Brand Valuation

[Brand Valuation-United Colors of Benetton]
PRODUCT AND BRAND MANAGEMENT
Mohit Almal
Pankaj Agarwal
Saurav Jalan
Vineet Sekhani
Executive Summary
A brand is an intangible asset and future generator of cash flows. These days branding has become
an important concept because as the market is getting more competitive it becomes important to
differentiate yourself and provide something more to the consumer than the usual generic product
or service. Brands have become increasingly important components of culture and the economy,
now being described as "cultural accessories and personal philosophies".
United Colors of Benetton by default belongs to a category where branding is very important. There
are lot of apparel brands in the world but UCB has been able to create a unique personality for
itself.UCB outfits have a subtle sophistication and young people are able to connect with the brand.
The company has realised the strength of the brand and have gone for line extension and have
entered various other categories like home furnishing, stationery products, travel gear etc.
“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.”
The Price Premia Model shows brand premium of UCB which is 72.48%. Thus, UCB has the ability to
charge a premium of about 72% for the same product vis-à-vis unbranded or equivalents which
shows that its marketing and branding strategy has reaped fruits. The valuation through Price
Premia model has been arrived at 1542.28(million Euros).
The Book to Market Model gives a valuation of UCB which is 557.59 million Euros. The model helps
us to understand the strength of the company’s brand.
Capital Market Oriented Brand Valuation Model gives a valuation of 134.88 million Euros. Since, it
is a market determined model one may argue that market is the best place to arrive at a price rather
than other models where the price is not arrived by market forces.
The Historical Cost Approach model gives a valuation of 2020.71 million Euros to UCB. This model
depicts the amount which would be required in order to create a brand like UCB in the present time-
period.
The ‘Royalty Relief’ method is based on the notion that a brand holding company owns the brand
and licenses it to an operating company. The notional price paid by the operating company to the
brand company is expressed as a royalty rate. The NPV of all forecast royalties represents the value
of the brand to the business. The attraction of this method is that it is based on commercial practice
in the real world. It involves estimating likely future sales, applying an appropriate royalty rate to
them and then discounting estimated future, post-tax royalties, to arrive at a NPV.The brand value
for UCB for the year 2008-09 was €106.4 million and when capitalised for the next 5 year it
estimated to € 427.49 million.
The Interbrand model is the most popular model to find the value of a brand. It is an extended and
refined form of the DCF model. Their Brand Strength model is used to determine the value of a
brand based on the assumption that a strong brand is more reliable for future earnings with lesser
risk. The valuation which we got for UCB through interbrand model is 677.63 million Euros.
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.
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. Provided that
information on the assumptions is made available to firms, they can make their own judgments on
what the correct value should be.
“Suppliers and especially manufacturers have market power because they have
information about a product or a service that the customer does not and
cannot have, and does not need if he can trust the brand. This explains the
profitability of brands.”
Peter Drucker
Contents
 Stage 3-Brand Valuation
 Book to Market Model
 Price Premia Model
 Capital Market oriented Brand Valuation Model
 Historical cost Approach
 Royalty Relief Model
 Interbrand Model
 BiblioGraphy
 Annexure
Brand 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 shareholder’s
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 discovered to account for market
uncertainty and asset-specific 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 customer’s 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
acquisitions costs.
Financing-While Corporations do not carry brands on their balance sheets as long-term

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. United colors of Benetton
valuation include 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 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 brands 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
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 the
yearly basis.
Methodology
2003 2004 2005 2006 2007 2008

Total No. of Shares 181558811 181558811 181558811 182675467 182675492 182679012
€ € € € € €
Share Price
9.11 9.74 9.62 14.47 12.29 6.10
€ € € € € €
Market Cap
1,65,40,00,768.21 1,76,83,82,819.14 1,74,65,95,761.82 2,64,33,14,007.49 2,24,50,81,796.68 1,11,43,41,973.20
Book Value(Equity € € € € € €
+ R&S) 1,17,38,61,000.00 1,23,03,20,000.00 1,27,49,60,000.00 1,34,10,09,000.00 1,41,40,00,000.00 1,39,20,00,000.00
€ € € € € €
Market Value
1,65,40,00,768.21 1,76,83,82,819.14 1,74,65,95,761.82 2,64,33,14,007.49 2,24,50,81,796.68 1,11,43,41,973.20
Brand Value(MV- € € € € € € -
BV) 48,01,39,768.21 53,80,62,819.14 47,16,35,761.82 1,30,23,05,007.49 83,10,81,796.68 27,76,58,026.80
Average 6 years €
value 55,75,94,521.09
PRICE PREMIA MODEL

