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SUBMITTED TO: -

PROF. SRINIVAS GOVINDRAJAN

ABHILASH DAS (ROLL 1)

BIRAJA PRASANNA DASH (ROLL 12)

SANGRAM KESHARI JENA (ROLL 42)

SHOVAN DASH (ROLL 47)

[RAVENSHAW MANAGEMENT CENTRE]

[RAVENSHAW UNIVERSITY, CUTTACK]

Brand valuation of Lux

CONTENTS

Serial No.

Titles Page No.

1. Executive summary 03

2. Introduction 05

3. Models 07-----16

3.1 Shafer Model 07

3.2 Gross profit differential 14

3.3 Own Model 16

4. Recommendation 18

5. Annexure 19

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Executive Summary"Brand value is very much like an onion. It has layers and a core. The core

is the user who will stick with you until the very end.”- Edwin Artzt

This universe is so dynamic that nothing can be considered as static and this is the thumb rule of change. The change is one and only universal truth. Due to the changing behaviour the consumer may react differently. This may affect a company, may affect a particular brand or may affect a particular product. If the consumer sticks to a particular product then the other market players cannot survive.

The brand exists due to its ability to provide economical or psychological benefits. There are various methods of calculating the brand value. The various methods can be categorised under two heads. One is quantitative and the other is qualitative. In our case the qualitative analysis was done with the help of Shafer’s model while the quantitative analysis was done by using the gross profit differential. We have also developed our own model to find the valuation of our brand Lux.

Shafer Model

This model was developed by Trajectories Group’s CEO Mr Chip Shafer. This model was developed to know the brand value by the customer expectation and perception not by the market value by analysing shareholder’s equity. The formula which was used in this model was BV=(R+M+V) C, .

We had asked the respondents about the four components of the model and based on their responses we had calculated the brand value of our own brand Lux. We collected the data by questioning the respondents through a set of questionnaire and thus our data source is primary. So basing on their response we found that Lux shows the most brand value among the other brands included in our study. Calculation of the component connection with two models viz. Tag line testing method , and the blind test method. showed almost similar results with one exception that liril was third in blind test where as it was fourth in tagline test. The brand Lux came out the most valued brand according to the above mention two tests.

Our second method is the gross profit differential method. It was a quantitative method to determine the brand’s value. The formula which we have used bv = (p – n) x Where,3 | P a g e

bv is brand value,P is the price of a branded unit,N is the average price of similar Non-branded products andX is the number of branded units sold.

Here, the method of getting response was direct interaction with the distributors. Thus the source of data was secondary. This method helped us to carve out the brand value of Lux in a very logical way by comparing Lux’s price with that of the averaged price of all other non branded soaps. The difference we got was premium enjoyed by the brand. This figure when multiplied with the total no. of units sold gave the value of the brand which came to 5, 40,000 in rupees for Cuttack city. The above result showed that lux has good value.

Then we have developed our own method to measure the value of our brand. The name of the model was Customer Attrition model where we had calculated on the basis of attrition rate of consumers with respect to nominal change in price (10%) of LUX,

And we compare LUX’s users behaviour by measuring the consumer switching to other brand mentioned apart from Lux. (preferably the customer is a current user of Lux prior to hike in price.)

The main purpose of this model is to gauge customer’s brand preference with respect to change in price of their preferred brand and thereby quantifying the brand premium.

Here we can measure the premium a brand enjoys by comparing its original price with that of the inflated price. And the brand’s valuation would be based on the following formula

((No. of users retained * price of Lux *1.10)- (No. of users * price of Lux))

Total no. of users before price hike

* no. Of retained users after price hike

=brand premium per customer * no. Of retained users after price hike

= brand value.

Here the data source is secondary i, e from distributors. First the data were tested on 26 Lux users from which 24 were found to be loyal. From this we could found out the brand premium per customer and when multiplied with total no. of units sold, brand value for Lux was computed.4 | P a g e

From all the analysis we got the result that the valuation of the our brand lux is verygood .

INTRODUCTION TO BRAND VALUATION

A brand is an intangible asset. Some see it as a name and a logo. Others will say that those are just the symbols of what the brand stands for and that what the brand stands for really is the brand. The brand is a covenant with the consumer, a promise that the brand and the products it names will conform to the expectations that have been created over time. A brand exists only because of its commitment to its internal values. Without that commitment, it is nothing but a glorified product name.

Determining the value of a brand is usually a combination of direct and indirect processes. A direct measurement process is one that arrives at a price based on the communication investment made behind the brand. An indirect measurement will value the brand based on what it can add to the bottom line.

