNTED CASH FLOW VALUATION
Brand DCF approach—description
Same methodology as company DCF

S
Brand
= (Free cash flow)n
Value
• n=1 (1 + r)n
Brand related earnings
+ Depreciation of brand assets
+ Interest payments
+ D Reserves (due to brand)
– Investment in brand assets
= Free cash flow of brand
Brand DCF approach—assessment
Apparently "exact" financial measure
Provides a strong link to company cash flow and total
shareholder return
But too many assumptions required with too little added
value
• Assumptions concerning the lifetime of the
brand, all future cash flows and the right
discount rate
• Severe data separability issues
- How to separate brand-related earnings
from non-brand related?
- Are brand assets at all accounted for?
- How have brand investments been
financed?
- Brand related part of reserves?
▪ Calculation of competitive brand values almost
impossible
 Interbrand Approach
• Brand earnings
– Exclude elements not related to brand identity
– Use three year weighted average profit
– Exclude other factors
» Costs of brand sales, marketing costs, variable and
fixed overheads, remuneration of capital charge,
taxation
 Interbrand

Leadership (25%) To adjust these earnings, an in-depth assessment of

Market Share brand strength based on seven factors is conducted:
Awareness
Positioning
Competitor Profile MARKET (10%)
What is the market?
STABILITY (15%) TREND (10%)
Nature of the market
Longevity Long term market share performance
(e.g., volatility)
Coherence Projected brand performance
Size of market
Consistency Sensibility of brand plans
Market dynamics
Brand Identity Competitive actions
Barriers to entry
Risks
INTERNATIONALITY (25%)
SUPPORT (10%) PROTECTION (5%) Geographical spread
Consistency of message Trademark registration International positioning
Consistency of spend & registrability Relative market share
Above vs. below line Common law Prestige
Branch franchise Litigation/disputes Ambition
 Brand Asset Valuator (BAV)

• 300,000+ consumers
• Up to 181 categories
• 137 studies
• 40 countries
• 10 years
• 56 different brand metrics
• Common methodology
 How Brands are Built

• Four Primary aspects

• Differentiation
– How distinct is your brand? Basis for consumer choice; the essence
of the brand, source of margin (Rolls Royce, Disney)
• Relevance
– Household usage and sale (Band-Aid, Maggi, etc)
• Esteem
– Consumer response to brand building, quality and popularity; a
fulfillment of perceived consumer promise
• Knowledge
– Awareness levels and what it stands for, culmination of brand
building efforts.
 Differentiation Versus Relevance
• Differentiation greater than Relevance
– What does it mean?
– Healthy or unhealthy brand?
– Room to grow, brand has power to build relevance
– Happens when the brand is new/aspiring (Harley Davidson, Ikea)
• Relevance > Differentiation
– What does it mean?
– Healthy or unhealthy brand?
– Uniqueness has faded, price could be dominant reason to buy,
almost a commodity (decline phase – Colgate, Jockey)
• Relevance = Differentiation
– What does it mean?
– Leadership role (Disney, Google)
 Esteem Versus Knowledge
• Esteem > Knowledge
– What does this mean?
– Healthy or unhealthy brand?
– Popularity > Quality – mass brands, Pepsi, Maruti, etc.
– Room to build knowledge
• Knowledge > Esteem
– What does this mean?
– Healthy or unhealthy brand?
– Brand is better known than liked (Chrysler, Big Bazar)
– Difficult to build esteem
• Knowledge = Esteem
– First esteem, and then knowledge
A Two Dimensional Framework for Diagnosing
Brands: The Power Grid

BrandAsset® Valuator

Brand Strength Brand Stature

Differentiation Relevance Esteem Knowledge

Leading Lagging
 Brand Health Is Captured on the PowerGrid

Power Leaders
IKEA Niche/
Harley Davidson Coca-Cola
Unrealized Potential
Nike
(Differentiation & Relevance) M&M’s
Declining Disney
Leaders
BRAND STRENGTH

Pop and Crunch Eroded

Wasabi and Hot New
And Spicy flavor Chrysler
Keds
Unfocused Kodak
Air Akasa

BRAND STATURE
(Esteem & Knowledge)
 BAV versus CBBE Model

• BAV’s knowledge
– Similar to CBBE’s brand awareness
• BAV’s esteem
– Similar to CBBE’s favorability of associations
• BAV’s relevance
– CBBE’s strength and favorability of associations
• BAV’s differentiation
– CBBE’s uniqueness of associations
 Brand Equity and Brand Value

• Brand Equity
– How the consumer perceives the brand vis-à-vis
other brands
– Descriptive, from the consumer’s perspective
• Brand Value
– What the brand does for the firm
– In Rupees, from the firm’s perspective
 Different Measurement Perspectives
Analysis oriented Action oriented

What actions
Marketing should we take to
components of What drives our brand increase our brand
brand equity equity? equity?