Price Premia Model
Introduction
In the price premium method, the ability of a brand to charge a premium over an unbranded or
generic equivalent can be tracked. 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-à-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. These days’ people are also pledging the brand value in order to raise
debt. In Mergers and Acquisitions, we usually see a premium being paid over and above the market
price. There is a certain amount of value which the buyer attaches to the company which he is
acquiring and that value is not captured in the balance sheet. Hence, he pays a premium.
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 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.
Price Premia: Valuation
Objective
To measure the brand value of United Colors of Benetton using Price Premia Model
Methodology
A sample of 30 people was taken for the purpose of evaluation. The respondents were asked to state
the price which they are willing to pay for an unbranded T-shirt, Shirt (Casual), Jeans and Accessory.
Then they were asked to quote an amount which they were willing to spend for T-shirt, Jeans, Shirt
(Casual) and accessory if a brand name is attached to it. The brands were Levis, UCB, Pepe, Reebok
and Spykar. The difference between the amount which a consumer is willing to pay for a branded
product and an unbranded product is the price premium which a brand commands.
Data Collection
Out of 30 respondents, 9 were females and 21 were males. The respondents were in the age group
of 21-26 years and were the users of T-shirts, Jeans, Casual Shirts and accessories.
Gender
Female
30%
Male Male
70% Female
26 years
25 years 10%
21 years Age
3%
3%
21 years
24 years
13% 22 years 22 years
37%
23 years
23 years
34% 24 years
25 years
26 years
Findings
T-shirt Unbranded Levis UCB Pepe Jeans Reebok Spykar
Average Price 173.3 677.5 769.3 565.7 612.5 516.7
Premium (%) 2.9 3.4 2.3 2.5 2.0
No. of Buyers 5.0 14.0 3.0 2.0 6.0
Shirt(Casual) Unbranded Levis UCB Pepe Jeans Reebok Spykar
Average Price 260.2 838.3 964.2 775.8 755.0 714.2
Premium (%) 2.2 2.7 2.0 1.9 1.7
No. of Buyers 12.0 8.0 5.0 1.0 4.0
Jeans Unbranded Levis UCB Pepe Jeans Reebok Spykar
Average Price 500.8 1,736.7 1,675.0 1,526.7 1,346.7 1,448.3
Premium (%) 2.5 2.3 2.0 1.7 1.9
No. of Buyers 18.0 0.0 3.0 0.0 9.0

Belt Unbranded Levis UCB Pepe Jeans Reebok Spykar
Average Price 125.5 370.8 414.2 333.0 383.3 334.0

Premium (%) 2.0 2.3 1.7 2.1 1.7
No. of Buyers 7.0 7.0 4.0 4.0 6.0
Data Analysis & Interpretation
T-Shirts
UCB is a strong player in this segment of the apparel business. Out of the 30 respondents, 14 wanted
to buy UCB. Spykar came a distant second with 6 respondents. The average price which the
respondents were willing to pay for an unbranded t-shirt was Rs. 173.33. The highest number of
preemie was commanded by UCB which was 343.85% more than the unbranded price. Although, a
greater number of people were willing to buy Spykar as compared to Levis but they were willing to
spend more money for a Levis t-shirt than a Spykar one. This shows that the consumers attach more
esteem to Levis than Spykar.
Shirts (Casual)
The average price which the consumer is willing to spend for an unbranded casual shirt is Rs. 206.16.
This is more than the average price for an unbranded T-shirt. In this category the largest numbers of
consumers want to buy Levis i.e. 12/30. UCB came second with 8/20 respondents who wanted to
buy UCB. In terms of premium, UCB was the leader with a 270% premium which the consumers were
willing to pay. Levis came second with 222% premium over the unbranded one. The respondents
consider UCB as a premium brand and therefore they are willing to shelve out more money for it.
Jeans
Levis is a strong player in the denim segment as its USP is denim only. This was evident in our survey
as Levis was the clear leader. Out of 30 respondents, 18 chose to buy Levis denim. Spykar came a
distant second with 9 respondents. People were willing to pay a 247% premium for Levis which was
the highest in this segment. Although, nobody chose to buy UCB yet it commanded a second highest
premium of 234%. The reason for such a result might be the low awareness and exposure of the
denim business of UCB among the respondents. The high premium can be because of the overall
brand image of UCB not denim per
Belt
Since, all are present in the accessories segment also so we chose belt as a representative of the accessory segment. The average price which a consumer is
willing to spend for an unbranded belt is Rs. 125. UCB accessories are known for their funkiness factor so it relates more to the youth. The premium which
the consumer is willing to give for a UCB belt is around 230%. Reebok came a close second with 205%. Both, Levis and UCB came first as far as number of
buyers is concerned with 7 respondents each.
Calculation of Brand Value of United Colors of Benetton
Weighted
Weighted Avg. Price Avg.
premium
Average Average
Weightage Unbranded UCB Premium Premium %
Price(Unbranded) Price(UCB)
T-shirts 30% 173.33 51.999 769.33 230.799 178.8
Shirts(Casual) 30% 260.166 78.0498 964.16 289.248 211.1982
Jeans 30% 500.83 150.249 1675 502.5 352.251
Belt 10% 125.5 12.55 414.16 41.416 28.866
1063.963 771.1152 72.48%
Million Euros
Revenue 2128
Brand Value (Revenue *
1542.284032
Premium %age)
CAPITAL MARKET ORIENTED

