pepsi brand valuation - final

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Pepsi Brand Valuation using Chip Shafer qualitative method & Quantitative models like Price-premia & Royalty mehtod

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Pepsi Brand Tracker(Project 2 Part 3 Pepsi Brand Valuation)

PRAXIS BUSINESS SCHOOl

A report Submitted to Prof. Srinivas Govindrajan In partial fulfilment of the requirements of the course Product and Brand Management On 22/09/09 BY Apoorva Jain Gunjan Dugar Hardik Mishra Manoj Mani IyerPEPSI BRAND VALUATION PRAXIS BUSINESS SCHOOL

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Executive SummaryWhile 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 companys 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 our case, thus along with the models like price-premia & royalty method we also considered a model which was qualitative which was Shafers 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. Model 2: Price Premia Model : In the price premia method, the value is calculated as the net present value of future price premiums that a branded product would command over an unbranded or generic equivalent. Here, the price premia model is use to calculate the difference between the perceived prices of beer for different cold drinks brands Process of Measuring Brand Value : Average Price = Total Price/ No of respondents . Sales(in units) = (No of users who want to buy a particular beer brand*48). Brand Value (in Rs) = (Average price of beer of cold drink brand Average price of unbranded beer)*sales of branded beer PEPSI BRAND VALUATION PRAXIS BUSINESS SCHOOL

3|Page Assumptions : Monthly usage rate of beer bottles (650 ml) per consumer is 4 (48 bottles per year). Consumers drink the same beer brand for a year. Findings : Out of the brands that were compared vis--vis the unbranded Cold drinks brand. Thums Up clearly is the leader and is valued at Rs. 21912.00.Pepsi with Rs. 3117.60 and Coke with Rs. 2308.80 are distant second and third. Sprite comes next and is valued at Rs. 1814.40.Fanta is last with its valuation coming out to be Rs. 220.80. Model 3: Royalty Method: A brand has a capability to charge a premium. A Royalty rate represent the premium a brand is able to charge above it competitive set. In other words, if the company does not own the brand being valued, the company would have to pay the owner a royalty for the right to use the brand. Findings : Royalty rate of Pepsi =61.67% Similarly the royalty rate for Thums Up, Sprite, Coke and Fanta is 67.36%, 65.48%, 60.42% and 58.33% respectively. Royalty fees that Pepsi can charge is Rs 61.67.Similarly the royalty fees that Thums Up, Sprite, Coke and Fanta can charge is Rs 161.67, Rs 91.67, Rs 48.33 and Rs 23.33 respectively Recommendations : Pepsi would have to analyse the situation and find the root cause, as there are various factors which may influence the below average performance despite the fact that all the brands are priced at same price. It would need to enhance its supply chain thereby increasing its availability, do aggressive marketing thereby highlighting its brand image. Only then it can survive and hope to get close to the leader Thums Up. 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. 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 BRAND VALUATION

PRAXIS BUSINESS SCHOOL

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TABLE OF CONTENTS1 BRAND VALUATION INTRODUCTION........................................................................................................................5 1.1 1.2 2 3 WHY ARE BRANDS VALUABLE? ........................................................................................................................5 NEED FOR BRAND-VALUATION .........................................................................................................................5

REASONING FOR SELECTION OF MODELS ...............................................................................................................6 QUALITATIVE METHOD I - SHAFER MODEL ............................................................................................................6 3.1 3.2 3.3 3.4 3.5 3.6 3.7 INTRODUCTION ......................................................................................................................................................6 BRAND VALUATION FORMULA .........................................................................................................................6 RATIONALE .............................................................................................................................................................7 PROCESS OF MEASURING BRAND VALUE .......................................................................................................8 RESEARCH METHODOLOGY ...............................................................................................................................8 FINDINGS..................................................................................................................................................................8 RECOMMENDATIONS ..........................................................................................................................................11

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QUANTITATIVE METHOD I PRICE PREMIA MODEL ...........................................................................................11 4.1 4.2 4.3 4.4 4.5 4.6 4.7 INTRODUCTION ....................................................................................................................................................11 RATIONALE ...........................................................................................................................................................12 PROCESS OF MEASURING BRAND VALUE .....................................................................................................12 ASSUMPTIONS ......................................................................................................................................................12 RESEARCH METHODOLOGY .............................................................................................................................12 FINDINGS................................................................................................................................................................13 RECOMMENDATIONS ..........................................................................................................................................14

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QUANTITATIVE METHOD II -ROYALTY METHOD ................................................................................................14 5.1 5.2 5.3 5.4 INTRODUCTION ....................................................................................................................................................14 RESEARCH METHODOLOGY .............................................................................................................................14 PROCEDURE FOR CALCULATING THE ROYALTY RATE.............................................................................15 FINDINGS................................................................................................................................................................15

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ANNEXURE .....................................................................................................................................................................16 6.1 6.2 6.3 SHAFER MODEL QUESTIONNAIRE ...................................................................................................................16 PRICE-PREMIA MODEL QUESTIONNAIRE ......................................................................................................18 ROYALTY METHOD QUESTIONNAIRE .........................................................................