What is the price How much should

premium we are we pay/get for this
getting from our brand in a M & A
Financial brand equity? transaction?
outcomes of What part of the What should be the
brand equity market share is due price for licensing
(brand value) to brand equity? the brand name?
What is the ROI on How much should
our marketing we spend on
activities? marketing activities?
 Measuring Brand Equity Components: Qualitative
Research Techniques
• Collecting, analyzing, and interpreting data by
observing what people do and say
• Unstructured measurement method
• Range of consumer responses permitted
• Depth interviews
• Protocol analysis
• Projective techniques
– Free association (first word that comes to mind)
– Sentence completion (leave key word blank in sentence)
– Picture test (show picture and ask them to talk aloud)
– Cartoon or balloon test (somewhat similar to above)
– Role playing activity (imagine you are so-and-so)
 ZMET

• Zaltman Metaphor Elicitation Technique

• Subconscious motives for purchasing behavior
• Research tool to map the mental models using
consumer metaphors
• Nonverbal nature of social communication
• Consumers select 12 images that represent their
thoughts and feelings about the topic
 ZMET
• Guided conversation
– Story telling
– Missed images
– Sorting task
– Construct elicitation
– Most representative picture
– Opposite images
– Sensory images
– Mental map
– Summary image
– Vignette
 Measuring Brand Equity Components:
Quantitative Research Techniques

• Obtain numerical responses from consumers

• Brand awareness
– Has been treated as a dichotomous variable
– Degree of awareness also important
• Recognition of brand names
– Consumers’ ability to identify the brand name and other
elements
 Recall

• Retrieve brand name from memory when

given a probe
– Unaided and aided recall
– Corrections for guessing
• What happens when brands or attributes are
primed?
 Brand Image

• Strength, favorability, and uniqueness of

associations
• Brand attitudes
• Brand intentions
• Brand behaviors
• Brand relationships
– Loyalty and substitutability
 What does this give us?

• A good understanding of how the brand is

perceived vis-à-vis the competition
• To which target market the brand appeals
• If those are not the target markets you seek,
what positioning concepts should you seek
• What specific image attributes should you
address to achieve the desired positioning
 Advantages and disadvantages of
measuring brand equity components
• Advantages
– Provides a detailed picture of brand health
– Provides actionable information on what to do to improve
brand equity
• Disadvantages
– Does not provide a financial measure of brand equity
– Because it is based on what consumers say, it may or may
not be predictive of what consumers actually do
How should we calculate brand’s contribution
to demand (quantity sold) and price, and
hence profits?
 Two types of approaches are available to
answer this question, depending on whether
you use consumer survey data or
observational, market place data
 Method #1 Conjoint Analysis

• Use consumer survey data to infer

consumers’ value for brands by asking them
to evaluate “product concepts”
Conjoint Analysis for measuring brand equity

• Which product attributes to include?

For airlines, what might they be?
Conjoint Analysis: After collecting the data

• Run a regression of the brand preference

scores on the independent variable
• Divide by the price coefficient
• Then you can figure out how much a brand is
worth relative to a “reference brand/non-
brand)
 Conjoint Analysis

• Utility = 21.5 + 7 Akasa + 5 Vistara + 1 Spice

jet + 2 Indigo – 9 (# of stops) + 1 (after 8 AM)
+ 5 (mileage points) – 0.02 (Price)

• The base airline here is Air India leaving

before 8 AM, with zero stops

• We could also have used an hypothetical

brand to serve as a base brand with no equity
 Conjoint Analysis

• For a given number of stops, leaving at a

certain time, with the same amount of mileage
points, how much are you willing to pay to fly
with Airline X relative to Air India on the CHE-
DEL route
• Indigo 100
• Air Akasa 150
• Vistara 250
• Spice Jet 50
 Conjoint Analysis

• Once you have the utility function estimates,

you can run simulations, assuming various
prices, to figure out how much brand
contributes to demand
Method # 2: Hedonic Regression to estimate price
premiums for brand using observational data

• Data
– Market prices, product attributes (features) for
various brands in a given category
• Regression
– Price as a function of brand (dummy variables) and
other search attributes of the product that might
have a bearing on prices
 Hedonic regression to estimate price
premiums for different brands
• Price = constant + [Brand dummies..] +
[Search attributes…] + [Other control
variables..]
 Recap
• Brand equity and brand value can be measured
using various qualitative and quantitative
measurement techniques
• The key challenge in quantitative measurement
of brand value is to estimate what the product
would have done without the brand name
(counterfactual). This requires us to tease out
the brand’s contribution from that of search
attributes
• Survey and observational data based
quantitative techniques are available that
overcome this challenge. Each methodology has
strengths and weaknesses; you should use both
to get an accurate picture of brand health
 Two methods to estimate Tetley brand value

• The “margin premium” method

– This comes closer to what Tata should be interested in
• Price premium valuation
– Brand value based on premium consumers are willing to pay for a
brand relative to a non-branded product
– Brand premium = price premium X volume
– Value depends on benchmark used
– Higher costs of producing branded product not taken into account
• Brand margin valuation
– Values the marginal revenue attributable to a brand
– Brand value = incremental brand revenue – incremental brand
investment
– Information required is very detailed and may not be available
Two methods to estimate Tetley brand value

• The DCF method

– This is the method used by Interbrand
– Business Week’s annual global brand rankings uses this
methodology
– Establishes brand value by discounting total net cash flows
attributable to a brand over the lifetime of a brand
– Free cash flow of a brand = brand related earnings + depreciation
of brand assets + interest payments + changes in reserves due to
the brand – investment in brand assets
– Simplified model
» Forecast future operating earnings
» Forecast tangible capital employed and apply a charge for capital
» Calculate intangible earnings as operating earnings – charge for
capital
» Calculate brand earnings as a percentage of intangible earnings
» Calculate the after-tax brand earnings and discount them to present
value