Brands are like money and should be managed that way. - PowerPoint PPT Presentation

leala
slide1 n.
Skip this Video
Loading SlideShow in 5 Seconds..
Brands are like money and should be managed that way. PowerPoint Presentation
Download Presentation
Brands are like money and should be managed that way.

play fullscreen
1 / 34
Download Presentation
Brands are like money and should be managed that way.
72 Views
Download Presentation

Brands are like money and should be managed that way.

- - - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript

  1. Brands are like money and should be managed that way. Andy Farr Director of Brand Investment Planning Millward Brown Group

  2. 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

  3. 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.

  4. “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?

  5. 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

  6. Advertising does not pay for itself in the short term. MMA data

  7. “…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

  8. 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

  9. Discounted Cash Flow Combines forecast of future profits + Assessment of risks associated with profits

  10. Discounted Cash Flow

  11. Discounted Cash Flow Net Operating Profit After Tax = CASH

  12. Forecast future profits 5 Years

  13. 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

  14. 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

  15. How much should we discount? Market Premium Specific risk factorβeta Risk free rate + { 6% X } ? 1 = 10% Discount Rate = 4%

  16. 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 %

  17. Net Present Value $m Discounted Cash Flow

  18. Sector RiskStock Market Three things to think about when assessing risks. • Geography • Sector • Brand 8.5% 15%

  19. How do strong brands impact on risk? • Strong brands are more secure. • Investment in media reduces risk.

  20. Voltage™: The differential consumer equity a brand possesses, relative to its size

  21. 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™

  22. 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™

  23. BRAND Risk Multiplier

  24. $600ml $335ml Weak Strong Strong brands are more valuable NPV based on brand strength $418ml The accumulated value of PAST “brand” building Average

  25. 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.

  26. 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.

  27. 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.

  28. “Better to be approximately right than precisely wrong”

  29. 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

  30. 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

  31. 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

  32. Budget setting example Change in NPV ($ml) Weak Average Increase in spend from $50 - $60ml per annum +16ml + 22ml

  33. 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

  34. 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.