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VALUE AND PRICE

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The MarComms (Marketing Communications) industry specialises in delivering profitable ideas to increase brand equity for clients. Therefore, understanding how to recognise, cost, value, and sell your ideas and services to ensure maximum profit is an essential part of running any creative business.

Do your big ideas continue to deliver returns for your client beyond the initial time it takes you and your team to develop them?

Is your level of service significantly higher, more sophisticated, and a more valuable than that of your competition?

If you answered YES, then you are in the right place.

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ABOUT THE AUTHOR 5

INTELLECTUAL PROPERTY AND ASSETS - A PRODUCT OF THE MIND, AN INTANGIBLE ASSET 7

VALUE IS: THE BRAND 10

BRAND EQUITY – QUANTITATIVE VALUE AND QUALITATIVE STRENGTH 12

BRAND VALUATION 17

VALUATION MODELS 20

WHO OWNS THE IDEAS? 25

BEYOND BRAND – VALUING YOUR SERVICES 27

HOW VALUABLE ARE YOU? 29

EVERYTHING CAN HAVE VALUE-ADDED 30

CONCLUSION 33

WHAT’S NEXT? 34

Contents

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About The Author

Kathryn is the go-to finance guru for Australia’s peak industry bodies and creative agencies.

With 30 years international experience as a consultant, keynote speaker, workshop facilitator, and mentor - Kathryn is truly passionate about the MarComms industry.

Kathryn liaises closely with Australia’s Communication, PR, and Design councils, and is the creator of the only MarComm specific commercial workshop “Show Me The Money®” focusing on Intellectual Property (IP), client/agency agreements, and remuneration models.

Kathryn consults with multinational and boutique agencies, helping to communicate and negotiate mutually rewarding client/agency agreements, with strong emphasis on Return On Investment (ROI).

With deep industry expertise, in the world of advertising, public relations, design, marketing, digital communications - Kathryn supports business owners to ensure that they have the best financial brains on their team.

Kathryn provides financial discipline, focus and support to drive financial reporting.

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Kathryn specialising in middle-management grooming, team training, and best practice industry tools and techniques to deliver commercial expertise and business intelligence, including:

- Financial vision, planning, budgeting and reporting to achieve your goals;

- Clarifying staff job descriptions, targets and key performance indicators;

- Pricing, benchmarking, and job profitability; and- Client contract policies and negotiation skills.

Kathryn delivers clarity and confidence to you and your team.

“My passion: for you to be brilliant in all areas of business”

KATHRYN WILLIAMSOwner, Kathryn’s Mint Pty Ltdwww.kathrynsmint.com.au

Kathryn provides financial discipline, focus and support, to deliver top shelf management reporting and optimum profitability.”

1

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Intellectual Property and Assets - a product of the mind, an intangible asset

Intellectual property (IP) is a legal term, referring to creations of the mind with recognised exclusive rights. Common types of intellectual property rights include:

• Copyright• Trademarks • Trade secrets• Patents• Industrial design rights

Under intellectual property law, owners of ideas receive exclusive rights to a variety of intangible assets, including:

• Musical, literary, and artistic works• Words, phrases, symbols, and designs • Discoveries and inventions• Original design or the practical application of a

good idea

Trademark protects the ‘mark’ if it is actually used in commerce and is disclosed to consumers.

Trade secrets are only protected when the secret is not disclosed.

Patents are temporarily granted a monopoly as a trade-off for subsequently disclosing the information about the method or product to the public.

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Intangible assets

An idea is an ‘intangible asset’, a non-monetary asset without physical substance, regulated by International Accounting Standard (IAS) 38. They are initially measured at cost (known as “book value”), and subsequently measured using a revaluation model, and amortised over their useful lives. Unlike a desk or computer, which is recorded as a ‘fixed’ asset on your balance sheet, you can’t physically touch an idea for a tag line or logo. Therefore, these intellectual property assets which are without substance are recognised as ‘intangible assets’, valued and also recorded on your balance sheet (or your clients’ balance sheet). Intangible assets are identifiable by three critical attributes:

1. Identifiability and separability - They can be identified and separately sold, transferred, licensed, rented, or exchanged.