BRAND VALUATION MODEL
Capital Market-Oriented Brand Valuation Model
This model is defined as the present value of all future earnings attributable solely to
branding. Thus, from a financial markets perspective, brand value can be calculated from a
company’s stock market capitalization or market value. But, this valuation method can be
useful only for stock exchange-listed companies as the model is based on the idea that the
stock price of a company will perform to reflect the future potential, its brands provide.
In the case of a single-brand company, brand value will therefore consist the company’s
capitalized or realized market value. Brand value of a company can be calculated by using
simple formula:
Brand Value = (stock price x number of shares) – (tangible assets + all remaining intangible
assets)
Capital Market Oriented Brand Valuation Model(All Data is as On 31.12.2008)

No of shares 182679012
CMP € 6.81
Market Cap(A) € 1,24,40,44,071.72
Intangibles as on 31.12.2008
Industrial patents € 26,02,000.00
Concessions, licenses, trademarks and € 1,71,89,000.00
similar rights
Other € 4,03,51,000.00
Total Intangibles(B) € 6,01,42,000.00
Tangible assets as on 31.12.2008
Land and Buildings € 73,83,10,000.00
Plant, Machinery and equipment € 9,38,57,000.00
Furniture fittings and Electronic devices € 6,73,82,000.00
Vehicles and aircraft € 2,37,24,000.00
Assets Under construction and advances € 7,14,00,000.00
Leased assets € 48,52,000.00
Leasehold improvements € 4,94,97,000.00
Total Tangibles Asset(D) € 1,04,90,22,000.00
Brand Value{A-(B+D)} € 13,48,80,072
HISTORICAL COST APPROACH

Historicalal Cost Approach
In the Historicalal cost approach, we adopt a solution rooted in conventional accrual accounting to
value a brand name. We begin by making an assumption about what expenses that a firm incurs are
most likely to impact its brand name. It stands to reason, for instance, that a portion of every firm’s
advertising expenses is spent to build or augment the company’s brand name.
Process
1. We determined an amortizable life for the brand name expenditures based on how long we
think the benefits from the expenditure will accrue. In our case this value is 16 years. This
period is chosen based on the financial data availability.
2. We collected the data on brand name expenditures each year going back Historicalally, for
the amortizable life of the brand name. We collected brand name expenditures for the last
16 years.
3. Using a straight line amortization schedule, we write off a portion (In our case 6.25% over
the period of 16 years) of the brand name expenditures from each year’s expenditures in the
subsequent years. As a result, we were able to estimate the total amortization of brand
name expenditures in the current year (to be treated like depreciation) and the unamortized
portion of the previous year’s expenditures, which will be now treated as asset (brand name
value).
Assumptions
1. We begin by making an assumption about what expenses that a firm incurs are most likely to
impact its brand name
2. We assumed that 50% of the selling and advertising expenses each year are associated with
building up brand name, with the balance used to generate revenues in that year.
Historical Cost Approach: Valuation
Historicalal Cost Approach for Brand Valuation
Selling , General and

Brand Name Amortization
Year Advertising Unamortized Expense
Related Expense this year
Expense(Euro)
1993 € 38,83,75,588.12 € 19,41,87,794.06 € 1,21,36,737.13 € -

