Brands And Shareholder Value

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Transcript of Brands And Shareholder Value

  • 1. How Brands Create Value for Customers and Shareholders Presented by: Adnan Galabhai 21077819

2. 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

3. But firstWhat 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)

4. I. How do brands create value for customers?

  • Identification
  • Promise of Quality
  • Image
  • Relationships and Intimacy
  • Hedonistic and Experiential Rewards

Source: Kapferer (2004) 5. 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

Source: Adapted from Keller (2008) 6. 2. Promise of Quality HALO EFFECT Source: Adapted from Kapferer (2004) 7. 3. Brand Image Ralph Lauren =SUCCESS Physique= Energetic, Proud Reflection= Young, rich men of good social standingRelationship= 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) 8. 4. Brand Relationships Source: Adapted from Fournier (1998) 9. 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 Source: Adapted from Schmitt (1999) 10. 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.

SHAREHOLDER VALUE = CORPORATE VALUE LONG TERM DEBT CORPORATE VALUE= FUTURE CASH FLOWS OF THE FIRM Lets see how brands create shareholder value 11. 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

12. Relationship between Brand Strength and Cash Flow

  • A market share advantage of 3:1 translates into a cash flow advantage of app. 6:1

Source: Whitwell et al. (2003) 13. 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 Worlds 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 brands

14. 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

15. Concept of Brand Value

  • Brand Value is the dollar value of a brand, calculated as Net Present Value (NPV), or todays 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

Source: Pahud de Mortanges and Van Riel (2003) 16. Brand Valuation: Interbrand Method Source: Interbrand (2007) Worlds Most Valuable Brand in 2007 was Coca Cola with a brand value of $65.3 billion 17. Linking Brand Value to Shareholder Value Brand Value 1.Branded Revenues 2.Intangible Earnings 3.Brand Earnings Present and Future Cash Flows Corporate Value Shareholder Value 18. Conclusion: Brand Value Chain Product Communications Awareness Associations Attitudes Attachment Pricing Power Market ShareCost Structure Profitability Cash Flow Intangible Assets Residual 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 marketings role as a top level strategic driver of the firm

Source: Adapted from Keller (2008) 19. Questions?