Brands have come to be viewed as an asset for a business firm. A brand is a symbol carrying with it certain associations and images. In customer terms, a brand represents a promise. Its value to consumers is that it reduces risk, saves time and provides reassurance. Brand valuation as an exercise essentially produces a tradable value of the brand (in terms of Rupees). This figure can ultimately be transferred on to the balance sheets of companies or as a base figure for brand acquisition negotiation.

Who Needs Valuation Of Brand Names?

For self generated goodwill, marketing people have often accused accountants of `outmoded accounting practices' which record assets in the Balance Sheet according to their `future economic benefit' irrespective of whether current market conditions allow for such value to be realized or not. However, there is no easy answer to this, because the value of brand image can change very quickly. Hence, proper valuation bases are necessary. Having said this, as markets become more global and transparent, more companies are beginning to recognize the importance of brand valuation and have started including this in their Balance Sheets.

There are different ways of calculating brand valuation. Some the techniques are discussed in this articles before studying the same for Crocin

Bert technique values brands based on following factors. It gives scores on each factor and values the brand as multiple of sales/ earnings based on the aggregate score.
- USP's of the brand
- Stability of the brand
- Markets namely the industry in which the brand is in use.
- Internationality of the brand commanding a higher weight age than a local brand.
- The long term trends of the brands
- Brands receiving consistent investment are more valuable.
- Legal protection commanded by brands through registration and trademark laws.
- Quality of support received by the brands.

Brand Valuation Using RKS Model for Crocin:We have utilised the RKS model for calculating the brand value as we find that it is more quantitative and has less subjectivity.
- Glaxo SmithKline Beecham bought Crocin from Duphar Interfran Limited in 1996 and its brand value was estimated at Rs. 42.5 Crore.

As per the RKS model the value of a brand depends upon the eight factors mentioned in the table given on the next page. Weights are assigned to the different factors as per their importance. The brand is then rated on each factor on a scale of 1 to 5. The rating for each factor is then multiplied by the respective weights to obtain the weighted score.

The weighted score for all factors are added to obtain the Total Weighted Score. Then, the Index Score is calculated in terms of percentage using the following formula.

Index Score = Total weighted Score/500 * 100 = __________%

Finally, the net sales of the brand is multiplied by the Index score to determine the brand valuation.

While Estimating the Brand Value of Crocin we take into account the following facts.
- The Retail Sales of Crocin in the year 1995 and 2003, as per Retail Audit were Rs.18.64 Crore and Rs. 38.60 Crore respectively. Taking into account the retail sales of Crocin in the year 1995 and 2003 the Simple Annual Growth Rate (SAGR) for Crocin can be calculated as follows:

SAGR = Sales in the year 2003 - Sales in the year 1995 * 100
Sales in the year
1995 * 8
= 38.6 - 18.64 * 100
18.64 * 8
= 13.38%

Taking the SAGR for Crocin at 13.38% we compute the retail sales of Crocin in the year 1996 as Rs. 21.13 Crore.

In the year 1996 Crocin was the second largest selling analgesic and had a market share of 8.8%.
- The total market size of analgesics in the year 1996 was approximately Rs. 212 Crore.
- The perceived value for Crocin has always been high because consumer belief in the brand has always been very high.

While estimating the brand value for Crocin we make the following assumptions:
- We assume that the profitability of Crocin in the year 1996 was approximately 10%.
- The marketing expenses for Crocin in the year 1996 were approximately 15% of its sales.
- Crocin was in the maturity stage in the product life cycle.
- There is few little Scope for any line extension.

Step 1

Computing the Index Score by taking into account the volume of business of Crocin, its rank in the market, the total market size, perceived value, assumed profitability, assumed marketing expenses as a percentage of sales, its stage in the product life cycle and scope of line extension in the year 1996.

Step 2

Net Sales in 1996 were Rs. 21.13 Crore. Multiplying the Net sales by the percen-tage of Index Score the brand value for Crocin in the year 1996 was:
0.67 * 21.13 = Rs. 14.16 Crore.

Determining the Payback Period for Crocin

As calculated earlier the SAGR for Crocin through the years 1995 to 2003 comes out to 13.38%. Using this SAGR we compute the Sales of Crocin through the years 1996 to 2003. We assume the cash flow to be 10% of the sales each year. As there is a growth in sales each year, the cash flow through the years would increase and not remain constant. In such situations the payback period is calculated by cumulating cash flows till the time the cumulative cash flows become equal to the original investment outlay which in this case would be the amount paid for the brand value of Crocin i.e. Rs. 42.5 Crore. The given table presents the calculations of pay back period for Crocin.

If the RKS model was used for determining the brand value for Crocin, the amount to be paid would be much lower and would have been recovered in the year 2001 i.e. the payback period would be just about 3 years. Thus, we can see that the brand valuation of Crocin was much higher then it actually was. Thus, Crocin ,it appears is not he best deal .Even after going OTC route fro the brand it has not overtaken Calpol.-yet another brand of GSK.

Discussion

If the valuation techniques are straitjacketed then why do different buyers pay different values for the same asset? Consider the above case, the most talked about deal i.e. the takeover of the Brand Crocin by Glaxo SmithKline, for Rs 45 Crore.

The difference in the perception in the valuation is largely driven by an estimation of the synergy values that each business can reap by acquiring an asset. This may be in the form of cost reductions, revenue enhancements, process improvements and so on. The payment of a relatively exorbitant price in case of Crocin may be considered as an action in response to the fear that the brand was likely to take over the company's parent brand Calpol. The company aimed at turning the brand Crocin as an OTC (Over the Counter) product thereby safeguarding its brand, which was in the maturity stage.RKS Model if applied could have given an early return on the investment.

Summary

- Valuation of a brand is desirable from the point of view of providing objectivity to the "value" of the brand, which otherwise tend to become subjective and less useful as a guide for marketing decision making.
- There are five main methods used by corporate to establish the right value for their brands.
- The brand valuation of Crocin was much higher then it actually was, as determined with the help of RKS model.

(Dr R.K.Srivastava, Professor Emeritus, SIMSR, Mumbai University &Country head- {Rowa} and marketing consultant. e.mail:srivastava@vsnl.net)

K.J.Somaiya Institute of Management Studies and research, Vidyanagar, Vidyavihar, Bombay.

Jyoti Joshi, Aliasgar Hararwala, Mustafa Faizy, and Rakesh Chandiwala

MMS Marketing Somaiya Institute Of Management Studies & Research