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Interbrand's Brand Valuation Methodology (Brand evaluated in FMCG industry)

Bahram Kheiri, Nazanin Safarpour Topraghloo

Page | 356

1- Department of public management, Islamic Azad University, Tehran, Iran Assistant Professor 2- Department of public management, Islamic Azad University, Tehran, Iran Graduated in Marketing Management – MA Marketing manager in FMCG industry

Abstract: Today, brand is an important and integral component of marketing strategy and possessing a brand with higher value will facilitate sales. Organizations and brand owners spend a lot of costs on branding and they are interested to know the value of the brand for which they have spent time, money, and energy in order to introduce and maintain it in the market. In this study, we evaluated a brand of the FMCG industry and the brand was evaluated by using the Interbrand's brand valuation methodology. This study aims to implement this model and to identify its challenges. This model in full detail was made available for the researcher by the Interbrand Company. In this study, each step of this model is discussed and implemented. The study was comprehensive and the steps regarded include: 1. Segmentation of the markets in which branding is active. 2. Using financial information to evaluate the economic value added, 3investigating the role of brand in purchasing and selecting the brand. 4. Calculating the brand strength and the brand's terminal value. These steps are conducted by the combination of financial methods and behavioral research. The first step of this research was carried out with the use of market research and faculty members and industry experts' opinion. It was found that the concerned brand, in terms of audience, can be divided into two groups of retailers and consumers. The second step was conducted through extracting information from the financial statements of the company owing the brand. And implementation of the third and fourth steps of this research involved field research on two sectors (namely retailers and consumers). A total of 1.560 questionnaires (390 per section) were completed. The data obtained from the questionnaires was quantified after the analysis using the SPSS software. Regarding the role of brand index, the value 70 was obtained through using regression analysis. Concerning the brand strength, scores were calculated through using the program provided by the Interbrand company compared with 5 main rival brands and the result was the score 72. After discounting, 72 converted into 5.21. Using this rate, the brand discount revenue was also calculated for the next 5 years. Then, with regard to the market growth rate in the next 5 years, the brand discount rate, the brand EVA in next 5 years, and other financial calculations which are described in details, the value of the considered brand is 500 billion Rials. Keywords: Brand value, Market segmentation, Economic value added (EVA), Role of brand index, Brand strength score, discount rate, Brand's Terminal value

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1-1. Introduction: If this business tears apart, I'll give you the land, brick and iron and I'll take the brands and trademarks in return and, of course, I'll build something better. This is a famous quote from John Stuart- the former CEO Page | of the Quaker Company- and indicates the importance of brand for senior directors and its involvement in 357 the future success of an organization. In the current international economic system in which the economic equations and exchanges are increasingly interacting with each other and have enjoyed a more coherent network structure, the importance of active companies in the field of trading is increasing. This theory that different countries across the world are known with their companies in the new economy and the importance of the companies in the field of trading is much greater than their governments concretely manifests itself. Companies are increasingly looking for increasing their share in the business markets and continually provide their goods and services in a better quantity and quality. Naturally, intense competition is an integral part of this process and in the case of lack of participation in the global markets, there will be no choice but to be removed from the commercial competition scenes. One of the factors affecting the success and survival of international and multinational companies is their brands. The importance of brand is not limited to international companies and local companies also need safe, strong, and valuable brands in order to exist and succeed in the market. If we accept that brand is an asset for a company, it is not surprising that calculating and knowing its worth is of essence. In the last quarter of the twentieth century, there have been drastic changes in the understanding of shareholder value creation. Previously, for most countries, tangible assets were considered as the main source of valuation. They include a building land or financial assets such as receivable accounts and investments. The values of these items can be displayed in a balance sheet. The market has always been aware of intangible assets; however, their value was unknown for a long time and they were not measured appropriately. Even today, the profitability assessment and business performance focus on indicators such as return on investment or profitability of stocks. Technology, brands, privileges, and the staff are always at the heart of success; however, they are rarely evaluated and their value is not involved in the overall value of the asset and investors assess the value of their assets based on their tangible assets. On the other hand, big companies never lose sight of the importance and value of their intangible assets and take them into consideration. Brand acquisition and takeover wave in the late 1980s directed the attitudes towards this idea that accounting standards are needed, which can enter brands into the accounting system. The cases which sparked the discussions on accounting and involvement of the brand value in the balance sheet included Rowntree purchase by Nestl'e, United biscuits takeover, Keebler Grand Metropolitan, Pillsbury capture, Danone purchase by Nabisco, and so on (Blackett et al., 2004, 1-3). As a result, brand-related issues were raised as one of the points of interest to managers and in this regard, tools and methods for evaluating and measuring the brand value were introduced.These tools were mainly designed by marketing and advertising agencies as a specific way in response to customers' needs. Brand valuation and recognition of its principles and procedures are among the objectives of the present article DAV International Journal of Science Volume-5, Issue-1 January 2016

