pbm session 8 final

7/31/2019 PBM Session 8 Final

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Product and brand

managementSession 8

Joel Cyclo Xavier


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If this business were split up, I would give

you the land and bricks and mortar, and Iwould take the brands and trade marks,and I would fare better than you.

John Stuart, Chairman of Quaker (ca.1900)


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What brand value?

When did people sit up and take notice ofBrand value? Huge gap in book values of companies and

their valuations Spate of mergers and acquisitions where the

only way to explain the seeminglyunexplainable was brand value

Situation today? Major part of business value is derived from

intangibles


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Brands influence the choices of

Consumers

Employees

Investors

Government authorities

They are durable, sometimes livingbeyond the life of the company itself


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Effect on strategic decision-making

Ford had taken a step to consciouslyreduced its physical asset base withouttaking a hit on the market valuation, how?

By increasing its intangible assets

Purchasing Jaguar, Land Rover, AstonMartin, Volvo.


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Where did the problem arise?

A company purchasing another and giving dueimportance [and paying money for] goodwillfaced a strange problem

Accounting practices required them to write-offintangibles over a period of time

But these intangibles were different

Not like a $10,000 license for 10 years which

you can write off $1000 at a time The value of the intangible asset was actually

growing!


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Then, to begin with, some companies startedputting the value of brands they had acquiredon the balance sheet.

This prompted them to also put the value ofinternally generated brands on the balancesheet as well

In 1988, Rank Hovis McDougall (RHM), a

leading UK food conglomerate, played heavilyon the power of its brands to successfully defenda hostile takeover bid by Goodman FielderWattie (GFW).


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They did this by putting the value ofinternal as well as external brands on thebalance sheet

The LSE endorsed this method in 1989and most companies latched on to theopportunity

Today, most companies include brandperformance as a financial indicator.


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Social Value of Brands

Cons Branding and exploitation of workers Homogenization of cultures They encourage monopoly

Stifle competition and restrict consumer choice

Pros Increased competition

Improved product performance Pressure on brand owners to behave in socially

responsible ways


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the potential costs of behaving unethically

far outweigh any benefits, and outweighthe monitoring costs associated with an

ethical business.


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Approaches to brand valuation

Research based brand equity valuations

Purely financially driven approaches


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Research based approaches

Purpose: Explain, interpret and measure

Consumer perceptions that influence purchasebehaviour

Perceptive measures Awareness levels

Aided, unaided, top of mind

Knowledge, familiarity, relevance,

Specific image attributes, purchase consideration

Preference, satisfaction, recommendation

Market share, relative price


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Financially driven approaches

Cost based approaches Historic costs incurred

Replacement costs required

To bring the brand to its current state Why it fails

No direct correlation made between financial

investment and value added If financial investment is not made in the rightdirection, it is practically useless


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The approach of using comparables

The word itself goes against it!

The whole point of a brand is to be different

Comparables more used as a cross check

Never to be relied upon solely


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Premium price method

NPV of future premiums commanded by abranded product over generic/unbranded

products Is primary purpose of brand to achieve price

premium?

No. rather it is to generate future demand How do you define a generic equivalent?


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Economic use method

Combines brand equity and financial measures

Most widely used

Based on basic marketing principles and financialprinciples

Brands help in generating customer demand

Individual

Corporate

Based on financial principles NPV of future earnings


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Value creation of a brand

Step 1: Market segmentation Product/service, distribution channels, consumption

patterns, purchase sophistication, geography, existingand new customers, and so on.

Total value of brand = segment valuations

Step 2: Financial analysis Identify and forecast revenues and earnings from

intangibles generated by the brand for each of the

distinct segments determined in Step 1 Intangible earnings= brand revenue [operating costs

+ taxes + cost of capital]


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Step 3: demand analysis

Determine what percentage of intangibleearnings is attributable to the brand

referred to as the role of branding index.

Identify drivers which influence demand

Determine to what level brand influences

each driver Brand earnings= intangible earnings * role of

branding index


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Step 4: Competitive benchmarking Competitive strengths and weaknesses of brand that

influence The specific brand discount rate it gives the risk profile of

expected future earnings

Brand strength score This comprises Extensive competitive benchmarking A structured evaluation of the brands market, Stability, Leadership position,

Growth trend, Support, Geographic footprint and Legal protectability.


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Step 5: Brand value calculation

Brand Value = NPV of forecast brandearnings, discounted by the brand discount

rate

Got it?


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Where is it useful?

Predicting the effect of marketing andinvestment strategies;

Determining and assessing communicationbudgets;

Calculating the return on brand investment;

Assessing opportunities in new orunderexploited markets; and

Tracking brand value management.


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Role in strategic brandmanagement

Directed towards internal audiences Making decisions on business investments

Measuring return on Return on brand investments

Measuring performance against targets related tovalue of brand asset

Making decisions on brand investments

Decisions on licensing

Marketing centre remains a cost centre no long but

becomes a profit centre Allocating marketing expenditure based on benefit

derived by each unit from brand asset


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Role in strategic brandmanagement

Organising and optimising use of different brandscorporate, product and subsidiary

Assessing co-branding initiatives according toeconomic benefits and risks

Deciding on branding after mergers

Managing brand migrations successfully

Establishing brand value scorecards

Managing brand portfolios effectively Communicating in appropriate forums the creation of

brand capital to influence share prices.


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Role in Financial transactions

Assessing fair transfer prices

Determining brand royalty rates

Capitalizing brand assets on balance sheet according tovarious standards

Determining prices for brand assets in M&A transactions Determining contribution of brands to JVs to establish

profit sharing, investment ratios and shareholding

Using brands for securitization of debt facilities in which

the rights for the economic exploitations of brands areused as collateral.


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The future

Managers could end up managing the brandentirely by the value method. Bad for creative communication and the underlying

freshness necessary for brand communication

The quaker takeover of Snapple

Brand value performance is not reported bymany companies. With a major component of the balance sheet going

unreported, there is a lot of uncertainty Even Coca-cola does not report it

Accounting regulations need to evolve faster


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end

pbm session 8 final

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