1994 € 39,25,07,243.31 € 19,62,53,621.65 € 1,22,65,851.35 € 1,22,65,851.35
1995 € 39,97,37,639.90 € 19,98,68,819.95 € 1,24,91,801.25 € 2,49,83,602.49
1996 € 38,88,92,045.01 € 19,44,46,022.51 € 1,21,52,876.41 € 3,64,58,629.22
1997 € 41,83,30,088.26 € 20,91,65,044.13 € 1,30,72,815.26 € 5,22,91,261.03
1998 € 57,94,43,982.50 € 28,97,21,991.25 € 1,81,07,624.45 € 9,05,38,122.27
1999 € 55,75,30,716.27 € 27,87,65,358.14 € 1,74,22,834.88 € 10,45,37,009.30
2000 € 57,05,56,000.00 € 28,52,78,000.00 € 1,78,29,875.00 € 12,48,09,125.00
2001 € 62,35,06,000.00 € 31,17,53,000.00 € 1,94,84,562.50 € 15,58,76,500.00
2002 € 62,47,35,000.00 € 31,23,67,500.00 € 1,95,22,968.75 € 17,57,06,718.75
2003 € 57,82,06,000.00 € 28,91,03,000.00 € 1,80,68,937.50 € 18,06,89,375.00
2004 € 53,97,97,000.00 € 26,98,98,500.00 € 1,68,68,656.25 € 18,55,55,218.75
2005 € 48,60,00,000.00 € 24,30,00,000.00 € 1,51,87,500.00 € 18,22,50,000.00
2006 € 48,90,00,000.00 € 24,45,00,000.00 € 1,52,81,250.00 € 19,86,56,250.00
2007 € 52,00,00,000.00 € 26,00,00,000.00 € 1,62,50,000.00 € 22,75,00,000.00
2008 € 57,30,00,000.00 € 28,65,00,000.00 € 1,79,06,250.00 € 26,85,93,750.00
€ 25,40,50,540.73 € 2,02,07,11,413.17
The cumulated value of the last column i.e. € 2,02,07,11,413.17 is the brand value of United Colors of
Benetton computed by Historical cost approach.
ROYALTY RELIEF MODEL

Royalty Relief Model

and licenses it to an operating company. The notional price paid by the operating company to the
brand company is expressed as a royalty rate. The NPV of all forecast royalties represents the value
of the brand to the business. The attraction of this method is that it is based on commercial practice
in the real world. It involves estimating likely future sales, applying an appropriate royalty rate to
them and then discounting estimated future, post-tax royalties, to arrive at a NPV.
Steps in the Royalty Relief brand valuation process:
1. Obtain brand specific financial and revenue data.

2. Estimated five-year financial forecast (2009-2013), based on Historical growth trends for the
brand & Expert analyst’s forecasts.
3. Establish the notional royalty rate.
Steps in determining the notional Royalty Rate:
a. Establish a Royalty Range
b. Compare royalty rates with operating margins in the industrial sector

Fundamental profitability in each industrial sector influences the determination of
royalty rate ranges. This must be taken into account when determining the royalty
rate ranges. A ‘Rule of Thumb’ exists within the licensing industry (‘Rule of 25’),
which states that, on average, a licensee should expect to pay between 25% and
40% of its expected profits for access to the licensed intellectual property. For
example, if profit margin is 20%, an appropriate royalty rate should fall between
25% x 20% = 5% and 40% x 20% = 8%. The rule is based on heuristic evidence of a
relationship between market royalty rates and margins earned in licensee
businesses. Royalty rates may be higher or lower than 25% of profits, depending
upon a variety of quantitative and qualitative factors that can and do affect
commercial negotiations. When determining royalty rate ranges, the ‘25% rule’ is a
useful indicator of what an appropriate royalty rate range might be in each industrial
sector. In case of UCB, operating margins are approximately 16% for FY 08-09.
Therefore as per rule of thumb the royalty range should fall between 4% and 6.4%.
But to be on a safer side and have an extended range we will take the range from 1%
to 7%.
c. The next stage is to assess how a brand can be positioned in such a range. There are
many ways in which this can be done but a simple and practical approach can be to
use a Brand Strength Analysis. This takes a number of key value drivers for a brand,
based on market research, and scores the brand against those drivers relative to the
competitive set. This then gives a score against a minimum and a maximum possible
and is used to position the brand in the royalty rate range.
Note: The source of data taken below for Royalty rate calculation is from the previous studies for
this brand.
Brand Strength Analysis