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which is conducted based on Interbrand methodology on one of the well-known brands in health and detergent industry.

Research theoretical framework and principles Page | 358 So far, there have been raised different approaches to the brand value, which can be grouped into three

categories as financial approaches, behavioral approaches, and mixed approaches. These three approaches are presented in the table below.

Table 1. Approaches regarding brand value and some research conducted in this regard Approaches financial approaches

methodology Historic costs valuation replacement valuation

costs

Market-value-based valuation Potential revenuebased valuation

The premiumpricing method

Brand equity from Aaker's perspective

Brand equity from Keller 's perspective

behavioral approaches

Kapferer's brand equity Model Brand equity Model from Beil 's perspective Brand equity Model from Lassaer's et al. perspective

Kamakura

Definition Brand is an asset whose value is derived from investments in a period of time. (Kapferor, 2008) According to this method, a brand cannot be purchased, how much should we spend on its recreation? Considering the brand, trial percentage and purchase repetitions, absolute and relative market share, distribution network, and leadership image, and so on are calculated (Ibid, 298). In this method, the values of similar brands are used as a starting point. It is similar to the method in which second-hand cars and residential houses are priced (Ibid, 300). Since the brand can become an asset, we can start with the definition of an asset. Asset is a factor which leads to possible future success. Therefore, the evaluation methods are based on predicted returns associated with brand equity (Ibid., 301). This method consists of finding the difference between brand and generic or non-brand product price and multiplying it by the total brand sales volume in order to achieve the total sales attributed to the brand. This approach assumes that the costs are the same and non-brand and brand products' sales are equal (Ibid, 302). Aaker's model is a conceptual perspective looking for features which form the brand values from the customer's perspective. He regards brand as a combination of 5 series of assets: 1. Brand loyalty; 2. Brand awareness; 3. Perceived quality; 4. Brand representatives; and 5. brand's other specific assets (Aaker, 1991). He defines the brand equity as "the distinguished effect of the brand knowledge on consumers' responses and reactions to the brand marketing". Brand equity compared to their response to the same mixed marketing elements is expressed without a name (Kaller, 1993). Customer and his purchase behavior, in fact, are at the center of the model presented by Kapferer. A brand, by reducing the transaction risk for the manufacturer and consumer, creates brand favorability. A brand identifies guaranties, stabilizes, and frames supply. In fact, a brand, with its potential to reduce risk and uncertainty, can results in value (Kapferer, 2008). Beil explored the relationship between the image and concept of brand equity. In his opinion, brand image stimulates the brand equity (Biel, 1992).

They considered five dimensions of performance, perceived value, social image, trustworthiness, and attachment (compatible) as factors influencing brand equity. The results of this paper show that all these factors affect the brand equity. In the current study, only the effect of perceptual dimensions on brand equity was examined and no attention is paid to behavioral dimensions (Lassar, 1995).

and Kamakura and Russell and Russell (1993) have presented three criteria in DAV International Journal of Science Volume-5, Issue-1 January 2016

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Russell

this regard: perceived value, which means a brand value which cannot be explained by price and sales promotion; Brand Dominance Ratio which means the brand objective value in comparison with the price and an intangible value which means the difference between the perceived utility and objective desirability ratio (Cobb-Walgern et.al, 1995)

Page | 359

Table 1 (Continued). Approaches regarding brand value and some research conducted in this regard Approaches

methodology (BAV) Brand Valuator

Assent

Equitrend is one of the methods to valuate a brand which has been designed by Harris Interactive Research Center and is used in North America. This model contains three main criteria: quality, excellence, and brand equity (Ibid., 267).