2. Control - The owner has the ability to obtain benefits from the asset.

3. Future economic benefits – they deliver revenue and brand equity.

An asset is a resource controlled by the business from which future benefit or income is expected. Ideas = Concepts = A product of your mind; a valuable, saleable commodity

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Types of Intangible Assets - Products of Your Mind:

• Copyright – books, music, scripts, photos, strategic proposal documents, jingles such as the Qantas jingle: I still call Australia home, Lonely Planet book.

• Patented technology - Dyson pivot steering technology, processes.

• Trade secrets - KFC special herbs and spices, Coca-Cola recipe, Google’s proprietary search algorithm.

• Trademarks - marketing assets such as Nike’s swoosh logo and tagline ‘Just do it’, Star Wars font, or trade names and trade dress such as Virgin cabin crew uniforms.

• Video and audio-visual material - Motion pictures and television programmes.

• Contractual assets - Licensing, royalty agreements, distribution agreements, client and supplier lists and contracts supplier lists and contracts such as the New YorkThe New York Times Best Sellers list, Adobe software.

Intangible assets distinguish your business (or your clients’ business) from competitors, making your products and services unique and attractive to clients.

The conundrum is: how do you value, set a price, and sell intangible assets?

TIP: To legally protect your ideas, visit:

www.ipaustralia.gov.auwww.gov.ukwww.uspt.gov

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1 Value is: the brand2

The value of an idea is separate from any time or direct costs incurred while preparing your strategic proposal, storyboards and other documents explaining it. Ideas are also independent of the time and costs required to produce and execute them.

Boston based advertising legend Jim Mullen1 stated: “Of all the things that your company owns, brands are far and away the most important and the toughest. Founders die. Factories burn down. Machinery wears out. Inventories get depleted. Technology becomes obsolete. Brand loyalty is the only sound foundation on which business leaders can build enduring, profitable growth.”

Famously, a great example of a valuable brand is the New Zealand based vodka 42 Below, which had never realized profit when it was bought out by Bacardi in late 2006 for NZ$138 million. So, despite having no (‘book value’), the price was set based on huge brand value.

As the gap between company (‘book values’) and their share market valuations continues to increase, the valuation of intangible assets becomes more and more essential.

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Goodwill

Goodwill is the term given to the difference between the cost (book value) and price the consumer is prepared to pay. However, ‘value’ is in the brand. In 1988 the largest non-oil merger in America provides a great example highlighting the difference between a company’s ‘book value’ and its ‘brand value’: Philip Morris purchased Kraft Foods for $USD13.1 billion, a price which was a staggering six times what the company was worth ‘on paper’. The price difference apparently, was for the word Kraft.2

Goodwill is the term given to the difference between the cost (‘book value’) and price the consumer is prepared to pay. However, ‘value’ is in the brand.”

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Brand Equity – quantitative value and qualitative strength3

Your brand represents the personification of your enterprise. It portrays your company to the world with a message that includes what you do, how you do it, and the values you represent as a business. Brand equity is the tremendous value bestowed on brands by these factors.

In time, a brand comes to embody a promise for the services and products it identifies. A promise of quality, performance, or other dimensions of value, which can influence the consumers’ choice when considering competitor alternative services and products.

Logos and trademarks

A brand encompasses the name, logo, image and perceptions that identify a product, service or provider in the minds of customer. It takes shape in advertising, packaging and other marketing communications, and becomes a focus of the relationship with consumers.

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The terms: Brand (formulae, know-how, other IP assets) and Trademark (name, logo, other associated visual/verbal elements), are often used synonymously.”

However, brand Intellectual Property encompasses a much broader scope:

• Domain names• Product design• Trade uniforms• Copyrights• Descriptors• Sounds• Colours• Smells• Mast heads• Publishing titles• Formulae• Patents

The terms: Brand (formulae, know-how, other IP assets) and Trademark (name, logo, other associated visual/verbal elements), are often used synonymously.

You may find it interesting to know that brands and logos are not the same.

“A brand is not a logo. The term Logo is short for Logotype, which is designer speak for a trademark made from a custom-lettered word (Logos is Greek for word). The term logo caught on because it sounds cool, but what is really meant, is a trademark, whether the trademark is a logo, symbol, monogram, emblem, or other graphic device.”3

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Brand equity

The purpose of brand equity metrics is to measure the value of a brand.