Market Factors UCB Scoring: Each Factor is scored on a scale of 0-5, with 5
Economic Growth 1 being the highest. Score are relative to the defined
Substitution 3 competitive set
Strength of Competition 3 Royalty
Brand Factors Range (in %) Score
Brand Perception 4 1.0 0
Loyalty 3 1.5
History, Heritage & Longevity 3 2.0
Price Premium 4 2.5
Share of Market 4 3.0
Potential for Line Extension 4 3.5
Promotional Expenditure 4 4.0
Derived Royalty
Total Score 33 4.5 Rate
5.0 33
Profitability 5.5
Royalties are a way of showing value 6.0
brought to a business by a brand, and 6.5
determining compensation to the brand 7.0 50
owner. Such value will often be based on
the profitability of the business, together
with other factors such as the strength of the brand. An analysis of this profitability can be done on a
see through basis through some or all of the supply chain. The resulting see through profit can be
attributed to various business functions, but one will be the brand. In the long term royalties relating
to this part of the supply chain will be a proportion only of the see through profit. For commercial
arrangements to be successful on a long term basis the value brought by the brand will need to be
shared by all concerned in bringing it to market.
Costs through Supply

chain 84%
Retail
Price 100%
Profit for non brand owners in supply chain 11%

See through Profit 16%
Brand owner (UCB) Royalty 5%
Significance
Royalty rates are typically small percentages, but they are applied to sales figures, meaning that
royalty values are often significant. They drive brand values which are in it often highly significant
(the Malibu spirit brand was bought by Allied Domecq in May 2002 for £560 million –this transaction
was mostly attributed to brand value). Given this significance they warrant in depth analysis –so that
significant decisions are made on an informed basis.
The royalty rate analysis illustrated for UCB above is 5%. When applied to the forecast sales this
gives significant annual forecast income of €106.4 million in 2008-09, and when capitalised as a
brand value using a relief from royalty methodology it can amount to € 427.49 million: Significant by
any standards.
In million € 2008 2009 (E) 2010 (E) 2011 (E) 2012 (E) 2013 (E)
Revenues 2128.00 2042.88 2124.60 2209.58 2297.96 2389.88
Royalty Income 106.40 102.14 106.23 110.48 114.90 119.49
Discounting factor 1.09 1.19 1.30 1.41 1.54
Discounted Cash Flow (DCF) 93.71 89.41 85.31 81.40 77.66
Total DCF 427.49
The growth estimates and discounting factor are similar to that take in for InterBrand Model.
INTERBRAND MODEL
Introduction
Interbrand’s approach is based on the three economic functions of a brand:
1. To create cost synergies

2. To generate demand for the products and services
3. To secure future demand and thus reduce operative and financial risks
Segmentation
Consumer’s purchasing behaviour 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 homogeneous 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’s 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 customer 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, multiplies 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 facilities 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 strongest brands are discounted with the
industry WACC. Discounting the forecast period and the calculation of an annuity (Terminal value)
results in the total value of the brand.
Calculation of WACC
Value(Euro
Index Value Rationale
Millions)
Beta 0.94 Bloomberg Equity 1392
Risk Free Rate 4.04% Treasury Rate in Italy Debt 689
BorsaItaliana Bank
Market Premium 5.52% Interest 48.23
Statements
Cost of Equity 9.23% Cost Of debt 7.00%
debt/Equity 0.494971264
1-debt/Equity 0.505028736
WACC 8.13%
Calculation for RBI (Role of Branding Index)
There were two questions asked to consumers. The questions were:
1) How much do you think the following factors affect your buying behaviour for apparels &
Accessories? (1 being the lowest, 10 being the highest)
2) In case of UCB, how would you rate the following factors?
The factors were quality, innovation, design, value for money, reliability, leadership, contemporary.
The findings for the same are shown below:
Demand Drivers (as a %)
Quality 16.42%
Innovation 13.52%
Design 15.20%
Value for Money 16.16%
Reliability 14.62%
Leadership 9.79%
Contemporary 14.29%
Total 100.00%
Weighted Percentage
Quality 15.90%
Innovation 13.20%
Design 14.36%
Value for Money 13.20%
Reliability 14.42%
Leadership 9.47%
Contemporary 13.14%
Total 93.69%
Weighted % as a percentage of Demand Drivers
96.86%
97.62%
94.49%
81.67%
98.68%
96.71%
91.89%
Hence this RBI comes to 93.69%

Calculation for Brand Strength Score
All the Factors in the Brand Strength score were asked to be rated out of 10, 10 being the best. The
results for the same are:
Market Market Growth 6 11

