The document provides an analysis of brand valuation for Cadbury Dairy Milk chocolate in India using the Interbrand methodology. It determines the brand strength score and role of brand index for Cadbury Dairy Milk and compares it to Cadbury 5 Star. The analysis finds that Cadbury Dairy Milk has a brand strength score of 100 and role of brand index of 45%, indicating it is a high brand strength brand with some dependence on other factors. This positions it well to be extended to other product categories like cookies and cakes.

1. PRAXIS BUSINESS SCHOOL
Brand Valuation - ‘Cadbury Dairy Milk’
Submitted To: Prof. Srinivas Govindrajan
Presented By: Ankita Singh
Arunachalam Ramanathan
Gaurav Talwar
Zeeshan Mohammad
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2. EXECUTIVE SUMMARY
In Phase-2, equity of a brand was measured to determine the retention capacity of Cadbury Dairy
Milk in the market, under any circumstances. It also talked about the added value endowed on
products and it determined the capability of generating future cash flows. In order to measure
Brand Equity for Cadbury Dairy Milk, three models were used:
Colombo Morrison Model
Van Westendorp Price Sensitivity Meter
Brand Leveragability Model
In Phase-3, brand valuation was performed to determine the value of Cadbury Dairy Milk. In
order to perform the valuation, Interbrand methodology was used.
In 2010, Kraft Foods acquired Cadbury India and thus the balance sheet was available only till
2009-10. With the following actual information and assumptions, the Interbrand model was
constructed:
Actual Information:
1. For the year 2012-2015, Cadbury‟s growth rate of 20% was determined from a recent
published article.
2. Tax rate for chocolate category in 2010 and 2011 was 30%
3. Capital charge was determined from the Kraft Foods report on „Acquisition of Cadbury‟.
It was considered to be the industry WACC (5.48%).
Assumptions:
1. Brand‟s sales contribution percentage is the same till 2011
2. 22.35% and 10.45% are the respective brands‟ contribution towards the expenses and
capital charge in Cadbury India.
3. Gross Margin %, Marketing, Overheads and Miscellaneous Expenses as a percentage of
sales, Capital Employed as a percentage of sales are constant from 2009 – 2011.
4. Terminal Value is 2%
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3. In order to calculate the Brand Strength Score, the seven parameters (Market, Stability,
Leadership, Profit trend, Support, Geographic Spread and Protection) were considered. To
calculate Role of Brand Index, the percentage of consumers who purchased the chocolate only
for the brand name was determined from the revised Colombo Morrison Model.
Brands Brand Role of
Strength Score Brand Index
Cadbury Dairy Milk 100 45%
Cadbury 5 Star 46 29%
A 2*2 model was constructed between Role of Brand and Brand Strength Score. From the above
scores, it was found that Cadbury Dairy Milk falls under Quadrant B i.e low Role of Brand and
High Brand Strength Score. As per this quadrant, it means that Cadbury Dairy Milk can be
extended to different categories i.e it has high brand elasticity. From this model and from Brand
Leveragability Model (conducted in Phase-2), it can be seen that Cadbury Dairy Milk has a high
chance of success if launched in cookies and cakes category.
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4. TABLE OF CONTENTS
S.NO TITLE PAGE NO
1 Brand Valuation 5
2 Interbrand Model 7
3 Methodologies followed by 8
Interbrand Model
4 Determination of Role of 10
Brand Index
5 Determination of Brand 11
Strength Score
6 Relationship between Role of 15
Brand and Brand Strength
7 Analysis of Interbrand Model 17
8 Recommendations 18
9 References 18
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5. BRAND VALUATION
Brands play an important role in generating and sustaining the financial performance of
businesses. With high levels of competition and excess capacity in virtually every industry,
strong brands help companies differentiate themselves in the market and communicate why their
products and services are uniquely able to satisfy customer needs.
The past 20 years have witnessed a dramatic shift in the sources of value creation from tangible
assets (such as property, plant, equipment and inventory) to intangible assets (such as skilled
employees, patents, business systems and brands). This is reflected in the growing divergence
between the net asset value of companies and their market capitalization. There are a number of
recognized methods for valuing trademarks or brands.