Brand equity is famously difficult to quantify, but is strategically crucial. Many experts have tools to analyse this asset, yet whilst there are many ways to measure brand value, there is no agreed single way to measure it.

As a start, you could use the following three approaches when analysing and advising on brand valuation:

Firm Level: A firm level approach measures the brand as a financial asset, using calculations to determine the worth of the brand as an intangible asset. Product Level: The classic example of product level brand measurement is comparing the price of a no-name or private label product to an “equivalent” branded product. The price difference, assuming all factors are equal, is the result of the brand.

Consumer Level: This approach seeks to map the mind of the consumer to discover brand associations by measuring awareness (recall and recognition) and brand image (the overall associations with the brand). Brands with high levels of awareness and strong, favourable reputations have high brand equity.

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Most brands have clients, but brands with ‘energy’ have followers. After all, a brand, regardless of its balance sheet value, is only ever worth something if consumers want to buy it . . . and buy it again.4

Brands are fiendishly complicated, elusive, slippery, half-real/half-virtual things. So there is a natural difficulty of reconciling the disconnect between and recognising both quantitative and qualitative equity values. This is one of the serial challenges marketing professionals and academics face with the concept of brand equity.

Quantitative brand equity includes numerical values such as profit margins and market share, but fails to capture qualitative elements.

Qualitative aspects, such as prestige, recognition, desires, tastes, associations of interest and influence, are equally critical because brands that do not keep promises loose the trust of their devotees.

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Brand Value – is a quantitative measure:

• from a Financial perspective. • from an objective viewpoint.• by price point differentiation between products/

services, brand premium, and selling ‘value’.• by revenue generated (IAS38 – Intangible Asset,

without physical substance, generates future profit, and can be sold).

Brand Strength - is a qualitative measure:

• of the consumer ‘perception’, ‘perceived’ quality, value, and reputation.

• of brand Identity – Visual identity (name, logo, font, slogan, strapline, packaging), can be ‘managed’.

• of brand Reputation – Consumer perception (result of: experience, attitude, feelings), is ‘awarded’.

• of consumer ‘behaviour’, and client loyalty, which is subjective, must be earned.

The image of a brand is no more nor less than the sum of its fame or reputation. Like a reputation, it is only found in one place: in the minds of consumers.

Brand Strength - is a qualitative measure • of brand Reputation – Consumer perception (result of: experience, attitude, feelings), is ‘awarded’.”

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Brand Valuation4

Whilst valuation certainly starts with the number of hours it takes your team to develop a written interpretation and visual communication of the idea, intangible assets are typically worth much more than a basic equation of hours multiplied by charge-out rates. Like brand image, consumers know that value-for-money is a calculation that they make as individuals, often intuitively, and that price is just one part of that calculation.

We tend to over-value that which we can measure and undervalue that which we cannot.5

Holistic valuation

However, brand valuation incorporates a holistic vision. It reflects a complete “experience” which transcends visual and verbal elements, including:

• Packaging• Descriptors• Group of intangible assets

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An example of a group of complimentary intangible assets would be: Guinness beer:

• Name• Logo• Formula• Packaging• Distribution rights

Concept fee

Concept fee is an industry term describing a one-off charge for the creative development process.

The concept fee acts as compensation and ‘reward’ recognition, for research and development costs of creative ideas.

Tip: When answering a brief: it is industry norm to present 2 or 3 alternative concepts.

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Beyond actual costs, when selling your ideas, the concept fee also includes an estimated intellectual property value of potential future revenue stream/s delivered from the idea. It is worth taking the time at the end of each year to review the number of intangible assets (such as tag lines and logos) you have created, yet not sold to your clients (these may include 2nd and 3rd concepts which your clients did not choose). If you believe your unsold ideas are valuable, then you should recognise them, protect them, and record them on your balance sheet as intangible assets, available for future concept fee sales.

One of the many functions of price is famously encapsulated, and with great marketplace success, by Stella Artois: “Reassuringly expensive.”

One of the many functions of price is famously encapsulated, and with great marketplace success, by Stella Artois: “Reassuringly expensive.”