Equitrend method

The achievement of the studies in the Brandz' model can be viewed in the form of (brand dynamic pyramid)). The pyramid as an appropriate tool measures the consumers' rational and emotional involvement with the brand at 6 different levels. It is developed base on the studies conducted by the designers in the MillWard Brown Design Institute (Ibid, 269).

Brandz TM method

Mixed approaches

The Interbrand Company was established in 1974, when the brand was just known as logo and changed the world attitude towards the brand. In this method, brand valuation is done by using a combination of financial and marketing methods. It as the research model employed in the current study is described below. (Interbrand Ref. 09200701, For Nazanin Safarpour Date.15.10.2009)2

Interbrand method

The second viewpoint following Interbrand's is allocated to a British consultancy center called Brand Finance. In this method, instead of looking at average current earnings, the future earnings of that brand are predicted. Then, to reflect the time value of money, adjustment is performed. The following basic elements are used for evaluation (Rahnama and Ahmadi, 2007).

Brand Finance method

Young &Rubicam Company method

RESERCH

This method divides the communication between brand and consumer into two areas: vitality and stature .The vitality of the brand can be divided into two factors of distinction and relatedness. And stature can be divided into credibility and familiarity (Fernandez, 2002).

It aims to empower the psychological commitment between the brand and its consumers. The company claims that the model logic has been established based on legitimate conversion studies. This model divides consumers into four groups based on their commitment to the model (Ibid, 15).

CONVERSATION MODEL

CDB

Definition BAV as one of the first models to measure brand equity was extracted from Aaker's studies. This model was designed by an advertising agency named Yong & Rubicam in 1993 and it now covers more than 19,800 brands in 14 countries. BAV introduces four main criteria to measure brand share (John Miller and David Moore, 2006).

&

The institute employed 1.191 analysts for a telephone survey and valuated 1000

2

All data, models, and measures used by the Interbrand Company were made available for the researcher and the number and the date are inserted.

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CONSULTING Method

companies based on 8 factors (The potential to reduce costs / Innovation / lack of legal problems / brand equity / customers' loyalty / increased sales capacity / employees' relations / potential for productivity). Therefore, The companies were ranked from 1 to 10 using a scale called INDEX and calculation was performed with the use of scales (HIDDEN VALUE INDEX; Ibid, 16).

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Research Background: Domestic research background: No study has been yet conducted in Iran on brand valuation with the use of a qualitative and quantitative (mixed) model and there is no study or domestic research in this regard. However, values have been investigated form quantitative or qualitative viewpoints in numerous articles. Articles on financial affairs have discussed the company's value and valuation. In these articles, the issue is only investigated from a financial aspect. These articles include a study conducted by Ghalibaf et al. (1008) entitled "Criticizing common companies' valuation methods and an introduction of appropriate models". In this paper, after reviewing the methods adopted by the Cabinet and being used by the Privatization Organization for companies' valuation, some scientific methods including the discounted free cash flow, economic value added, present value adjustment, and Gordon models were examined and compared. In a study entitled "brand value using the economic value added", Rahnamaye Roodposhti and Ahmadi (2007), after explaining the brand valuation model, an internal old manufacturing company is valuated. The model used in this study is the Brand Finance model since the financial aspects are further discussed in this article. The model marketing sector which evaluates the brand share and strength is completed through management interviews and no research in this field has been carried out. Foreign Background: During the 1990s, issues related to evaluation and assessment of the brand contributions were regarded because purchasing and acquiring valuable brands was considered an appropriate strategy for many companies over these years. For example, Nestle in 1988 purchases Rown Tree brans as much as 5.2 billion pounds while the company's net capital was only about 300 million pounds. In other words, the company's actual value for Nestle was placed in its products' brand share and strength (such as Kit Kat chocolate). For this reason, issues relevant to brand rose by managers as one of the concerns and, in this regard, tools and methodologies for brands assessment and valuation were introduced. These tools were introduced for assessment and valuation of brands. These tools were mainly designed by marketing and advertising institutes as specific methods in response to customers' needs. Morgan's study on Interbrand Company in 2002 showed that, on average, brands make up more than a third of the shares. This study reveals that the value of major brands create a major value for organizations or customers or both of them. Singfat Chu and Hean Tat Keh in 2006 in an article entitled "Brand value creation Analysis of the Interbrand-Business Week brand value rankings" investigated the top 100 brands ranked by Interbrand published in the Business Week journal and provided a model in which the nonlinear effects of advertising and promotion and R & D on brand equity are investigated. The results show that the effectiveness of expenditure in R & D is weaker than the effect of advertising and promotion. DAV International Journal of Science Volume-5, Issue-1 January 2016