Cost Based Approach: This approach takes into account all the costs involved in building the
brand. All these expenses are added to arrive at the value of the brand.
Book to Market: This method is ideal for single brand companies. In this method the book
value of the company is deducted from its market capitalization, to arrive at the value of the
intangible asset, i.e. the brand.
Discounted Cash Flow Method: In this method, the cash flows are estimated and discounted to
come at the Present Value of the firm.
Price Premia Model: This model helps to assess how much premium a particular brand can
charge from the consumers. This is more applicable to products, which are more like
commodities.
Fifteen years ago, Interbrand conducted the first ever brand valuation for Rank Hovis McDougal.
This exercise succeeded in putting the worth of the company's brands as a figure on the balance
sheet. RHM's management wanted this information to fight a hostile takeover bid. With the
brand value information, the RHM board was able to go back to investors and argue that the bid
was too low, and eventually repel it.
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6. 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. An Inter brand study of acquisitions in the 1980s showed that, whereas in
1981 net tangible assets represented 82% (on average) of the amount bid for companies, by 1988
this had fallen to just 56%. It became clear that companies were being acquired less for their
tangible assets and more for their intangible assets.
Why Are brands valued?
Although public perceptions of brand valuation are often focused on balance sheet valuations,
the reality is that the majority of valuations are now actually carried out to assist with brand
management and strategy. 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 service is 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 enjoy a secured earning by loyalty of customers who have
'bought into' the brand.
Uses of Brand Valuation
In mergers and acquisition: By more accurately assessing the value of the various parties
Decisions on business investments and performance by making brand asset comparable
to other company assets
Decisions on brand investments within a brand portfolio, market segmentation or
distribution channel
Decision on the cost of licensing the brand to subsidiaries or third parties
Raising of funds by allowing brands to be used as collateral
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7. THE INTERBRAND METHODOLOGY
The Interbrand methodology is the most recognized of all methodologies. Interbrand method
takes into account the ongoing investment and management of the brand as a business asset. The
brand value obtained can be used to guide strategic brand management so that the business can
make better and more informed decisions.
The concept of brand valuation was developed to recognise brand value on a balance sheet.
However, not every brand meets with the criteria that allow clear valuation: should be separately
identifiable, able to be protected legally, should be transferable and enduring in nature.
The relationship between the brand strength and
brand value follows a normal distribution
represented by the “S” curve. As the brand
evolves from a weak brand to a strong one the
curve shifts to the right. The multiple on the y-axis
is determined by making use of all brands in that
particular segment/industry. The brand strength
variables are then correlated to a multiple such as
price ratio to gauge the level of confidence of the
brand in the future. The brand multiple must then
be added to brand profit to derive the true value of
brand equity.
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8. METHODOLOGIES FOLLOWED BY INTERBRAND
1. Market Segmentation: Brands influence customer choice; however, their influence differs
depending on the market in which they operate. The brand‟s markets are split into non-
overlapping and homogenous groups of consumers according to applicable criteria such as
product or service, distribution channels, consumption patterns, purchase sophistication,
geography, or existing and new customers. The brand is valued for each segment, and the sum
of the segment valuations constitutes the total value of the brand.
2. Financial analysis: In the financial analysis, forecast current and future earnings specifically
attributable to the branded products and then subtract operating costs from revenue to calculate
branded operating profit. Then, apply a charge to the branded profit for capital employed, giving
us the brand‟s economic earnings
Financial performance measures an organization‟s financial return to its investors. For this
reason, it is analyzed as economic profit, a concept akin to EVA (Economic Value Added). To
determine economic profit, taxes are removed from net operating profit to get to net operating
profit after tax (NOPAT). From NOPAT, a capital charge is subtracted to account for the capital
used to generate the demand revenues: this provides the economic profit for each analyzed year.
Financial performance is studied across each individual segment.