Brands are like works of art. They are like the wonderful creations of Pablo Picasso and Rembrandt Harmensz van Rijn. These works of art have a market, but the values at which they change hands are not computed mechanistically.

1.1 Why is Brand Valuable?

A brand is a name or a symbol - and it is associated with tangible and emotional attributes - that is intended to identify the goods or services of one seller in order to differentiate them from those of competitors. At the heart of a brand are trademark rights. A brand designates a product or service as being different from competitors’ products and services by signaling certain key values specific to a particular brand.

1.2 How did Brand Valuation Originate?

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It was the wave of brand acquisitions in the late 1980’s that exposed the hidden value in highly branded companies and brought brand valuation to the fore. Some of these acquisitions included Nestlé buying Rowntree, United Biscuits buying and later selling Keebler, Grand Metropolitan buying Pillsbury and Danone buying Nabisco’s European businesses. All these acquisitions were at high multiple price tags. The amount being paid for the acquisition of a strongly branded company was increasingly higher than the value of the company’s net tangible assets. This resulted in huge levels of ‘goodwill’ arising on acquisition. This ‘goodwill’ actually disguised a mix of intangible assets - brands, copyrights, patents, customer loyalty, distribution contracts, staff knowledge, etc.

1.3 Why are Brands Valued?

Companies are increasingly recognizing the importance of brand guardianship and management as key to the successful running of any business. The values associated with the product or services are communicated through the brand to the consumer. Consumers no longer want just a service or product but a relationship based on trust and familiarity. In return businesses will enjoy an earnings stream secured by loyalty of customers who have ‘bought into’ the brand.

1.4 Applications of Brand Valuation.

* Brand management and development

* Enhancing management communications

* Benchmarking of competitors

* Monitoring value year on year

* Creating a brand-centric culture

* Internal licensing, brand control and tax planning

* Mergers & Acquisitions

* Joint-venture negotiations

* Expert Witness - evaluating the economic damage of trade

mark infringement

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* Financing and insolvency- securing funds through

identification of value of intangible assets.

* Balance sheet

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SHAFER MODEL

The CEO of Trajectories Group Mr. Chip Shafer had developed a brand valuation model which is known as SHAFER model as per his name. Mr Shafer had developed this model to know the brand value by the customer expectation and perception not by the market value by shareholder’s equity which is just (ASSET-LIABILITIES+EARNINGS). But the necessary thing is to get the accountability important intangible asset such as patents, intellectual property, and goodwill and brand itself.

According to Shafer, very few of these intangible asset are quantifiable viz. Patents and Intellectual property. This accounts just 5% of intangibles. Rather perceptions and expectation about the company how it will perform in future broadly turned as brand expectation the people have about the enterprise is the major source to derive the value.

So he designed a brand valuation formula BV=(R+M+V) C

Where

BV= Brand Value

R= Reputation

M= Momentum

V= Vision

C= Connection

Adoption of this method will help us in connecting the three broad aspect like brand reputation, momentum and vision. So brand reputation build upon what the brand has achieved till now from its inception. Then brand momentum, how is brand is performing as present market dynamics. Lastly comes in vision, 8 | P a g e

what people perceive about brand performance in coming years.

Reputation takes account of reliability, trustworthiness, originality of the product, appearance of the product, deliverance on promises, how much esteem gets from customer and how the well known the brand is.

Momentum refers to how well the brand implements strategy to gain maximum market share. Momentum is an impelling force or strength which in turn shows capacity of a brand further growth, in physics it is the product of mass X velocity where velocity is a vector quantity which takes only unidirectional growth route either positive or negative. We can consider the product mass as the grams a unit of soap contains and velocity is frequency of such units sold in a specified time period. .

Vision is strategic achieve in consumer’s perceptions. It takes account of what it has achieved and what is the current position and how it can deliver in future, shouldering on differentiation, unique positioning, advanced product dynamic

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communication to full fill needs of consumer in more favourable way.

Connection is the parameter which brings in synchronicity among reputation, momentum and vision where the brand awareness says about familiarity with customer with the brand, understanding the company values and likelihood of company future performance that is gives the broad depiction of brand’s score.

Findings

REPUTATION

The performance of the brand has measured by the reputation of a brand that infers the positioning indirectly. In this Lux is far better than other competitors with 764 points.

MOMENTUM

In this momentum we had calculated total sales by no. Of frequency purchase * no. Soaps sold.

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In momentum the lux is the market lewader followed by cinthol ,dettol, liril and no.1

VISION

In this vision we had asked the respondents about the brands ability to move in future by their perception, we had figured out alltghoer things by using 5 point likert scale.

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CONNECTION

Connection defines that how a consumer associates himself/herself with the brand that measure by brand’s knowledge. Brand knowledge can be measured by various methods. We employed methods like BLIND TEST, Brand Tag Line Test.

