Brand Valuation Ofpepsi

Executive Summary

While considering the models for brand valuation, there were various models based on different

approaches like financial, economic & qualitative. But while choosing models we also had to consider

the amount of data and details of the company’s financial background that was available. For DCF,

Interbrand and other such models we had to have a complete balance sheet of the company

which was not available in my case, thus along with the models like price-premia & royalty

method we also considered a model which was qualitative which was Shafer’s Model.

Model 1: Shafer Model : Out of the various methods available to ascertain the value of a brand,

one such method is the Chip Shafer Model method of ascertaining the brand value. A model

developed by Trajectories Group in Irvine, California. Chip Shafer is the CEO of that firm.

Formula= B = (R + M + V) C, where B equals Brand Valuation, R equals reputation equals

momentum equals vision & C equals connection.

Process for Measuring Brand Value :Respondents were asked questions related to the four components

of this model. A comparative study was done and the brands were assigned scores in each of the

component. Then as per the formula the brand value score was assigned to each of the brand.

Research Methodology : Research Design was descriptive, Sampling technique was Simple

random sampling, Method of data collection was primary data collection method while

instrument of data collection was questionnaire & the sample size was 30 respondents for

Shafer model and 20 for royalty and price-premia method.

Findings : After assigning scores individually for each of brand across the 4 components and

assigning scores as per Shafer model, Thums Up emerged as a leader by a huge margin

followed by Sprite, Pepsi, Coke and Fanta. Thums Up was leader with huge margins in more

than one component which clearly shows the strong grip the brand has on the consumers.

1 BRAND VALUATION INTRODUCTION

1.1 WHY ARE BRANDS VALUABLE?

Brand is the medium through which the consumers identify their experiences with the product

offerings of a company. The name of the company is forgotten, but the brand name remains in the

mind of the consumer. And this brand name, along with its associations, initiates future purchases.

So, logically, one can conclude that the consumer's behaviour and perception about a company's

brands reflects in the company's bottom line

1.2 NEED FOR BRAND-VALUATION

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 recognising the importance of brand

guardianship and management as key to the successful running of any business. Brand valuation

has gained a lot of importance due to the following reasons:

Building of brands takes years; most of the famous brands are even 100 years old but the value of

the brands needs to be maintained continuously as it is not something that is consistent or

permanent, the value changes with the changing environments

A full-fledged brand valuation exercise can help a company strengthen its inter-departmental

communication and also develop a reliable information system

It indicates the strengths and weaknesses of the company's brands and is a useful tool in devising

brand management strategy

The company can identify its most resourceful brands and can thus differentiate between strong

brands and brands which are only glamorous and not that strong, and thereby aid in resource

allocation to maximise shareholder returns

The recent trend of acquiring established brands to ensure growth amid tough competition has led

to the wide acclaim of the brand valuation concept in negotiating the transaction price

Brand valuation can also help in identifying brands to be included in the portfolio

The value of a brand reflects not only what earnings it is capable of generating in the future, but

also the likelihood of those earnings actually being realised.

REASONING FOR SELECTION OF MODELS

Brand Valuation can be done by various methods. Few of them are Discounting Cash Flow, Interbrand

Method, Cost based approach, Book to Market and Cost of Certainty Model. These methods require the

financial data of the company like Book value, Market capitalization, Value of intangible assets,

Advertisement costs, Income statement, Balance sheet and other such data. Few of the other methods

are Price Premia Method, Royalty Method, Shafer’s Model and other such methods wherein the

financial data of the company is not required.

For selection of the method for brand valuation of Pepsi we have chosen Price Premia, Royalty and

Shafer’s Method. The other methods could not be chosen due to the non availability of the financial

data. Though PepsiCo is a listed company and the international financials are available but specific

financial data for Pepsi cola segment is not available and valuing brand considering all the segments

would not give a true picture for the brand value of Pepsi cola.