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9. 3. Role of Branding (RBI) Analysis: Identify and forecast revenues and “Intangible Earnings”
generated by the brand for each of the distinct segments determined in step 1. Intangible
earnings are defined as branded revenues minus operating costs, applicable taxes, and a charge
for the capital employed. The concept is similar to the notion of economic profit.
4. Brand Strength Analysis (BSS): Assess the role that the brand plays in driving demand for
products and services in the markets in which it operates to determine what proportion of
intangible earnings are attributable to the brand measured by an indicator referred to as the “Role
of Branding Index,” which is calculated by first identifying the various drivers of demand for the
branded business, then determining the degree to which each driver is directly influenced by the
brand. The role of branding represents the percentage of intangible earnings generated by the
brand. Brand earnings are derived by multiplying the role of branding by intangible earnings.
5. Competitive Benchmarking: Determine the competitive strengths and weaknesses of the
brand to derive the specific brand discount rate that reflects the risk profile of its expected future
earnings, as measured by an indicator referred to as the “Brand Strength Score,” which
comprises extensive competitive benchmarking and a structured evaluation of the brand‟s
market, stability, leadership position, growth trend, support, geographic footprint, and legal
protect ability.
6. Brand Value Calculation: Brand value is the net present value (NPV) of the forecast brand
earnings, discounted by the brand discount rate. The NPV calculation includes both the forecast
period and the period beyond, reflecting the ability of brands to continue generating future
earnings.
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10. DETERMINATION OF ROLE OF BRAND INDEX
The Role of Brand Index is a measure of how much of the customer demand was dependent on
the brand at the point of purchase and is applied to the economic earnings to arrive at Branded
Earnings. By this assessment, the brand‟s contribution to the earnings of the business is isolated.
For this study, industry benchmark analysis for the Role of Brand Index is derived from
Interbrand‟s database of more than 5,000 prior valuations conducted over the course of 20 years.
In-house market research is used to establish individual brand scores against our industry
benchmarks.
The Role of Brand Index (RBI) measures how much of the decision to purchase is attributable to
the Brand Power, regardless of other aspects, like product price or features. RBI is defined
through an in-depth analysis based on primary research data. Because the Brand‟s role in driving
demand differs depending on geography, type of channel, this analysis is carried out for each
individual segment. RBI is combined with the economic profit of the branded products to
determine the amount of branded earnings that contribute to the total value.
Analysis:
As per Interbrand model, Role of Brand Index is a measure of how much of the customer
demand was dependent on the brand at the point of purchase. From revised Colombo Morrison
Model, the actual brand loyalty was determined. Actual brand loyalty was those customers who
were insensitive to price, taste and availability of Cadbury Dairy Milk and Cadbury 5 Star.
Brands Actual Brand No. of Brand Loyal Role of Brand
Loyal Customers Customers as per Colombo Index
Morrison Model
Cadbury Dairy Milk 9 20 45%
Cadbury 5 Star 2 7 29%
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11. DETERMINATION OF BRAND STRENGTH SCORE
The Interbrand model of brand strength – part of the valuation methodology – is a useful
framework to consider the performance of a brand.
Brand Strength Score (BSS) measures the ability of the brand to secure the delivery of future
expected earnings. Brand strength is reported on a 0-100 scale, based on an evaluation across 7
dimensions of brand activation. Performance in these dimensions is judged relative to other
brands in the industry. BSS inversely determines, through a proprietary algorithm, a discount
rate. That rate is used to discount branded earnings back to a present value based on how likely
the Brand is to withstand challenges and deliver the expected earnings.
The seven components of brand strength in the Interbrand valuation model are:
1. Market: 10% of brand strength. Brands in markets where consumer preferences are more
enduring would score higher. So for example, a food brand or detergent brand would
score higher than a perfume or clothing brand, because these latter categories are more
susceptible to the swings of consumer preference.
2. Stability: 15% of brand strength. Long established brands in any market would normally
score higher, because of the depth of loyalty they command. So for example: Rolls Royce
would score higher than Lexus.