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5 Valuation models

While there are at least 39 proprietary brand valuation models, there are 3 main aspects to consider:

1. Cost - historical costs, the costs of replacement to develop an equivalent brand, and capitalisation costs (brand development/maintenance costs, and accumulated advertising expenses).

2. Market value - what the consumer will pay.3. Future income - projected revenue stream/s.

When recognising and calculating the potential financial reward for intellectual property, the amount charged is based on the predicted value of an idea to the client’s business. Consider the following effectors:

1COST

2MKT VALUE

3FUTURE INCOME

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• Identity - Identify the intangible asset/s. A logo is a separate asset from the tag line.

• Talent - Celebrity, lead, featured, support, non-speaking, or extras.

• Duration - The number of the Performance/s, or length of time a campaign will run.

• Exposure - television, print, outdoor, radio, and there are numerous channels on which the finished product may appear including computers, tablets, smartphones, gaming devices, point of sale screens, cinemas, venue screens, out-of-home sites, and the list continues to grow.

• Geography - Being one market, multiple markets, or global.

Brand valuation is big business with the likes of Brand Finance, Interbrand, and Millward Brown, publishing annual Top Brand Charts.

Publicly listed top brand companies record intangible assets on their balance sheet. For example: In its 2014 annual report, Diageo (which includes: Guinness, Johnnie Walker, and Smirnoff) valued its intangible brand assets at GBP5.4 million and goodwill at GBP1.2 million.

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Intangibles may be harder to measure than tangibles, but they can be measured. A practical exampleConsider the following scenario:

1. A client briefs you on a new brand identity campaign and the key requirements are:

• Name• Logo• Tag line• Print advertisement• 12-month duration• National reach 2. Following extensive research, brainstorming, and planning meetings, you and your team are ready to present the following to the client:

• 3 names – A, B, and C• 3 logos - D, E, and F• 3 tag lines – G, H, and I• 3 print ads – J, K, and L• A media exposure distribution strategy 3. Your client loves name B, logo E, tag line H, print advert K, and approves the media schedule. 4. Your studio now gets busy, producing the name, logo, tag line, and advertisement materials. While your media and account service team begin liaising with media and 3rd party suppliers. 5. The 12-month campaign is so successful that the client decides to continue for a further year and also would like to incorporate tag line G.

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InvoicingYour invoicing for the above scenario should look something like this: Year 1

Up-front invoices:• Research, creative, strategy fees and hard costs (direct 3rd

party costs) - incurred to deliver your response to the brief• Concept fees - rights to use name B, logo E, tag line

H and print advert K (either: purchase, license, or complimentary use)

Monthly invoices:• Execution fees - for studio time producing name B, logo

E, tag line H, and print advert K• Account management fees - for your team’s time liaising

between client, studio, and suppliers• External costs - 3rd party supplier costs, plus mark up

or margin• Disbursements - any direct costs incurred on behalf of

your client (such as: photocopying, mileage, telephone, subscriptions, etc.). These are often included into the head hour rates, and not charged separately.

TIP: Complimentary usage rights are use of concept/s for zero payment, and are usually limited by the duration of the contract. An invoice should still be raised, informing your client of the concept selected, agreed parameters, and dollar value of the asset, however, zero payment recorded. For example: Complimentary usage of Logo A for 12 months within Australia, valued at today’s date to be $5,000, for zero fee.

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Year 2

Up-front invoices:• Roll-over fees - rights to re-use name B, logo E, tag line H,

and print advert K• Concept fee - rights to use tag line G• Studio time producing tag line G• Research and strategy - extending media campaign

for year 2

Monthly invoices:• Account management fees - for your team’s time spent

liaising between client, studio, and suppliers• External 3rd party costs - supplier costs, plus mark

up or margin• Disbursements - any direct costs incurred on behalf of

your client

TIP: Best practice: Charge your client additional concept fees if they intend to use your concept for longer than the agreed period, or outside of the parameters specified in the original agreement.

Best practice: Charge your client additional concept fees if they intend to use your concept for longer than the agreed period, or outside of the parameters specified in the original agreement.”

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Who owns the ideas?6

Intellectual property resides with the creator of the concept, unless the rights are assigned or sold. Be sure to include your copyright and intellectual property policies in your business terms and conditions and establish a recognition and price routine to ensure that you capture and manage these valuable assets.