3 QUALITATIVE METHOD I - SHAFER MODEL

3.1 INTRODUCTION

Out of the various methods available to ascertain the value of a brand, one such method is the Chip

Shafer Model method of ascertaining the brand value. A model developed by Trajectories Group in

Irvine, California. Chip Shafer is the CEO of that firm. According to Shafer, only a third of Fortune

500 company market value can be accounted for by shareholders’ equity (assets - liabilities + earnings).

The rest is called “intangible assets,” which consists of such things as patents, intellectual property,

goodwill and brands. Shafer estimates only about 5% of these intangibles are quantifiable assets such as

patents and intellectual property. The vast majority of this value, he says, has more to do with

perceptions and expectations about how a company will perform in the future. In other words, it’s the

brand expectation people have about your enterprise.

3.2 BRAND VALUATION FORMULA

Formula: B = (R + M + V) C, where

R equals reputation

M equals momentum

V equals vision

C equals connection

This brand valuation has been broken into

these four components that largely have to

do with what you’ve done in the past, what

you’re doing right now, what we can

expect you to do in the future and how

familiar we are with your brand.

The past performance section deals

primarily with things that have been done

to build trust in your brand. Do we like

you? Do you offer high quality? Do you

deliver on your promises? Are your

customers satisfied? As Shafer points out, reputation is mostly a measure of trust, and trust is a

fundamental necessity in all human and business interactions.

The present performance component attempts to determine your momentum in the

marketplace. Shafer refers the old physics law of mass x speed = momentum. Big companies don’t have

to move too fast to have huge momentum, whereas fast-moving companies don’t have to be big to make

sizable gains in market position. The objective in this section is to determine how well you are

implementing your game plan.

The future, or vision component, looks not only at measures of whether customers and prospects regard

you as a forward-thinking company, but more importantly, whether they think you have the credibility to

pull off your vision of the future. “Having a clear, compelling vision based on a deep understanding of

customer dynamics is incredibly important,”

The fourth area concerns connection to the marketplace. It’s more than simple awareness because it deals

with familiarity, understanding of company values and the likelihood of doing business with your

company. As you can see from the formula, if you score well in all three basic performance areas (past,

present and future) but fail to show connectedness to customers and prospects, your brand score will

suffer accordingly.

3.3 RATIONALE

Since the product dealt was Cold Drinks, where all the brands are priced similarly, the brands charging

premium would be hypothetical, thus it was a clear case of brand name contributing towards incremental

sales in volumes by giving access to customers.

Thus along with the tried and tested models like DCF, Interbrand, Royalty relief & Price premia, we also had to chose a model which is basically qualitative in nature, which is able to capture the intangible

factor which makes the brand, the brand it is. The Shafer model basically aims at capturing the past,

present & future of the company and then a relation in terms of the connection every customer has with

the brand.

3.4 PROCESS OF MEASURING BRAND VALUE

Respondents were asked questions related to the four components of this model.

A comparative study was done and the brands were assigned scores in each of the

component.

Then as per the formula the brand value score was assigned to each of the brand.

3.5 RESEARCH METHODOLOGY

The research methodology used to collect data and develop a model was:

Research design Descriptive

Sampling technique Simple random sampling

Sample size 30 respondents

Method of data collection Primary data collection method

Instrument of data collection Questionnaire

3.6 FINDINGS

Reputation300

252234250

209194200 174

150Reputation

100

50

0

Pepsi Thums Up Sprite Coke Fanta

On the component reputation which was to measure the past performance of the brand which included

questions judging the brand on its attribute taste and the ability to adhere to the brand image it has been

striving to create, Thums Up was the leader with Thums Up scoring 252 points followed by Sprite with

234 points , Coke with 209 points, Pepsi with 194 points and Fanta with 174 points.

Momentum70

62

60

50 45

4031

30 Momentum

2012 10

10

0


On the component Momentum, Thums up managed to be the leader again with a big margin scoring 62

points, followed by Sprite, Pepsi, Coke & Fanta.

