Brands And Shareholder Value

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  • 1. How Brands Create Value for Customers and Shareholders Presented by: Adnan Galabhai 21077819
  • 2. Introduction
    • Marketing is under fire (Sheth and Sisodia, 1995)
    • Two schools of thought in marketing:
    • One undermines the credibility of brands
    • The other places brands at the centre of value creation
    • To re-affirm the view that brands are top level strategic drivers, marketers need to articulate the customer and shareholder value-creating capabilities of their brands
  • 3. But first…What is a brand?
    • Brand is a Value-System
    • Consumer Value Perspective: A brand is a set of mental associations held by the consumer, which add to the perceived value of the product or service (Keller, 1998).
    • Shareholder Value Perspective: A brand is an intangible asset representing a source of current and future earnings of the firm (Hill and Lederer, 2001)
  • 4. I. How do brands create value for customers?
    • Identification
    • Promise of Quality
    • Image
    • Relationships and Intimacy
    • Hedonistic and Experiential Rewards
    Source: Kapferer (2004)
  • 5. 1. Identification
    • Emphasis on brand name, sign, symbol, logo or design (AMA definition)
    • Identifies the goods and services of the seller and differentiates its from competitors
    Source: Adapted from Keller (2008)
  • 6. 2. Promise of Quality HALO EFFECT Source: Adapted from Kapferer (2004)
  • 7. 3. Brand Image Ralph Lauren = SUCCESS Physique = Energetic, Proud Reflection = Young, rich men of good social standing Relationship = Social Distinctiveness, Exclusive Personality = American Way of Life, Elite Culture= American, Luxury Self Image= I belong to my time, I am fashionable Source: Kapferer (2004)
  • 8. 4. Brand Relationships Source: Adapted from Fournier (1998)
  • 9. 5. Experiential Value
    • Brands eliciting sensory and emotional responses
    • Consumption is a holistic experience
    • Eg. Disney, Apple Macbook
    Apple Macbook Laptop Fashion Statement/ Stylish Design Source: Adapted from Schmitt (1999)
  • 10. II. Brands and Shareholder Value
    • Traditional Domain of Marketing: Creation of Customer Value
    • Modern Day Domain: Creation of Shareholder Value
    • Marketers need to speak the language of the CEOs.
  • 11. 1. Increasing Cash Flow
    • Higher prices : Consumers willing to pay premium for strong brands Eg. Louis Vuitton
    • Higher volume growth: Strong brands can be leveraged to create brand extensions Eg. Coke Zero
    • Lower Costs: Unit marketing cost lower for market leading brands
    • Higher asset utilization: Brands with high market share can generate economies of scale through larger volume
  • 12. Relationship between Brand Strength and Cash Flow
    • A market share advantage of 3:1 translates into a cash flow advantage of app. 6:1
    Source: Whitwell et al. (2003)
  • 13. 2. Increasing the residual value of the business
    • Residual value = Net present value of the business
    • Brands sustain the long-term ability of the business to keep generating cash
    • Coca Cola, Kit-Kat, Cadbury have been around for up to a century
    • Research done by Madden et al. (2006) – A $1000 investment in companies in the World’s Most Valuable Brands (WMB) List generates a return of 4 times vs. only 3 times by the overall stock market
    • Reflects investor confidence in companies with strong brands
  • 14. 3. Reducing the risk associated with cash flow
    • Strong brands are not easy to copy Eg. Apple iPod
    • Brand loyalty promotes stability in cash flow
    • Cost of winning new customers > cost of retaining existing ones
  • 15. Concept of Brand Value
    • Brand Value is the dollar value of a brand, calculated as Net Present Value (NPV), or today’s value of the earnings the brand is expected to generate in the future.
    • One method of measurement is the Brand Asset Valuator (BAV): Translates Brand Equity into Financial Value
    Source: Pahud de Mortanges and Van Riel (2003)
  • 16. Brand Valuation: Interbrand Method Source: Interbrand (2007) World’s Most Valuable Brand in 2007 was Coca Cola with a brand value of $65.3 billion
  • 17. Linking Brand Value to Shareholder Value Brand Value 1.Branded Revenues 2.Intangible Earnings 3.Brand Earnings Present and Future Cash Flows Corporate Value Shareholder Value
  • 18. Conclusion: Brand Value Chain Product Communications Awareness Associations Attitudes Attachment Pricing Power Market Share Cost Structure Profitability Cash Flow Intangible Assets Residual Value
    • Brands are key customer and shareholder value drivers requiring pro-active and consistent investment, management and measurement.
    • This view of brands is essential if marketers want to re-affirm marketing’s role as a top level strategic driver of the firm
    Source: Adapted from Keller (2008)
  • 19. Questions?