It is important to discuss your Intellectual Property rights at the beginning of the relationship with your client, and agree on fair remuneration for your ideas. If you prefer to retain ownership of your ideas, then you must agree on this with your client. In this situation, be very clear that you have not sold the ideas to your client, rather, you are licensing your rights to use the ideas, with agreed conditions, and ensure that your agency/client agreement reflects this.

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TIP: Just like when you sell a desk or other fixed asset, which is owned by the business, your intangible assets should also have a ‘book value’ cost recorded on your balance sheet, and sell price on your profit and loss statement.

Ability to identify the intangible asset as owned by your business, and recognition of subsequent licensing or sale of rights is a straight forward process which your bookkeeper can help manage for you.

Be sure to include your copyright and intellectual property policies in your business terms.”

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7 Beyond Brand – Valuing your services

Now, let’s turn our attention to the delivery of our services. Value is in the eye of the beholder - the client’s eye. There is no law, nor ethical imperative, that says you must charge two clients the same amount for the same services. First, services are rarely identical. Second, the value to respective clients will always be different.

When you put a value on something, it becomes valuable.

Value-based pricing is a pricing strategy, established on the value of the idea, perceived or estimated, to the client, rather than on the cost of the product or historical prices.

When successfully used, value pricing will improve your profitability due to setting higher prices without impacting costs.

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Value pricing is most successful when services and products are sold based on emotions (fashion), in niche markets (brain surgeons), in demand and supply shortages (e.g. drinks at open air festival on a hot summer day) or for indispensable add-ons (e.g. printer cartridges or headsets for cell phones).

Value-based pricing is predicated upon an understanding of what the client values. In most cases, gaining this understanding requires primary research. Industry benchmark surveys provide best practice guidelines indicating the clients ‘willingness to pay.’

The ultimate Key Performance Indicator (KPI) is: Did you enjoy the experience?

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8 How valuable are you?

What you do, how you do it, and the values you represent as an agency, distinguish your business from another.

When clients perceive deliverables as ‘all the same’, your services are seen as a commodity, and clients become price sensitive. You can hear your client thinking “how many hours?” whilst comparing hourly rates.

Differentiating yourself allows you to create pricing based on your unique services - agencies with highly differentiated deliverables command premium rates.

How to add value:differentiation

‘ P R E M I U M ’Ask yourself the following questions:

• Is the client talking to other agencies?• Do you possess some unique expertise or history?• Do you have access to the latest technology?• Have you been referred to the client by a

trusted source?• Are you known within the industry or do you have a

unique reputation?• Are you available at the right place at the right time?

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9 Everything can have value-added

Let’s take a look at 8 ways you can add value to your products or services, no matter what it is you sell. 1. Providing expert advice and a tremendous level of professionalismMany agencies and professionals are paid handsomely for the level of advice, superior skills, knowledge, and competence they provide.

If you are the ‘authority’ in your sector, then you are expected to provide a level of advice that is significantly higher, more sophisticated, and a lot more valuable than that of your competition.

Keep training and investing to develop an exceptional team of professional experts.

2. Bundling and packagingThis includes not only the way your service or product looks, but also your ability to put together desirable packages, purchasing levels, and a series of added benefits, which are more valuable than the service or product is on its own.

Simplifying buying choice for your clients, and offering bundled price deals increases your desirability and value.

Reviewing and assessing pricing trends is an essential part of your annual business plan and marketing strategy.

3. Frequent buyer programs Frequent buyer programs draws on the same principles airlines use with frequent flyer miles: offering different

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levels of kudos and priority to consumers who use services more often.

Establish a reward system for your clients, including complimentary services or products.

4. Transition and educationWhen you secure new clients, you may wish to provide a welcome or transition team to enhance and smooth the on-boarding phase.

The more you can involve and educated your clients about your service offering, the more likely it is that they will make further purchases.

Make this an essential part of your welcoming new clients process.

5. Very Important Person (V.I.P.) or Premium Client StatusProviding higher quality products or services based on a clients level of purchase, offers value to the client. Whether a more sophisticated level of service, dedicated personnel, dedicated phone lines, or fax lines, the opportunity to receive a higher standard of service is a valuable commodity to most.

