Brand Strength Multiple explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Everything in the computation is arithmetic until the last line, where a single qualitative judgement between 6 and 20 decides most of the answer.
The method
The valuation of Kellogg brand may be done using benchmark companies under the Market Approach. Under this approach a brands value is taken to be the product of 2 quantities. The annual net after tax profits adjusted to exclude the earnings expected for an equivalent unbranded product averaged overtime. This value is multiplied by the brands strength index.
The index considers various factors such as the ability to influence the market, ability to maintain a consumer franchise, vulnerability of market demand due to changes in tastes or technology, international potential, long-term appeal to consumers, strength of communications and security of the brand owners legal or property rights.
The greater a brands strength the higher its multiple and can range from 6 to 20.
Exhibit 1 — Kellogg's estimated brand value
| Particulars | USD billion |
|---|---|
| Kellogg's 1994 worldwide operating income | 1.000 |
| Less: estimated operating income of an equivalent unbranded product | 0.088 |
| Kellogg's 1994 adjusted operating income | 0.912 |
| Kellogg's 1993 adjusted operating income | 0.843 |
| Weighted two-year average (weights 1994/1993 = 2:1) | 0.889 |
| Less: US corporate tax @ 34% | 0.302 |
| Net income after tax, weighted two-year average | 0.587 |
| Brand strength multiple (assessed qualitatively) | 18.00 |
| Kellogg's estimated 1994 brand value | 10.56 |
Four of the five lines above are computable. The unbranded equivalent comes from industry ratios, the averaging rule is stated, the tax rate is statutory. Then the whole result is multiplied by a number assessed qualitatively.
Consider the range. At a multiple of 18, Kellogg's brand is worth 10.56 billion. At the bottom of the permitted range of 6, it would be 3.52 billion. The same profits, the same method, a threefold difference — and no arithmetic separates the two.
This is why the seven factors matter. Ability to influence the market, ability to maintain a consumer franchise, vulnerability of market demand due to changes in tastes or technology, international potential, long-term appeal, strength of communications and security of the brand owners legal or property rights are the scoring sheet. A brand strength multiple of 18 asserts that Kellogg scores near the top on essentially all of them.
Note also what the multiple is doing economically. It is a capitalisation factor — 18 times post-tax profit implies a return of about 5.6 per cent, i.e. a low discount rate and a very long life. That is a defensible view of a global cereal brand and an indefensible one for most marks.
The safeguard is to state the multiple's basis factor by factor rather than presenting it as a conclusion.
The unbranded equivalent
The operating income of a non-branded product line equivalent to Kellogg's was estimated as follows:
- Assume median capital/sales ratio for the processed food industry: 32%.
- Estimated capital investment required to produce sales of $5.5 billion for an equivalent non-branded product: 32% × $5.5 bill = $1.76 billion.
- Assume return on capital investment for an equivalent unbranded product: 5%.
- Estimated operating income for an equivalent unbranded product: 5% × $1.76 bill = $0.088 billion.
This is the with-and-without logic in a different dress. The unbranded business earns a bare return on capital; everything above that is the brand.
Table A — Financial World estimates, 1992-94
| Brand | 1992 | 1993 | 1994 |
|---|---|---|---|
| Coca Cola | 33,446 | 35,950 | 39,050 |
| Marlboro | 39,469 | 33,045 | 38,714 |
| Kodak | N.A. | 10,020 | 11,594 |
| Kellogg | 9,678 | 9,372 | 11,044 |
| Pampers | 5,924 | 5,732 | 5,919 |
| Black & Decker | N.A. | 855 | 1,627 |
| Dewar's | N.A. | 765 | 761 |
Note the difference between the Exhibit 1 computation of 10.56 and the reported figure of 11.044 for the same brand and year — a reminder that published brand values are estimates on stated assumptions, not observed prices.
Common mistakes
- Presenting a brand strength multiple without the factor-by-factor basis.
- Using a multiple near the top of the range for a domestic or single-category brand.
- Omitting the unbranded equivalent and capitalising total operating income.
- Treating published brand league tables as market evidence.