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Research Conceptual Model Figure 1. The conceptual model

brand segmentation

calculation EVA

Calculation ROB

calculating brand earning

calculating BSS

brand discount rate

brand net percent value of brand

value

Source: Interbrand Company

In order to implement this model, 5 steps should be adopted and each section mentioned above requires an independent study summarized in the following table.

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Implementation phases of research Figure 2. Research Phases Step 1. Segmentation of markets with active brands This step is adopted through using market research and the opinions of faculty members and industry experts.

Step 2: Calculating the brand economic value added In this section, the economic value added is extracted from the company's financial statements and calculated. Step 3 - Assessing the brand role in its selection This section is calculated through using the model provided by the Interbrand Company via field studies in specific parts of the market and then data quantization. Step 4 – Determining the brand strength This section is calculated through using the model provided by the Interbrand Company via field studies in specific parts of the market for the brand and its five rivals. The results are then added to the SPSS software and then the quantified scores are calculated through using the software provided by the company.

Step 5 - Discounted brand strength and calculating the Terminal Value and the brand terminal value Brand strength calculated in the score table provided by the Interbrand Company is discounted and then brand value is calculated at the end of the fifth year and the sum of the values calculated in the next 5 years and the Terminal Value form the brand value. DAV International Journal of Science Volume-5, Issue-1 January 2016

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Source: Interbrand Company Research Questions The main research question in this study is as follows: How much is the quantitative value of the brand Page | SOFTLAN? 363

- What is the role of the brand in brand choice? - How much is the share of brand in each of the variables forming the brand strength? It should be noted that this study has no hypothesis. However, each question mentioned here can be considered as a separate study. There is no need for hypothesis proof in order to respond these questions. In this study, quantitative outputs and results which can be displayed as a number were considered.

Research methodology Research method: Regarding the research objective, the research is applied since the expected results can be used in brand valuation process and identification of brands' strengths and weaknesses. Based on the method employed, it is descriptive. Study time period This study was conducted over about one-year period in order to obtain the analysis and study model and to implement it and to distribute, collect, and analyze the questionnaires to access the domain model and its implementation. And the research process was carried out 2014-2015 The questionnaires distribution time (4 sets of questionnaires) was considered to be two months and it was done by four professional interviewers. Research Location (population) The research was conducted among two groups of consumers (those who were involved in purchasing process and preferably those who did shopping for their homes) and retailers (those who were present in supermarkets for a long time and were responsible for ordering and purchasing) in Tehran's 22 districts and the study population consists of these two groups. Sampling and sample size Using stratified sampling, the number of households and stores in each district was identified. Then, using simple random method, 390 questionnaires were randomly distributed in each group of consumers and retailer in proportion to the total population of each district. A total of 1.560 questionnaires were filled in. The number of samples was calculated by the following formula and 400 questionnaires were distributed in each group and there were 390 questionnaires to be used.

1.96 2 * 0.25  384 (0.05) 2

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Research instruments and data collection procedure The instrument used for the field studies in this research is questionnaire. In financial sector, the company's financial statements and information were used. In this study, Interbrand Company was contacted for the questionnaire to be designed. The model, Page | indicators, and process of measurement and analysis were made available for the researcher. Then, using 364 models and criteria, the questionnaire was developed by the researcher and its reliability and validity were examined. Each of the consumer and the retailer sectors has two sets of questionnaires: one series is associated with the brand strength and the other is related to the brand role. Two questionnaires were distributed by two different researchers among retailers and consumers with an interval of one week. Then, the questionnaires were completed. Research reliability or validity: Validity of the questionnaire was confirmed by branding and industry experts. Research reliability To assess the reliability, internal consistency was used. The most important indicator of internal consistency is the Cronbach's alpha test and it shows that the extent in which test questions can measure a single feature. Table 2. Cronbach's alpha coefficient for different questionnaires ROB Role of brand questioner BSS Brand strength questioner

