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BRAND EQUITY
NEWS AND GOSSIP WORLD EXCLUSIVES
Interbrand Method
Cost Based Method
• Historical Cost- In this we calculate our whole expenditure
till date. Suppose Rs. 100 million have been spent so far in
creating a brand called ‘X’ . The value at which the brand can
be sold to another organization should be Rs. 100 million.
Here we do not mind time value of money and other factor to
create the bond.
Replacement Cost- How much would it cost to create a brand
with similar turnover, profitability, distribution, loyalty etc.
Replacement cost = Launch cost + Production and
administrative costs incurred over the years + Brand premium
acquired over the years due to brand loyalty, distribution etc.
It do not give guarantee that if the cost is same then market
share, quality and other function will be same.
Cont.….
Market Value Method- This method used when Merger and
Acquisition takes place. Suppose Cibaca has been bought by
Colgate by 1310 million then what is the equity of Colgate.
Suppose Colgate has 17 times more turnover than Cibaca then
Equity of Colgate = 1310 * 17=22,270
Discounting cash flow method – This method consists of (1)
estimating cash flows that would accrue to a brand in future, (2)
converting these to present value using the Time value money.
Suppose estimated sales for the next 5 year is S1, S2, S3, S4, S5
and discount of 15% then present value of cash flow
P = S1/1.15 + S2/(1.15)2/ +………+S5/(1.15)5
Cont.…
• Brand Contribution –This method tries to identify the value
that is added the “BRAND” to the product.
Brand Equity = K( Profits from the brand – profits for an
unbranded product in the same category)
Inter- brand Method – This method aims at arriving at a value
at which a brand can be sold by one company to another.
Brand Equity = (Weighted average of Brand profits * P/E of
industry * Brand strength)
Brand Strength depend on certain variable like leadership,
stability, internationality, support, protection, market and trend.
Brand strength score = total score of all variable/100
Price Based
• Price premium method- This is done by comparing
(retail price of the “branded” product - retail price of an unbranded product.) .
The difference will be brand equity of that product.
Market share equalization method-
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