For this particular question we asked respondent to assume the bottle size to be 200ml and asked how

many bottles of each brand do they consume each week and then arrived at the score applying the

formula of Mass * Speed = Momentum. This component was included to have an idea of how strong the

brand is doing in terms of actual and potential sales in volumes.

Vision250

193183 184

198200

154150

100 Vision

50

0


On the Component Vision almost all the brands are showing potential, this component included

questions like brand’s ability to innovate and keep consumers interested and anxious to have something

new and their willingness to recommend this brand to family and friends. Here Coke emerged as the

leader with 198 points, followed very closely by Pepsi with 193 points followed by Sprite, Thums Up

and Fanta.

Connection45 4140 36 36

3435

3030

25

20 Connection15

10

5

0


This was the last component to judge the familiarity the consumers had with the brand and the

willingness to get associated with the brand, this was to basically judge the kind of trust the consumers

showed on the brand and the level of knowledge the consumers had about the brand. Here also Thums

Up emerged as the leader of the pack with 41 points followed by Sprite and Pepsi both at 36 points and

then Coke with 34 points and lastly Fanta with 30 points.

Total Score

2500020377

200001666815048

15000 14246

10000 10140

5000 Total Score

0

PepsiThums Sprite Coke

Up Fanta

After assigning scores individually for each of brand across the 4 components and assigning scores as

the Shafer model, Thums Up has emerged as a leader by a huge margin followed by Sprite, Pepsi, Coke

and Fanta. Thums Up was leader with huge margins in more than one component which clearly shows

the strong grip the brand has on the consumers.

3.7 RECOMMENDATIONS

In all the components Thums Up is either the leader by huge margin or a close second, Thums Up has

got a very good reputation and has been successfully able to make people believe that the product is

standing up to its image and is adhering to its deliverables. As a result of such a strong reputation Thums

Up is the leader in the component momentum which judges the current sales happening.

Pepsi as a brand has not done well in reputation and momentum, however in the component Vision,

which judges the future of the brand as per the consumer perception, Pepsi stood second to Coke,

indicating that although the brand is not doing well currently, consumers have got confidence in the

brand to do well.

Pepsi has also launched various campaigns in sync with its taglines like “Yeh hai Youngistaan, Meri

Jaan” , Nothing Official about it” and got very good responses from these advertisements and should

continue doing it in future to enhance its brand image adherence.

Pepsi would do well if it considers some mass marketing strategy, to highlight the attribute which consumers like and which they find in Thums Up and Sprite which is taste, highlight its brand image which would enhance the reputation of the brand as a brand which is delivering or promising to deliver.

ANNEXURE

6.1 SHAFER MODEL QUESTIONNAIRE

1) Rate the following brands in terms of the attribute taste ? (5 being the highest and 1 being

the lowest) {Reputation}

Name Pepsi Thums Up Sprite Coke Fanta

Rating

2) Rate the following brands on adherence to its brand image ? (5 being the highest and 1

being the lowest) {Reputation}


Rating

3) How many bottles of the following brands do you consume in a week ? (bottle size 200 ml)

{Momentum}


Quantity

4) Rate the following brands on innovation in terms of product variety ? (5 being the highest

and 1 being the lowest) {Vision}


Rating

5) I would recommend this brand of cold drink to my friends and relatives {Vision}

1 Strongly Disagree 2 Disagree 3 Neither Agree nor Disagree 4 Agree 5 Strongly Agree


Rating

6) If you are offered the dealership with any of these brands which one you would prefer ?


Preference

7) Identify the brands from the taglines mentioned below? {Connection}

Sl. No. Taglines Brands1 Aap muskurayenge, bulbule gungunayenge

2 Yeh hai youngistaan meri jaan

3 Seedi Baat, No bakwaas, Clear hai

4 Taste the thunder

5 ______ ka Signal loud, Bunking is allowed

Pepsi Brand Valuation

A report

Submitted to

Prof. KIRAN KOTHARI

ON

BRAND VALUATION OF PEPSI

Documents

Brand Valuation Ofpepsi