How Brands Create Value for Customers and Shareholders

Presented by: Adnan Galabhai 21077819

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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

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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)

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I. How do brands create value for customers?

Source: Kapferer (2004)

• Identification

• Promise of Quality

• Image

• Relationships and Intimacy

• Hedonistic and Experiential Rewards

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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)

2. Promise of QualityHALO EFFECT

6Source: Adapted from Kapferer (2004)

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

4. Brand Relationships

Source: Adapted from Fournier (1998)8

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.

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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

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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

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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

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Brand Value1.Branded Revenues

2.Intangible Earnings3.Brand Earnings

Present and Future Cash

FlowsCorporate

ValueShareholder

ValueShareholder

Value

Conclusion: Brand Value Chain

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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)

Questions?

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