Consumer retailer consumer retailer

86% 89% 96% 97%

Data analysis Step 1: First, the markets in which active brands operate should be segmented and the research should separately be carried out for each section. In this part, a brand of cleaning and hygiene industry was examined. The brand is active in the retail and final users sector and both sectors were assessed separately. Step 2: In this part, the brand's economic value added is calculated. Identification of economic value added is of essence here. The information in this section is extracted from the financial statements of the company owning the brand. Brand revenues (sales) = Earnings before interest & tax (EBIT) (-) Tax (tax rate) ....................................... Net operating profit after taxes (NOPAT) DAV International Journal of Science Volume-5, Issue-1 January 2016

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- Operating capital (Weighted average cost of capital * operating capital (WACC) .......................................... Page | Economic value added (EVA) 365 Balance sheet to extract information Balance Sheet (thousand

dollars)

Current Liabilities without interest Current Loan and bank credit Shareholders' Equity

1,000 3,500 500

5000

Current assets 4,000 Fixed and Plant assets 1,000 5000

The financial calculations were performed based on the following steps. • Since the study began in June 2410 and the 2410- financial year was not still terminated, this year was considered as the first year of prediction. • Brand revenue (sales) of years 2410-2410 was extracted from the financial statements of the company. • Sales of the years 2410-2421 were predicted by using the moving average method and the average growth rate. • EBIT (earnings before interest and taxes) of years 2410-2410 were extracted from the financial statements of the company. • EBIT (earnings before interest and taxes) of the years 2410-2421 was predicted by using the moving average method and the average growth rate. • Tax at the rate of 25% was deducted from the EBIT and NOPAT (net operating profit after tax) was calculated. • Operating capital was calculated by using the balance sheet information and the difference between assets and liabilities. • Weighted average cost of capital (WACC) was calculated with respect to shareholders' expected rate of return and the cost of company's financing by banks. • Economic value added (EVA) was then obtained by deducing NOPAT from multiplying WACC and the operational capital. Calculating the economic value added (thousand dollars) description Total Brand earning (-) EBIT

2017

2018

2019

2020

2021

20660 2721

21241 2811

22046 2903

22774 2999

23525 3098

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Market growth 3.3% Tax (25%) NOPTA Operating capital WACC (22%) WACC* Operating capital EVA

680 2041 1100

703 2108 1210

726 2178 1331

750 2249 1464

775 2324 1610

242

266

293

322

354

1798

1841

1884

1927

1969

Step 3: Determining the role of brand (ROB) At this step, brand position is specified in the minds of their customers and it becomes clear that the effect of customers' perceptions and beliefs on their brand preferences. This analysis and evaluation aim to determine the extent in which the demand is the result of the brand and the brand is involved.

Figure 3. Conceptual Model of RBI R0B ROLE OF BRAND

First choice Brand opinion & brand preferences

In this section, preference of brand and first choice are dependent variables and brand expressions and beliefs are independent variables.

Table 3. The role of brand (consumers) variables dependent variables 1 dependent variables 2 dependent variables 3 dependent variables 4 Average scores

description This brand is good for purchasing This brand is my first choice in the category of product I purchase the products with this brand I always prefer this brand compare with competitors

Score average 72 63 63 58 64

Table 4. The role of the brand (retailors) variables

description

Score average

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dependent variables 1 dependent variables 2 dependent variables 3 dependent variables 4 Average scores

This brand is good for purchasing This brand is my first choice in the category of product I purchase the products with this brand I always prefer this brand compare with competitors

82 69 81 72 76

Page | 367 Two above tables show questions on the dependent variables (brand preference and selection). In this

section, the regression for each of the dependent variables with independent variables was exclusively calculated and then the regression obtained is multiplied by the quantitative scores extracted from the questionnaire (Available in regressions coefficient appendices). Average of scores obtained in two groups: The role of the brand in general: The average score obtained in these two sectors results in the overall score of the role of the brand. Table 5. The role of brand Description ROB in consumer sector ROB in retailer sector Average scores

Average scores

64 76 70

Step 4: Determining the brand strength The most complex part of the brand valuation is measuring the brand strength. The Interbrand Company previously used the method of weighting factors influencing the brand to determine this section. However, due to imperfections of this method and in order to achieve a global consistent approach and to improve the previous model, the 7-factor approach was used in this study and its efficiency around the world is extensively tested. Methods of identifying factors influencing brand strength: - Identifying the main rivals through market research on products containing the brand - Interviews with rivals - Survey and the use of market research information. To determine the brand strength, there must be a standard or benchmark; therefore, the brand should be compared with its rivals and Interbrand has offered at least 5 rivals. Identifying five main competitors of the brand: After conducting separate market research on consumers and retailers, the brand competitors were detected.