Industry Concentration 5
Stability Satisfaction 7 13
Consumer Loyalty 6
Leadership Market Share 7 15
Awareness 8
Trend Consideration 8 16
Attractiveness 8
Support Share of Advertising 8 14
Identity 6
Diversification Geographic 5 12
Offer Related Diversification 7
Protection Date of Registration 5 9
Legal Coverage & Monitoring 4
Factors Weightage Score out of

20
Market 10% 1.1
Stability 15% 1.95
Leadership 25% 3.75
Trend 10% 1.6
Support 10% 1.4
Diversification 25% 3
Protection 5% 0.45
Total 100% 13.25
S-Curve
Assumptions in InterBrand for Calculating Brand Earnings

Estimates Percentage
Short term growth dip due to recession -4%

Long term Growth 4%
Cost of sales estimates
Cost of sales as % of revenues in 2006 57.82%
Average 55.78%
Distribution and Transportation Cost Estimates
Cost as % of sales in 2006 3.30%
Average 3.11%
Sales Commission
% in 2006(Sales) 3.87%
% in 2007(Sales) 4.20%
% in 2008(Sales) 4.18%
Average 4.08%
Total Operating cost
% in 2006(Sales) 25.59%
% in 2007(Sales) 25.34%
% in 2008(Sales) 26.93%
Average 25.95%
Hedging Activities
% in 2006(Sales) -0.16%
% in 2007(Sales) -0.05%
% in 2008(Sales) -0.09%
Average -0.10%
Tax Rate 25%
Working Capital
% in 2006(Sales) 32.60%
% in 2007(Sales) 31.84%
% in 2008(Sales) 33.60%
Average 32.68%
Capital Employed
% in 2006(Sales) 89.48%
% in 2007(Sales) 92.24%
% in 2008(Sales) 97.79%
Average 93.17%
Other Income
Average 40 million
InterBrand Model
All figures are in Million Euro 2006 2007 2008 2009 2010 2011 2012 2013
€ € €
Branded Revenues € 2,042.88 € 2,124.60 € 2,209.58 € 2,297.96 € 2,389.88
1,911.00 2,048.00 2,128.00
€ € €
Cost Of Sales € 1,139.52 € 1,185.10 € 1,232.51 € 1,281.81 € 1,333.08
1,105.00 1,140.00 1,146.00
€ € €
Gross Margin € 903.36 € 939.49 € 977.07 € 1,016.15 € 1,056.80
806.00 908.00 982.00
€ € €
Distribution and Transportation Cost € 63.52 € 66.06 € 68.70 € 71.45 € 74.31
63.00 60.00 66.00
€ € €
Sales Commission € 83.44 € 86.78 € 90.25 € 93.86 € 97.62
74.00 86.00 89.00
€ € €
Contribution Margin € 756.39 € 786.65 € 818.12 € 850.84 € 884.87
669.00 762.00 827.00
€ € €
Total Operating Cost € 530.18 € 551.38 € 573.44 € 596.38 € 620.23
489.00 519.00 573.00
€ - € - € -
Hedging activities € -2.04 € -2.12 € -2.21 € -2.30 € -2.39
3.00 1.00 2.00
€ € €
Other income € 40.00 € 40.00 € 40.00 € 40.00 € 40.00
38.00 41.00 43.00
€ € €
Income before tax € 224.18 € 233.14 € 242.47 € 252.17 € 262.25
215.00 242.00 252.00
€ € €
Applicable taxes € 56.04 € 58.29 € 60.62 € 63.04 € 65.56
31.00 53.00 56.00
€ € €
NOPAT € 168.13 € 174.86 € 181.85 € 189.13 € 196.69
184.00 189.00 196.00
€ € €
Capital Employed € 1,903.35 € 1,872.71 € 1,873.65 € 1,874.58 € 1,875.51
1,710.00 1,889.00 2,081.00
€ € €
Working Capital € 667.59 € 694.29 € 722.06 € 750.95 € 780.98
623.00 652.00 715.00
€ € €
Capital Charge € 154.66 € 152.17 € 152.25 € 152.32 € 152.40
138.95 153.49 169.09
€ € €
Intangible Earnings € 13.47 € 22.69 € 29.61 € 36.81 € 44.29
45.05 35.51 26.91
€ € €
Brand Earnings € 13.06 € 21.99 € 28.70 € 35.68 € 42.93
43.67 34.42 26.08
Brand Score 66.25% 66.25% 66.25% 66.25% 66.25% 66.25% 66.25% 66.25%
Discount Rate@ 7%
Discount Factor 0.93457944 0.87343873 0.81629788 0.76289521 0.71298618
Discounted Brand Earnings € 12.59 € 19.82 € 24.17 € 28.08 € 31.58