Establish quality check points to ensure that your premium status is maintained.

6. Dedicated personnelOffering dedicated personal to a client account works particularly well if you have a technical service or product that requires support. The more familiar one person is with the client’s account, products, processes, equipment, and business module, the easier it is for them to do business with that client.

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Regularly recognise and acknowledge to reconfirm the value represented, rather than letting client take this benefit for granted. 7. Speed of service or deliveryOffering a time guarantee or faster delivery is one way to differentiate yourself from competitors. On time delivery is a key component for charging full or maximum pricing, and expedited delivery is often worth a premium price. Make exceptional turnaround time part of you culture, clock it, report it, acknowledge and celebrate success.

8. Insider informationWhen selling ideas, knowledge, expertise, or anything related to information or time specific data for your client, you may want to consider a regular newsletter or research report to update the client with key and important information on a regular basis. Highlight and quantify intelligence distributed via half year dashboards. Exploring the possibilities of differentiation and adding value to your offering requires creativity, innovation and a willingness to think outside the square. Ultimately, adding value takes confidence – you have to believe in your service or product, otherwise, what’s the point?

Offering a time guarantee or faster delivery is one way to differentiate yourself from competitors.”

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Conclusion 10

Recognising and understanding that your ideas offer significant short and long term value to the clients’ brand equity and profit is essential for good business practice. This is the essence of selling your ideas as distinct intangible assets, separate from the time and costs to execute and produce campaign deliverables.

Similarly, identifying how your services are different from your competitors and knowing where value comes into the equation, gives you the opportunity to develop a price which reflects what is valuable to the client.

By using examples and precedents to calculate, articulate and explain, you will be able to show your team, and help educate your clients and prospects on the process of identifying, valuing, and measuring Return On Investment (ROI) to justify their marketing spend.

ENDNOTES/REFERENCES1. Mullen is an American advertising and marketing

communications agency based in Boston, Massachusetts and founded in 1970 by Jim Mullen. In 2011, the agency was listed on Ad Age’s A list as the third best agency in the country. In the same year, Fast Company named Mullen one of its top 10 innovative marketing and advertising companies.

2. The New York Times - Kraft being sold to Philip Morris for $13.1 billion, by Robert J. Cole, published October 31, 1988

3. The Brand Gap, by Marty Neumeier, published by Peachpit 2006

4. ‘The Brand Bubble - The Looming Crisis in Brand Value and How to Avoid It’ by John Gerzema, Ed Lebar, published 2008 by Young & Rubicam Brands.

5. Jeremy Bullmore – Former JWT London agency head, and member of the WPP advisory board Reference: Jeremy Bullmore, WPP Reading Room article ‘Posh Spice & Persil’

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WHAT’S NEXT?

Important lessons like those given, will help you to distinguish your own value, to set a price which recognises intellectual property, rewards you for your efforts, and delivers the profits which you deserve.

With your team, consider your options, be confident and take action:

1. Review and test your understanding of intellectual property - your rights, how you recognise, record, and protect your valuable ideas.

2. Review your pricing policy - concept fees, licensing agreements, roll over fees

3. Review your business Terms and Conditions - intellectual property, usage, sale and assignment options.

4. Update your financial software programs - estimate, quote and purchase order templates with intellectual property clauses, and your cost matrix menus with concept fee and licensing rates.

For more tips and techniques - ask Kathryn, visit the Kathryn’s Mint Pty Ltd website, and peruse Kathryn’s blog posts.

1 Cecil Place, Prahran, Victoria, 3181, AUSTRALIA

M +61(0)415 210 073 | Kathryn.williams@kathrynsmint.com.au

Business owners call on Kathryn to be their financial confidant, financial mentor, and agency financial director.

Secure Kathryn under retainer or on an ad-hoc project basis to provide financial and management reporting, routine discipline, middle-management grooming and support, training and stretching your team to take on financial responsibilities to help run the business as if it was their own.

In a nutshell, Kathryn’s Mint offers

• Commercial expertise and business intelligence.• Financial vision, planning, budgeting and

accountability to achieve your goals.• Design and facilitatation of monthly

management reporting routines.• Staff grooming in finance responsibilities, for

career progression and succession planning• Pricing review, benchmarking, and job

profitability reporting.

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