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Determining the brand strength should be conducted at the same time for the brand and its 5 main competitors.

Table 6. Introducing the variables of this section and a summary of their evaluation: variable Defense strategy Protection

Diversity

Brand development strategy

Geographical diversity Product diversity

support

brand image The

The Interbrand Company has a unit within its organization, which exclusively collect information in this section. The company completes a checklist for the protection and development of the brand and the its 5 main competitors and ranks the results from 0 to 100 (The checklist and scoring method are provided in the appendices). In this study, this section is investigated through running interviews with the registration department and marketing and law units of companies owning the brand and the scores were assigned at a meeting consisting of principals and teachers. The variables in two separate questionnaires from consumers and retailers were completed to investigate the brand studied and its five main competitors. The questionnaires were analyzed using SPSS software and the scores of each index which were asked by 2 - 11 questions were quantified. Then, the brand score was calculated compared to its competitors as follows. Although two indicators of market share and contribution of advertising are listed in the questionnaire, the following methods have been used for their data collection: - The contribution of advertising: Now, some companies are active in the field of monitoring and surveillance of propaganda in Iran. Providing this information is

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contribution of advertising

Leadership

Page | 369

relationship

Knowledge Recognition preferred First choice

costly; however, it is accessible. The researcher due to limited funding has restricted his investigations to interviewed companies and completion of questionnaires by retailers and consumers. - Market share: Brand market share and its five main competitors, in addition to the questions contained in the questionnaires, have also been calculated by an independent market research through market observation, sales of department stores, and study of consumers and retailers.

Market share position

price Satisfaction

stability

Loyalty

Table 7 shows the obtained scores in summary. These scores were obtained after calculation and analysis of the questionnaires. These only indicate the brand scores and do not show their position in comparison with each other. In order to obtain the brand strength, the obtained scores should be compared to those of the competitors. Calculating the brand scores for each indicator compared to those of the competitors: This method is used by the Interbrand Company and its computational details are provided for the researcher. After calculating scores of the concerned brand and its competitors in each of the indicators in accordance with Table 7, the studied brand position and scores compared with its rivals should be determined. To this end, the brand score is calculated using Z-transformation. For example, calculating the brand scores in satisfaction index is as follows: Figure 5. Z-Transformation For example, the mean score of the brand is 50 in the market and applying the z-transformation converts it to 77.

Calculating the Z-transformation Z- Transformation calculates a value between 0% and 100% on brand performance in terms of satisfaction compared to competitors. The calculation method is as follows: The mean and standard deviation of scores are calculated and the obtained information are then normalized by using the following formula. 0.5042 

50  44 11.9

Z

X 



In this way, the Z values for all studied brands are calculated.

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Normal distribution ranges from +3.5 to -3.5 and its midpoint is zero. The range is divided into 10 equal parts of 10 to 100 and the obtained scores are replaced and the range 10 to 100 is the equivalent of Z, reflecting the brand score in that index. The same procedure was taken for each brand score in each indicator and the value 72 was obtained for the brand strength score which is the average of scores obtained in the different indices. Page | 370

Table 7. The brand and its rival's scores in indices forming the brand strength: variable

Protection

SOFTLAN Competitor1

Competitor2

Competitor3

Competitor4

Competitor5

80

60

60

80

40

60

80

60

60

60

40

60

80

60

60

70

40

60

77

74

80

82

77

71

61

55

69

74

61

57

69 68

64 56

75 65

78 71

69 59

64 61

65

49

65

71

53

51

67

53

65

71

56

56

Knowledge

66

58

70

74

61

58

Recognition

68 67 72 78 75 45 52 49 74 60 67

60 59 75 71 73 46 46 46 67 49 58

67 69 74 77 76 56 50 53 72 58 65

66 70 67 68 68 46 51 49 73 58 66

67 64 71 73 72 42 48 45 70 54 62

68 63 67 67 67 41 46 44 66 54 60

Index Defense strategy Brand development strategy

average Diversity

Geographical diversity Product diversity

average

support

brand image The contribution of advertising

average Leadership average relationship

preferred First choice

average position

Market share price

average stability

Satisfaction Loyalty

average

72

Step 5 - Discounted brand strength and Final conclusion: Then, the discount rate equivalent to 72 is found in the table provided by the Interbrand Company. As it can be seen in the table below, the discount rate obtained is 5.21 (See discount rate table in the appendix).

