Module III: Understanding Brand Metrics

Module III: Understanding Brand Metrics: Understanding Brand Value Chain Measuring Brand Financials Brand Valuation Models

BRAND EQUITY 3

The Brand Value Chain Considers the sources and outcome of the brand equity Considers the ways that marketing activities contribute to enhance brand value

Marketing Program Investment Market place Conditions The Brand Value Chain Marketing Program Investment Customer Mindset Market Performance Shareholder Value Value Stages ..\..\IBM_CLASS_2009\BRAND_VIDEO CLIPS\Lufthansa Brand Movie_vcd0.mpg Price premium Price elasticity Market share Expansion success Cost structure Profitability Product Communication Trade Employee Other Awareness Associations Attitudes Attachment Activity Stock prices P/E ratio Market capitalization ..\..\IBM_CLASS_2009\BRAND_VIDEO CLIPS\Recap - Intel's Shareholder Meeting - Bloomberg.flv ..\BRAND_VIDEO CLIPS\Performance Review IKEA 2009.flv Program Quality Market place Conditions Investor Sentiment Multiplier Clarity Relevance Distinctiveness Consistency Market dynamics Growth potential Risk Profile Brand contribution ..\..\IBM_CLASS_2009\BRAND_VIDEO CLIPS\Global Brands Lose Value as Economy Suffers.flv Competitive reactions Channel support Customer size and profile

Brand Equity Management System Brand Equity Charter: BRAND_VIDEO CLIPS\easyGroup_Brand_Manual.pdf ..\..\IBM_CLASS_2009\BRAND_VIDEO CLIPS\Hewlett Packard - Brand Standards And Tools.pdf Define the firm’s concept of Brand Equity Scope of key terms Desired equity at various levels of Brand Hierarchy Range of relevant associations Method of measurement Brand equity Strategic guidelines to manage brand (eg.. Stress on Clarity, relevance, distinctiveness and consistency in marketing programmes) Tactical guidelines for marketing programmes Specific guidelines for brand element usage.. Trademarks, packaging, communications

BUILDING CUSTOMER BASED BRAND EQUITY 7

Keller: Customer Based Brand Equity (CBBE) Specifically customer based brand equity is defined as the differential effect that brand knowledge has on consumer response to the marketing of that brand. A brand is said to have positive customer-based brand equity when customers react more favorably to a product and the way it is marketed when the brand is identified as compared to when it is not. 8

Sources of BE (Differential Effect) Brand Knowledge Creates the differential effect that drives brand equity Brand Awareness Consumer’s ability to identify the brand under different conditions Brand Image Perceptions as reflected by brand associations Brand Recognition Brand Recall Uniqueness Favourability Strength 9

Consumer Based Brand Equity Pyramid 4. Brand Relationships (WHAT About You AND ME?) Consumer- Brand Resonance Consumer Judgments Consumer Feelings 3. Brand Response (WHAT About You?) Brand Performance Brand Imagery 2. Brand Meaning (WHAT Are You?) Brand Salience 1. Brand Identity (WHO Are You?) 10

Brand Salience Relates to aspects of awareness of the brand. How often and easily the brand is evoked under various situations and circumstances. To what extent is the brand top-of-mind and easily recalled or recognized. How pervasive is the brand awareness. A highly salient brand is one that has both depth and breadth of brand awareness such that customers make purchases as well as think of the brand in a variety of settings. 11

Brand Performance Refers to the intrinsic properties of the brand in terms of inherent product or service characteristics. 5 important attributes underline brand performance: Primary ingredients and supplementary features Product reliability, durability and serviceability Service effectiveness, efficiency and empathy Style and design Price 12

Brand Imagery Deals with the extrinsic properties and intangible aspects of the brand. 4 categories of associations can be linked to a brand: User profiles: the type of person who uses the brand Purchase and usage occasions: time, location, activity Personality and values History, heritage and experiences 13

Brand Judgments Customers’ personal opinions and evaluations 4 types of summary brand judgments: Brand quality = attributes and benefits of the brand Brand credibility = judgments w.r.t. the company Expertise Trustworthiness Likeability Brand consideration Brand superiority = unique and better from other brands 14

Brand Feelings Customers’ emotional responses and reactions with respect to the brand 6 important types: Warmth Fun Excitement Security Social approval Self-respect 15

Brand Resonance Focuses on the ultimate relationship and level of identification that the customer has with a brand. 4 categories: Behavioral loyalty: how often and how much do consumers purchase of a brand Attitudinal attachment: “love” for a brand Sense of community: kinship or affiliation with people associated with the brand Active engagement: customers spend time, energy, money in the brand beyond purchase or consumption 16

Measuring Brand Equity: Track consumer’s brand knowledge Towards Favorable and unique brand association To trace the ways in which Brand equity is created and its financial implications

