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Brands are like money and should be managed that way. Andy Farr Director of Brand Investment Planning Millward Brown Group. Imagine you were investing in stocks - which of these recent actions would attract you to a company?. Increased price promotion

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Presentation Transcript
slide1

Brands are like money and should be managed that way.

Andy Farr

Director of Brand Investment Planning

Millward Brown Group

imagine you were investing in stocks which of these recent actions would attract you to a company
Imagine you were investing in stocks - which of these recent actions would attract you to a company?
  • Increased price promotion
  • Signed long term sponsorship deal with the NFL
  • Relocated customer service call centres abroad
  • Increased R&D investment
  • Introduced more rigorous quality control systems
  • Started using cheaper ingredients
  • Launched market beating new innovation
  • Cut back communications spending
investing 101 what is a company s share price based on

So share price is based on expectation of:

FUTUREprofitgrowth

Investing 101What is a company’s share price based on?
  • Average share price = 18 x last years earnings.
    • With no growth it would take 18 years to earn its share price!
  • What is it that underpins future profit growth?

…..demandfor the company’s goods and services.

what underpins demand

“Product/Service” delivery that exceeds consumer expectations

  • = Quality
  • Meeting the evolving needsof the consumer
    • = R&D
  • Awareness and desirefor the company’s brands
    • = Brand Building
What underpins demand?
are you more or less likely to invest

Profits Now

Profits in the future

Are you more or less likely to invest?
  • Cut back communications spending
  • Using cheaper ingredients
  • Market beating new innovation
  • Increased price promotion
  • Moved customer service call centres abroad
  • Long term sponsorship deal with the NFL
  • More rigorous quality control systems
  • Increased R&D investment
slide7
“…establishing a value for increased awareness and positive image on its own is much like establishing the value of half of a $100 bill…
  • …Unless you can get the matching half it has no value”

James D Lenskold, “marketing ROI”, McGraw Hill 2003

  • BUTwe don’t value what we can’t measure
how can we put a value on brand building
How can we put a value on “brand building”?

Need to have an investment mindset:

Future profits are what matters

Risk has a price - it requires a return

discounted cash flow
Discounted Cash Flow

Combines forecast of future profits

+

Assessment of risks associated with profits

discounted cash flow2
Discounted Cash Flow

Net Operating Profit After Tax = CASH

now we need to discount these profits
Now we need to “discount” these profits.
  • Money today is worth more than the promise of money tomorrow
  • Which would you rather have?

Now

5 years time

OR

why might you not get the profits in 5 years time
Why might you not get the profits in 5 years time?
  • Geography - currency, recessions
  • Sector - less growth, legislation
  • Brand - loss of share or margin due to competition

Think like a bank manager -

Bigger risk = higher interest rate..

= higher discount rate

how much should we discount
How much should we discount?

Market Premium

Specific risk factorβeta

Risk free rate

+ { 6% X

}

?

1 = 10%

Discount Rate = 4%

discounted value

91% Yr 1

83% Yr 2

75% Yr 3

68% Yr 4

100

62% Yr 5

80

60

40

20

0

1

2

3

4

5

6

+

+

+

+

+

+

+

+

+

+

+

+

+

+

Discounted Value

%

how do strong brands impact on risk
How do strong brands impact on risk?
  • Strong brands are more secure.
  • Investment in media reduces risk.
slide20
Voltage™:

The differential consumer equity a brand possesses, relative to its size

strong brands are less likely to decline
Strong brands are less likely to decline

2

R

= 0.71

100%

Downside(% brands losing share)

0%

-10

0

10

Voltage™

343 brands grouped on the basis of Voltage™

strong brands are more likely to grow
Strong brands are more likely to grow.

2

R

= 0.64

100%

Upside (% brands gaining share)

0%

-10

0

10

Voltage™

343 brands grouped on the basis of Voltage™

strong brands are more valuable

$600ml

$335ml

Weak

Strong

Strong brands are more valuable

NPV based on brand strength

$418ml

The accumulated value of PAST “brand” building

Average

how can we use this thinking
How can we use this thinking?
  • Measure how much value is being created year on year by the team managing the brand.
  • Use this thinking as an aid to investment decisions across and within a portfolio of brands.
brand investment planning tool
Brand investment planning tool.

What will happen to the category?

DCF Forecast

Can we maintain share?

What will happen to margins?

How does the planned investment impact risk?

How risky is the forecast?

These questions can be answered using a mix of existing knowledge, judgement and empirical analysis.

advertising investment reduces risk
Advertising Investment reduces risk

2

R

= 0.74

100%

% losing share

50%

0%

-30%

0%

30%

Media Pressure

(Share of Voice - Share of Market)

354 brands grouped on the basis of relative ad spend.

why we will never get it precisely right
Why we will never get it precisely right…
  • Competitors - they are out to get you
  • Consumers - unpredictable and irrational
  • Creativity - the most variable variable in the marketing mix
  • But we can:
    • Use the knowledge we do have to generate reasonable assumptions
    • Build these into DCF framework
    • Conduct sensitivity analysis to maximise total shareholder return across the portfolio
media sensitivity analysis av erage brand strength
Media sensitivity analysisAverage Brand Strength

100

80

60

Change in NPV $m

40

20

0

50

70

90

110

130

150

Annual Media Spend $m

media sensitivity analysis differing levels of brand strength

Strong

Weak

Media sensitivity analysisDiffering levels of brand strength

120

100

80

Change in NPV $m

60

40

20

0

50

70

90

110

130

150

Annual Media Spend $m

budget setting example
Budget setting example

Change in NPV ($ml)

Weak Average

Increase in spend from $50 - $60ml per annum

+16ml + 22ml

budget setting example1
Budget setting example

Change in NPV ($ml)

Weak Average

Increase in spend from $50 - $60ml per annum

Increase in spend $80 - $90ml per annum

+16ml + 22ml

+5ml +8ml

key thought
Key thought…
  • When managing your brands think like an investor
  • That means:
    • Think about profit, not volume.
    • Treat marketing as an investment
    • Look across the portfolio to see where investment can generate the greatest total return
    • Think long, not short term.
    • Learn to love the finance guys
    • Keep it simple.