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Figure 6. Discounted brand strength After applying the discount rate, the discounted rate of earnings is obtained. The total value is calculated for the next 5 years and finally the terminal value is calculated by using the following formula. Page | 371

X

Discontedbrandearning ( year 5)  (1  marketgroth)  Discounted brandearning ( year 5) Discountrate  marketgrowth

Where, the current value of the brand earnings is multiplied by (5 years) (1+ market growth) and the result is divided by the difference between the discount rate and market growth. Finally, the result is divided by the fifth year discount rate. Table 7. Formulas in general: Finally, all data obtained at different stages are entered into an Excel file provided in the following table and the brand value is calculated.

Years

2 3 4 5 Earnings before interest and taxes EBIT Earnings before interest and taxes for the next 5 years are predicted and replaced in the years 1 to 5 which are 88 to 92 in this study. Market Growth X% The market growth rate percentage in the industry is applied for 5 years. Taxes Tax rate is considered 25%.

25.00%

NOPAT After deducing taxes, the net operating profit is obtained for the concerned years. Operating Capital Fixed assets with a book value+ current assets with a book value - marketable securities + difference between current liabilities and receivable accounts - production line under construction is predicted for the concerned years and obtained numbers are deducted from net operating profit. Capital Costs X% WACC Weighted average cost of capital is calculated as a percentage and is annually multiplied in operating funds of that year and the values obtained in different years are deducted from net operating profit. EVA after deducing the detailed deductions from the net operating profit, the economic value added in different years is obtained. Role of Brand 07% ROB Role of the brand with the steps described in detail is a number from 1 to 100. Brand Earnings

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The brand role in different years multiplied by EVA results the brand revenues in the studied years. Brand Strength 02% BSS Brand strength with the steps described in detail is a number from 1 to 100. Discount Rates S-rate The discount rate equal to the brand strength is determined based on the table provided by the Interbrand Company and then the rate is calculated by the following formula for the studied years.

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X  (1  S  rate) year

Discounted Brand Earnings In this part, the earnings of each year are divided by the discount rate obtained for that year and revenues Discounted Brand Earnings are obtained. . X  brandearning discountRa te

Sum of PV's A this stage, the discounted brand earnings are calculated and since then we have just a number. Terminal Value3

Terminal Value is calculated by the following formula: X 

License Value4

Discontedbrandearning ( year 5)  (1  marketgroth)  Discountedbrandearning ( year 5) Discountrate  marketgrowth

Total terminal Value and Total values obtained in the future

Table 9. Calculating the brand value Discount Calculation

Rate Years

1

2

3

4

5

2,720

2,810

2,902

2,998

3,097

680

702

726

750

774

NOPAT

2,040

2,107

2,177

2,249

2,323

Operating Capital

1,100

1,210

1,331

1,464

1,610

242

266.2

292.82

322.08

354.2

1,798

1,841

1,884

1,927

1,969

EBIT Market Growth

3.30%

Taxes

25.00%

Capital Costs EVA

WACC

22.00%

3

Terminal Value in financial literature refers to the estimation of the terminal value. Since we are unable to predict permanent and timeless cash flows; therefore, we estimate cash flows for a certain period and at the end of the period terminal values are calculated. 4 License Value is the value of the royalty or license and here it refers to brand value.