INFERENCE

After conducting the tagline test, which contains the tag of each brand under our study, we facilitated the respondents with fill in the blanks to identify the brands against taglines correctly. From the survey we got the results as plotted on a bar chart, where Lux came out with highest identification followed by dettol, cinthol, liril, godrej.no.1.

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TOTAL SCORE

We have individually carved out scores for reputation, momentum, vision and connection. These studied values can be put into the Shafers model formula that is BV= (R+M+V)*C. So we have computed the two brand value score with the help of two connection models scores to calculate.

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Both tests had given almost same result. Lux is the leader in both tests and followed by dettol. And the value of No1 is the lowest but the cinthol and liril has exchanged their position at bv2 comparing to bv1.

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GROSS PROFIT DIFFERENTIAL

In this approach, the value of a branded product will be equal to the price of that product minus the average price of similar non-branded products. For example, the brand value of Scope mouthwash will be equal to the price of a unit of Lux the average price of all other non-branded Soaps times the number of units of Scope sold. In mathematical terms this can be expressed as.

Where,bv is brand value,P is the price of a branded unit,N is the average price of similar Non-branded products andX is the number of branded units sold.

As the model suggests, we should find the number of Lux soap sold in India in order to find out the gross profit differentiation for the brand. Unfortunately the no. Of unit sold is not in the financial statement. Thus we calculated the no. Unit sold of Lux by the data of distributors of Cuttack city in order to calculate.

One cannot find a non branded soap in the market .Hence we took some lesser known brands in order to determine the average price. These brands are Dyna, Nima, Meera and Chandrika .

Limitation

This survey conducted in the Cuttack city from the distributor’s data.

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The prices of these soaps are not highly differentiated as compared to the branded Lux soap.

Total calculation was based on 100 gms .

Findings

As per the data of the distributors in Cuttack the Lux has been selling around 540000 units annually.

The average price of these lesser brand soap is Rs 9.

bv = (p – n) x =(10-9)* 540000

= 540000 in INR

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OWN MODEL

We named that model as Customer Attrition model where we had calculated on the basis of attrition rate of consumers with respect to nominal change in price (10%) of LUX,

And we compare LUX’s users behaviour by measuring the consumer switching to other brand mentioned from Lux. (preferably the customer is a current user of Lux prior to hike in price.)

BRANDS Price Increase in price by 10%

LUXLIRILDETTOLCINTHOLGODREJ NO.1

Limitation

`The behaviour of consumer should change as per their own perceptions.

The sample (30) size is very small, so the outcome may differ from place to place.

The other factors like Advertising, shopkeeper’s push are not measured here.

The model is based on an assumption, so it should not be very acceptable model when the income, socio-cultural factor will affect the behaviour of the consumers.

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Formulation of Formula

The main purpose of this model is to gauge customer’s brand preference with respect to change in price of their preferred brand and thereby quantifying the brand premium.

Here we can measure the premium a brand enjoys by comparing its original price with that of the inflated price. And the brand’s valuation would be based on the following formula

((No. of users retained * price of Lux *1.1)- (No. of users * price of Lux))

Total no. of users before price hike

* no. Of retained users after price hike

=brand premium per customer * no. Of retained users after price hike

= brand valuation.

Findings

In this we had found that out of 30 respondents 26 were interested in using the Lux and among them 24 were retained after the inflation in the price.

So the calculation would be

(24*10*1.1)-(26*10)/26 *24 = 3.69 (for 24 consumers)

If we take the data of distributors we can calculate the value by

3.69/24*540000= `83025

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RECOMENDATION-

What we found from our research was that the brand lux is facing tough competition from its competitors but it has very good value in the market but over the long run it wants to hold this position then it will has to bring in innovative products in the same category from time to time. It will has to rely on its strength which are good communication and its good brand image.

ANNEXURE

Shafer Model questionnaire

1.Based on your experience rank the following soap w.r.to corresponding attributes.

5.VERY GOOD 4.GOOD 3.AVERAGE 2.LOW 1.VERY LOW

Reputation

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LX DL CN LR No1AuthenticReliableTrustworthyOriginalityFamousPrestigiousGood appearance

Momentum

How many soap of the following brands do you consume in a week?

Vision

Connection

We had cut the soaps in similar pieces without their brand name and asked 30 respondents to identify.

Soap Advt. Soap NameMujhme Star Jagaye Be 100% sure24 hours confidenceLaa....elaelaa...Ek man mohak ehsaas , jo bas jaae mann mein

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Soap Consumption

LX DL CN LR No1

LX DL CN LR No1DynamicUniqueAdvanced