€
NPV for 5 years
116.24
Long term Growth rate @ 2.5%
€
NPV of terminal Value
561.39
€
Brand Value
677.63
The Brand value Calculated by this model comes up to 677.63 million Euro
Net Take Away
Brand Valuation of United Colors of Benetton under different models
Model Source Brand Value(Million)
Book to Market Model Primary € 557.59
Price Premia Model Primary € 1,542.28
Capital Market Oriented Brand Valuation Model Primary € 134.88
Historical Cost Approach Primary € 2,020.71
Royalty Relief Model Primary € 427.49
Interbrand Model Primary € 677.63
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. Provided that
information on the assumptions is made available to firms, they can make their own judgments on
what the correct value should be.
The group tested six models of valuation. The book to market model shows that United Colors of
Benetton has a brand value of 557.59 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 1542.28 million Euros .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. Capital Market Oriented Valuation model shows the brand value of
United Colors of Benetton to be 134.88 million Euros. The Historical cost approach throws up brand
value to be 427.49 million Euros. This model is based on assumption that all operating expenses that
a company makes goes into making a brand value.
and licenses it to an operating company. The NPV of all forecast royalties represents the value of the
brand to the business. The value from this model comes Upto 427.49 million Euros.
In Interbrand model the value comes Upto 677.63 million Euros. 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.
Bibliography
Price Premia Model: The interviews were carried out among the students of Praxis Business School,
Kolkata
Calculation of BSS and RBI in Interbrand model: The survey was conducted among the students of
Praxis Business School, Kolkata
www.interbrand.com
www.benetton.com
www.borsaitaliana.it
www.buildingbrands.com/.../11_brand_valuation.php
www.intangiblebusiness.com/Brand.../Brand-valuation-why--how~467.html
www.unit-conversion.info/currency.html
Annexure
How much do you think the following factors affect your buying behaviour for apparels &
Accessories? (1 being the lowest , 10 being the highest)
Value for
Respondents Quality Innovation Design Reliability Leadership Contemporary
Money
Nabendu Kar 5 8 8 5 4 3 9
Twinkle
9 8 8 9 9 6 9
Jaithalia
Apoorva 10 9 10 10 10 8 8
Kaushambi 10 7 9 10 9 3 7
Gunjan Dugar 9 10 9 8 8 8 10
Sourabh
8 5 7 8 9 4 1
Dhariwal
Uma 8 6 8 9 4 3 5
Tarun 9 6 10 8 6 4 7
Shweta Baidya 8 7 8 9 6 6 5
Ritu 7 8 8 8 7 6 8
Shriram Bal 7 6 6 8 9 5 7
Durga 8 8 8 6 7 6 9
Anuj 8 7 7 9 8 6 9
Nabila 10 7 9 7 8 6 6
Parikshit 10 6 6 8 8 2 7
Ananthmani 10 9 8 10 9 5 10
Ritesh 10 8 8 8 9 8 8
sreyans 6 3 5 7 6 4 7
Piyush 9 10 8 10 9 5 8
Manoj 8 6 8 9 9 5 7
Hardik Mishra 9 6 10 8 6 4 8
Santu 10 6 6 8 8 2 7
Govind Sahu 8 8 8 6 8 4 7
Mirza 10 8 8 10 9 5 10
Geet Suri 8 6 8 9 4 6 8
Meenakshi 9 10 9 8 8 8 10
Rinki 7 6 8 8 7 4 7
Sumant 7 6 8 9 7 4 7
Sumit Tiwari 8 7 7 9 8 6 7
Atul 10 3 6 10 8 6 4
Annexure
In case of UCB, how would you rate the following factors?
Respondents Quality Innovation Design Value for Reliability Leadership Contemporary

