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Calculating Brand Value: Snapple

Watch Raj Venkatesan apply the revenue premium measure to calculate the brand value for Snapple.
So now we’re going to apply the revenue premium measure to calculate the brand value for Snapple. Now when we are applying this measure we are making some assumptions and simplifications just so that it’s easier for us to learn how to use this measure. So the main thing were going to do is not calculate the long term, but just calculate the annual revenue premium. What does this mean? It means that the annual brand equity is the difference of revenue premium and the additional variable cost. And we are now going to look into the long-term multiplier. So let’s get started.
Now we are here in 94 and looking at Snapple. Now Snapple In the year 94 had a share of 25% and was priced about 75 cents. Private Label, on the other hand, had a share of about 9.9% and the price was about 24 cents. So the difference between Snapple and Private Label in terms of price was about 51 cents and consumers had about 4.6. They drank about 4.6 pounds per household of either Snapple, or Private Label. Now the first step, as we just saw in the revenue premium measure, is to calculate the annual revenue premium per household. So, what is that? So, it’s this whole set of numbers over here.
Now let’s break it down into parts, and understand how we do this. So, the first thing, is to measure the value for Snapple. What is the revenue share of Snapple? Now, that comes from, the product of these two terms here. Share and price per pound. So the product of these two, 25% times 75 cents gives you the revenue share for Snapple. Now we can repeat the same thing for Private Label and that would give us 9.9%, which is the share for Private Label multiplied by 24 cents, which is the price of Private Label. Now the difference between this gives you the revenue premium per household per purchase instance. Now, let’s look at consumption.
Each household consumes about 4.6 pounds per year. So if you multiply that this gives you the revenue premium of Snapple per year over a Private Label. The next step is to calculate additional variable cost that Snapple carries over the Private Label. Now to do that let’s assume the Private Label’s margin is about 20%. Now, with that assumption in place, how do we calculate the additional variable cost? To do that we go back to the difference in shares, between Snapple and Private Label. So that is 25% minus 9.9%. And then multiply that by the gross margin of the Private Label which is about 80%.
And multiply that by the price per pound of the Private Label, which is 24 cents and the consumption per household per year that is 4.6. All of this gives you about 13 cents as the additional variable cost.
That Snapple has over the Private Label, because it has a higher share. Now, this brings us to the final step in calculating the brand equity, the annual brand equity for Snapple. Now to do that, let’s assume in 94, there were about 100 million households in the US. With that assumption in place, we can see that the brand equity is nothing but the difference between these two things over here. The annual revenue premium and the additional variable cost, that is 76 cents minus 13 cents and multiply that by the number of households. And that gives you $63 million as the annual brand equity of Snapple.
So you can see here, by taking some careful steps, but calculating the difference between the additional revenue premium and the additional variable cost and taking the difference between the two gives Snapple a brand equity of about $63 million in 1994.
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