BRAND VALUATION Tangible Benefits: Intangible Benefits Merger & Acquisition Disposal Licensing Fund Raising Intangible Benefits Enhances Confidence Indicator of effective utilization Credibility to the real worth Strategy development

Key Metrics: Consumer Based Brand Persuasion =Ratio of Intention to Purchase Brand/ Spontaneous Brand Recall Brand Pull =Ratio of Likely Switch-ins to the Brand / Likely Switch-outs from the Brand Brand Loyalty = Ratio of Likely to Continue Buying the Brand / Total Current Users of the Brand Secondary Brand Share = Total Current Users of the Brand / Total Current Users of the Category Primary Brand Share =Preferred Current Users of the Brand / Total Current Users of the Category

Different Valuation Techniques The Price Premium Method Process: The revenues of an unbranded competing product are deducted from the revenues of a comparable branded product to establish the excess or premium value of the brand Criticisms: It is only based on market information of revenue. It does not consider the cost factors There may be no unbranded product comparable to the branded one Brand Value= Brand Revenue-Revenue from an unbranded product

COST BASED METHODS Historical Costs: This is the money that has been spent on the brand till date. Suppose $100 million have been spent so far in creating a brand called ‘X’. The value at which the brand can be sold to another organization should be $100 million. Replacement Costs: This is the cost of how much would it cost to create a brand with similar turnover, profitability, distribution reach, brand loyalty, etc.? This cost is its brand equity Replacement Cost= Launch cost + production & administrative costs incurred over the years + brand premium acquired over the years due to brand loyalty, distribution etc.

Discounted Cash Flows Method: Value of Brand = Where = Anticipated Revenue in year t attributable to the brand r = Discounting rate or WACC (Weighted average cost of capital) = Residual Value after n (year) For Example: Brand A had revenues of Rs 600 crores ( 2009). The Brand A is expected to grow at around 10% per annum for the next five years. The Discounting rate is taken at 12 %. The period when the brand is expected to operate status quo is assumed to be the next five years

Brand Valuation of A 2009 2010 2011 2012 2013 2014 Revenues 600 660 726 798.6 878.46 966.306 1.12 1.2544 1.4049 1.5735 1.7623 1.9738 535.7143 526.148 516.7525 507.5247 498.4618 489.5607 Summation = 3074.162 crores =966.306/0.12 = 8052.55 crores Therefore, Brand Value of A= 3074.162+8052.55 = 11126.71 crores

The Interbrand method for valuing brands:

Inter-brand Method The Interbrand Co., UK developed a structured method for arriving at brand equity. This method aims at arriving at a value at which a brand can be sold by one company to another. The steps used in this method are described below: The weighted average of the last three year’s profits of the brand is computed. This figure when multiplied with a number gives the value of brand equity. The number is arrived at by multiplying the P/E of the company or industry in which the company operates and a factor called brand strength. Brand strength is dependant on certain variables like leadership, stability, internationality, etc. of the brand. Brand Equity= (weighted average of brand profits x P/E of the industry x Brand Strength)

Consider a Brand X whose profit is shown below: Year Profits ($ in million) Weightage 2006 15 1 2007 20 2 2008 30 3 Average Profit = (15 x 1) + (20 x 2) + (30 x 3)/ 1+2+3 = $ 24.2 million

Maximum Score Score for Brand X Brand Strength depends upon the variables given below. The implication of the variables is also explained. Maximum Score Score for Brand X Factors Implications Leadership Is the brand a leader in market share, pricing Is there brand loyalty? Does the brand have stable market share? What is the brand’s acceptance level internationally? Is the brand actively promoted and supported by the company? Is it adequately protected by trademark? Is the market in which the brand operates stable? What is the future of the brand in the long term? 25 15 5 20 13 7 1 8 2 10 Stability Internationality Support Protection Market Trend Total 100 43

Brand Strength Score = 43/100 = .43 Suppose the P/E value of the industry is 15, then the multiple = brand strength score x P/E = .43 x 15 = 6.45 Brand Equity = 6.45 x 24.2 = $156.09 million

A Two Dimensional Framework for Diagnosing Brands: The Power Grid BrandAsset® Valuator Leading Brand Strength Differentiation Relevance Lagging Brand Stature Esteem Knowledge OK, so here’s the cheat sheet. I’m Miss Lonelyhearts and I’m checking out what you’re telling me about the brands. I want to know about Brand Strength and Brand Stature and what they tell me about pursuing the relationship further. 11

Brand Health Is Captured on the PowerGrid Power Leaders Niche/ Unrealized Potential Declining Leaders (Differentiation & Relevance) BRAND STRENGTH Eroded New Unfocused BRAND STATURE (Esteem & Knowledge) 12