Money
Nabendu Kar 5 7 9 5 4 2 6
Twinkle Jaithalia 8 7 7 7 8 5 6
Apoorva 10 9 10 10 10 5 8
Kaushambi 10 9 10 10 9 5 7
Gunjan Dugar 10 10 10 8 8 6 7
Sourabh 9 5 9 8 8 5 2
Dhariwal
Uma 9 8 6 8 7 2 7
Tarun 9 9 9 8 8 4 9
Shweta Baidya 9 7 7 8 9 4 6
Ritu 8 7 8 7 7 5 7
Shriram Bal 8 7 6 8 7 6 8
Durga 9 7 7 7 7 6 6
Anuj 8 6 6 8 8 6 6
Nabila 8 6 6 2 7 6 6
Parikshit 7 6 5 3 8 3 5
Ananthmani 8 7 8 7 6 4 8
Ritesh 8 8 9 8 9 8 8
Sreyans 7 5 6 4 7 4 7
Piyush 6 8 8 6 7 6 6
Manoj 8 6 7 6 6 6 6
Hardik Mishra 8 5 9 8 9 6 8
Santu 7 6 5 3 8 5 9
Govind Sahu 8 5 6 7 8 6 8
Mirza 8 7 8 7 6 4 6
Geet Suri 9 7 7 7 7 6 6
Meenakshi 10 10 10 8 8 6 9
Rinki 8 7 8 7 7 5 7
Sumant 8 5 6 7 6 6 7
Sumit Tiwari 7 6 5 3 8 4 9
Atul 10 3 6 10 7 1 4
Total 247 205 223 205 224 147 204

% of the demand 96.86% 97.62% 94.49% 81.67% 98.68% 96.71% 91.89%
driver
Weighted 15.90% 13.20% 14.36% 13.20% 14.42% 9.47% 13.14%

Percentage

Brand Valuation

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[Brand Valuation-United Colors of Benetton]

PRODUCT AND BRAND MANAGEMENT

 Stage 3-Brand Valuation

 Book to Market Model

 Price Premia Model

 Capital Market oriented Brand Valuation Model

 Historical cost Approach

 Royalty Relief Model

Uses of Brand Valuation

Financing-While Corporations do not carry brands on their balance sheets as long-term

BOOK TO MARKET MODEL

Book to Market Model

Rationale for choosing Book to Market Model

Knowledge Intangibles: For example patents, software, recipes, specific knowhow,

Book to Market: Valuation

2003 2004 2005 2006 2007 2008

PRICE PREMIA MODEL

Price Premia Model

Rationale for choosing Price Premia Model

Limitations of Price Premia Model

Price Premia: Valuation

T-shirt Unbranded Levis UCB Pepe Jeans Reebok Spykar

Average Price 173.3 677.5 769.3 565.7 612.5 516.7

Premium (%) 2.9 3.4 2.3 2.5 2.0

No. of Buyers 5.0 14.0 3.0 2.0 6.0

Shirt(Casual) Unbranded Levis UCB Pepe Jeans Reebok Spykar

Average Price 260.2 838.3 964.2 775.8 755.0 714.2

Premium (%) 2.2 2.7 2.0 1.9 1.7

No. of Buyers 12.0 8.0 5.0 1.0 4.0

Jeans Unbranded Levis UCB Pepe Jeans Reebok Spykar

Average Price 500.8 1,736.7 1,675.0 1,526.7 1,346.7 1,448.3

Premium (%) 2.5 2.3 2.0 1.7 1.9

No. of Buyers 18.0 0.0 3.0 0.0 9.0

Belt Unbranded Levis UCB Pepe Jeans Reebok Spykar

Average Price 125.5 370.8 414.2 333.0 383.3 334.0

No. of Buyers 7.0 7.0 4.0 4.0 6.0

Data Analysis & Interpretation

Calculation of Brand Value of United Colors of Benetton

CAPITAL MARKET ORIENTED

Capital Market-Oriented Brand Valuation Model

Capital Market Oriented Brand Valuation Model(All Data is as On 31.12.2008)

HISTORICAL COST APPROACH

Historicalal Cost Approach

Historical Cost Approach: Valuation

Historicalal Cost Approach for Brand Valuation

Selling , General and

1993 € 38,83,75,588.12 € 19,41,87,794.06 € 1,21,36,737.13 € -

ROYALTY RELIEF MODEL

Royalty Relief Model

Steps in the Royalty Relief brand valuation process:

1. Obtain brand specific financial and revenue data.

a. Establish a Royalty Range

b. Compare royalty rates with operating margins in the industrial sector

Brand Strength Analysis

Costs through Supply

Profit for non brand owners in supply chain 11%

1. To create cost synergies

Brand Strength Analysis

Net Present Value Calculation

Calculation for RBI (Role of Branding Index)

There were two questions asked to consumers. The questions were:

The findings for the same are shown below:

Demand Drivers (as a %)

Weighted % as a percentage of Demand Drivers