DAV International Journal of Science Volume-5, Issue-1 January 2016

ISSN: 2277-5536 (Print); 2277-5641 (Online)

Role of Brand

RBI

70.00%

Brand Earnings

Page | 373

1,259

1,289

1,319

1,349

1,378

1.05

1.11

1.16

1.23

1.29

Discounted Brand Ernings

1,196

1,164

1,132

1,101

1,069

Sum of PV's

5,663

Terminal Value

44,832

License Value

50,495

Brand Strength

BSS

72.00%

Discount Rates

S-Rate

5.21%

Finally, terminal value and the total value result in brand equity and the brand value of SOFTLAN is about 50 million dollars

Conclusion: The role of the brand: • The role of brand in its sales, after performing necessary calculations, was 70 percent. • The roles of brand in the retailer and consumer sectors were 76% and 64%, respectively. The role of brand in its being purchased in the retailer sector is greater than that in the consumer sector. SOFTLAN brand strength: • Brand strength in its sales, after performing necessary calculations, was 72 percent. • Score of the examined brand in seven factors concerned by the Interbrand is as below: 1234567-

Protection 80 Diversity 69 Support 67 Leadership 67 Relationship 75 Position 49 Stability 67

• As it can be seen in the table below, with regard to the brand strength, the brand score in the retailer sector is greater than that in the consumer sector. Index Diversity Support Leadership Relationship Position

retailer sector 72 73 69 77 53

consumer sector 66 60 65 73 45

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Stability

72

62

As the results indicate, the importance of knowing the quantitative brand value in organizations is an undeniable fact. Issues related to the brand have recently reformed in the organizations and the company Page | managers and owners are seriously seeking for value-adding their own brands. 374 This article aims to quantitatively valuate a brand through using a combination of quantitative financial and

marketing models provided by the Interbrand. It was estimated to be 50 million dollars for the concerned brand. Given the huge breadth of the research, different results were obtained in its different parts and steps, each of which require an independent research and cannot be presented in this article which provides the project methodology and outline. When speaking of quantitative and combined models of the brand value, market research companies often lack access to corporate information such as financial data and they regard valuation impossible or difficult. In these circumstances, the best recommendation is that financial and marketing units of the companies calculate the brand value for their own organization and strengthen and support their organization's brand until the day that international standards are implemented in Iran. References: 1. Aaker, D.A. (1991), «Managing Brand Equity, The Free Press», New York, NY. 2. Blackett, Tom et al., 2004, interbrand, New York, The Economist book Brands and Branding was launched in February 2004. It is widely available at bookseller's in-store and on-line. Contents of Brands and Branding 3. Biel,A.L.(1992), « How Brand image drives brand equity », Journal of Advertising Research, November/ December1992, p.9. 4. Dongda Lee and Golpla Ganesh (1998), " Effect of partitionated Country image in the context of brand image and familiarity " international marketing review, Vol 16, No,1 ,pp. 18-39 5. Kamkura, W.A. & Russell, G.J.(1991), « Measuring consumer perception of brand equity with scanner data; Implication for brand equity », Marketing Science Institue Report, No.4 pp.91-122, Cambridge, MA. 6. Kapferer, J.N. (1992), «Strategic Brand Management », the Free Press, New York, NY 7. Keller, K.L. (1993), « Conceptualizing, measuring and managing customerbased brand equity », Journal of Marketing, Vol. 57 january, pp.1-22. 8. Kim, Hong-bumm and Kim, Woo Gon " The relationship between brand equity and firms’performance in luxury hotels and chain restaurants" Elsevier, 2005, 546-560 9. Lassar, W., Mittal, B. & Sharma, A. (1995), « Measuring customer based brand equity », Journal of Consumer Marketing, Vol.12, November, pp. 11-19. 10. Pablo Fernandz,(2002), "valuation brands and intelligent capital", Research Paper NO 456, p 1-22 DAV International Journal of Science Volume-5, Issue-1 January 2016

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11. Singfat Chu · Hean Tat Keh, Market Lett (2006 , "Brand value creation: Analysis of the InterbrandBusiness Week brand value rankings", 12. Interbrand , 09200701 , For Nazanin Safarpour, 15.10.2009, p 1-11 Page | 375

Figure 4. Conceptual model to determine the brand strength Protection Protection

Position

Perception

Diversity

support

Leadership

relevance

Defense strategy

Geographical diversity

brand image

Knowledge

preferred

Brand development strategy

Product diversity

The contribution of advertising

Recognition

First choice

Factor score%

Factor score%

Factor score%

Factor score%

Factor score%

Market position

stability

Market share

Satisfaction

price

Loyalty

Factor score%

Factor score%

Average of factors Brand strength score

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