brands and shareholder value
DESCRIPTION
TRANSCRIPT
Introduction• Marketing is under fire (Sheth and
Sisodia, 1995)
• Two schools of thought in marketing: One undermines the credibility of
brands The other places brands at the centre
of value creation
• To re-affirm the view that brands are top level strategic drivers, marketers need to articulate the customer and shareholder value-creating capabilities of their brands
2
But first…What is a brand?
• Brand is a Value-System
• Consumer Value Perspective: A brand is a set of mental associations held by the consumer, which add to the perceived value of the product or service (Keller, 1998).
• Shareholder Value Perspective: A brand is an
intangible asset representing a source of current and future earnings of the firm (Hill and Lederer, 2001)
3
I. How do brands create value for customers?
Source: Kapferer (2004)
• Identification
• Promise of Quality
• Image
• Relationships and Intimacy
• Hedonistic and Experiential Rewards
4
1. Identification• Emphasis on brand name, sign, symbol,
logo or design (AMA definition)• Identifies the goods and services of the
seller and differentiates its from competitors
5Source: Adapted from Keller (2008)
3. Brand Image
Ralph Lauren = SUCCESS
Ralph Lauren = SUCCESS
Physique = Energetic, Proud
Reflection = Young, rich men of good social standing
Relationship = Social Distinctiveness, Exclusive
Personality = American Way of Life, Elite
Culture= American, Luxury
Self Image= I belong to my time, I am fashionable
Source: Kapferer (2004)7
5. Experiential Value
• Brands eliciting sensory and emotional responses
• Consumption is a holistic experience• Eg. Disney, Apple Macbook
Apple Macbook Laptop
Fashion Statement/
Stylish Design
9Source: Adapted from Schmitt (1999)
II. Brands and Shareholder Value
• Traditional Domain of Marketing: Creation of Customer Value
• Modern Day Domain: Creation of Shareholder Value• Marketers need to speak the language of the CEOs.
10
SHAREHOLDER VALUE = CORPORATE VALUE – LONG TERM DEBT
CORPORATE VALUE= FUTURE CASH FLOWS OF THE FIRM
Let’s see how brands create shareholder value…
1. Increasing Cash Flow• Higher prices: Consumers willing to pay premium
for strong brands Eg. Louis Vuitton
• Higher volume growth: Strong brands can be leveraged to create brand extensions Eg. Coke Zero
• Lower Costs: Unit marketing cost lower for market leading brands
• Higher asset utilization: Brands with high market share can generate economies of scale through larger volume
11
Relationship between Brand Strength and Cash Flow
• A market share advantage of 3:1 translates into a cash flow advantage of app. 6:1
12Source: Whitwell et al. (2003)
2. Increasing the residual value of the business
• Residual value = Net present value of the business
• Brands sustain the long-term ability of the business to keep generating cash
• Coca Cola, Kit-Kat, Cadbury have been around for up to a century
• Research done by Madden et al. (2006) – A $1000 investment in companies in the World’s Most Valuable Brands (WMB) List generates a return of 4 times vs. only 3 times by the overall stock market
• Reflects investor confidence in companies with strong brands13
3. Reducing the risk associated with cash flow
• Strong brands are not easy to copy Eg. Apple iPod
• Brand loyalty promotes stability in cash flow
• Cost of winning new customers > cost of retaining existing ones
14
Concept of Brand Value• Brand Value is the dollar value of a brand, calculated as
Net Present Value (NPV), or today’s value of the earnings the brand is expected to generate in the future.
• One method of measurement is the Brand Asset Valuator (BAV): Translates Brand Equity into Financial Value
15Source: Pahud de Mortanges and Van Riel (2003)
Brand Valuation: Interbrand Method
16Source: Interbrand (2007)
World’s Most Valuable Brand in 2007 was Coca Cola with a brand value of $65.3 billion
Linking Brand Value to Shareholder Value
17
Brand Value1.Branded Revenues
2.Intangible Earnings3.Brand Earnings
Present and Future Cash
FlowsCorporate
ValueShareholder
ValueShareholder
Value
Conclusion: Brand Value Chain
18
ProductCommunications
AwarenessAssociationsAttitudesAttachment
Pricing PowerMarket Share Cost StructureProfitability
Cash FlowIntangible AssetsResidual Value
•Brands are key customer and shareholder value drivers requiring pro-active and consistent investment, management and measurement.•This view of brands is essential if marketers want to re-affirm marketing’s role as a top level strategic driver of the firm
Source: Adapted from Keller (2008)