3. Leadership: 25% of brand strength. A market leader is more valuable: being a dominant
force and having strong market share matters. So for example on this score it is likely that
the Coca-Cola brand would out-perform Pepsi on a global basis.
4. Profit trend: 10% of brand strength. The long-term profit trend of the brand is an
important measure of its ability to remain contemporary and relevant to consumers,
according to Interbrand.
5. Support: 10% of brand strength. Brands which receive consistent investment and
focused support usually have a much stronger franchise, but the quality of this support is
as important as the quantity.
6. Geographic spread: 25% of brand strength. Brands that have proven international
acceptance and appeal are inherently stronger than regional brands or national brands, as
they are less susceptible to competitive attack and therefore are more stable assets.
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12. 7. Protection: 5% of brand strength. Securing full protection for the brand under
international trademark and copyright law is the final component of brand strength in the
Interbrand model.
This model is not perfect, for example several of the components have a built in preference for
older brands and so may not give adequate recognition to the value of newer brands such as
Amazon or Starbucks. However, it is certainly useful to reflect on the seven components.
Strength Maximum Value
Leadership 25
Stability 15
Market 10
Geographic Spread 25
Trend 10
Support 10
Protection 5
Total: 100
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13. Analysis
Brand Strength score can be determined only based on comparison with the other brands. Hence,
Cadbury 5 Star was considered.
Market – Since it is a chocolate category (impulse purchase category), consumer
preferences are more than any other categories and hence was given the maximum marks
for both the brands
Stability – It was measured based on the age of the brand. The relative percentages were
found and thus the respective scores were calculated.
Stability Age of Brand Relative Score
(years) Percentage out of
15
Cadbury Dairy Milk 64 100% 15
Cadbury 5 Star 43 67% 10
Leadership – Based on the market share in India, the relative percentages were found
Leadership Market Share Relative Score
in India Percentage out of
(By Volume) 25
Cadbury Dairy Milk 30% 100% 25
Cadbury 5 Star 14% 47% 12
Profit Trend – The accumulated NOPAT of 2010 and 2011 was calculated and the
relative percentages were found
Profit Trend Profit Relative Score
(in Rs. Cr) Percentage out of
10
Cadbury Dairy Milk 176 100% 10
Cadbury 5 Star 82 47% 4.7
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14. Support – Kraft Foods gives its full support to Cadbury Dairy Milk and Cadbury 5 Star.
Hence, both the brands receive maximum score for this parameter
Geographic Spread – In the international market, the market shares of Cadbury Dairy
Milk and Cadbury 5 Star was determined and the relative percentages were calculated
Geographic Spread Market Share Relative Score
Worldwide Percentage out of
(By Volume) 25
Cadbury Dairy Milk 10% 100% 25
Cadbury 5 Star 2% 20% 5
Protection – Both the brands receive full protection for the brand under international
trademark. Hence, both the brands receive maximum scores.
Based on the seven parameters, the brand strength scores were calculated.
If the brand strength score is 100, then the discount rate is equal to industry WACC (risk-free
rate). As the brand strength score decreases, the discount rate increases as the risk increases.
Thus, Cadbury Dairy Milk‟s discount rate was 5.48% and Cadbury 5 Star‟s discount rate was
7.87%. The discount rate for Cadbury 5 Star was calculated based on the following formula that
was devised:
Discount Rate = Industry WACC + {[(100 – Brand‟s Strength Score)/100]*Industry WACC}
Brands Brand Strength Discount
Score Rate
Cadbury Dairy Milk 100 5.48%
Cadbury 5 Star 56 7.87%
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15. RELATIONSHIP BETWEEN ROLE OF BRAND & BRAND STRENGTH
The Role of Brand defines the degree to which demand is dependent on the brand, while Brand
Strength is the ability of the brand to generate and sustain the demand.
The following two-by-two Matrix provides a useful framework to consider the relationship
between Role of Brand and Brand Strength.
D A
C B
In Quadrant A:
High Role of brand & High brand Strength is the perfect spot for the brands and at the same time
most challenging place. In turn, customers‟ attitudes and economic circumstances have changed
in responses to the shifts and thus, they continue to maintain their Brand Strength and Role of
Brand, when the dynamics and competitive game of the market are in flux.
If a brand is in quadrant A, customers will look for tangible returns on their purchase decision
and focus on price and other verifiable or “tangible” drivers
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16. In Quadrant B:
The brands found in Quadrant B have high Brand Strength and low Role of Brand, meaning the
brand is well positioned in a market where the brand‟s contribution to demand is rather small.
Advantage of this quadrant is the freedom to experiment with new ways to grow the business.
Strong brands have a strong foundation, and a lower Role of Brand in your category means a
lower risk of exposure or lower risk of stretching your brand out.
Cadbury Dairy Milk lies in this quadrant and hence has a freedom to experiment in the new
segments. High brand Strength shows that the customers are loyal and thus has an edge over the
other brands with an increasing profit trend. It will give more stability to the brand in the market.
On the other hand low role of brand means a lower risk of exposure or lower risk of stretching
your brand out.
Brands Role of Brand Index Brand Strength Score
Cadbury Dairy Milk 45% 100
Cadbury 5 Star 29% 56
In Quadrant C:
In Quadrant C, brands with high Role of Brand and low Brand Strength score are found. This is a
critical spot on the matrix. In this scenario, the brand has an important influence on purchase
decisions but fails to drive ongoing demand. This means the brand is important but risky, and the
competitors tend to win the battle. Brand building is required, and fast, as the category structures
will punish weak brands.
In Quadrant D:
In Quadrant D, brands with high Role of Brand and low Brand Strength are found. The brand has
full of opportunities. However, if competitive pressure increases, the brand becomes a needed
point of difference. Increasing the Role of Brand or increasing the Brand Strength (or ideally
doing both) is the key to competitive advantage.
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17. ANALYSIS OF INTERBRAND MODEL
Since Cadbury India was acquired by Kraft Foods in 2010, the balance sheet was not available
for 2010-2011 & 2011-2012.
Thus, Cadbury India‟s 2009-2010 annual report was used to determine the contribution of
Cadbury Dairy Milk and Cadbury 5 Star to the overall sales of Cadbury India. From the
calculations, it was found that 22.35% and 10.45% of the overall sales come from Cadbury Dairy
Milk and Cadbury 5 Star respectively.
Actual Information:
4. Cadbury‟s growth rate (20%) was determined from a recent published article
5. Tax rate for chocolate category in 2010 and 2011 was 30%
6. Capital charge was determined from the Kraft Foods report on „Acquisition of Cadbury‟.
Hence, it was considered to be the industry WACC (5.48%)
Hence, the following assumptions were taken into consideration for calculating the brand value:
5. Brand‟s sales contribution percentage is the same till 2011
6. 22.35% and 10.45% are the respective brands‟ contribution towards the expenses and
capital charge in Cadbury India.
7. Gross Margin %, Marketing, Overheads and Miscellaneous Expenses as a percentage of
sales, Capital Employed as a percentage of sales are constant from 2009 – 2011
8. Terminal Value is 2%
Brand Valuation:
At the end of the valuation, it was found that Cadbury Dairy Milk has a brand value of Rs.2630
crores and Cadbury 5 Star has a brand value of Rs. 465 crores
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18. RECOMMENDATION
Cadbury Dairy Milk has a brand value of Rs.2630 crores and it falls under Quadrant B as per the
2*2 model constructed between Role of Brand and Brand Strength Score. From the above two
statements, it can be found that Cadbury Dairy Milk has high brand elasticity. Thus, as an
additional support to Brand Leveragability Model (conducted in Phase-2), Cadbury Dairy Milk
has a high chance of success if extended to cookies and cakes category.
REFERENCES
http://www.webpronews.com/brand-valuation-the-seven-components-of-brand-strength-
2003-06
http://www.livemint.com/Companies/5NnJK87FxsWn7MZUvTq2HI/Cadbury-India-
hopes-to-sustain-20-growth.html
http://www.interbrand.com/
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