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The 8 ways for brands to drive profit

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Anyone who does not include “profit” in their definition of brand likely has never run a brand before. To me, a product is the basic commodity you sell but a brand creates a bond, with the intention of achieving a power and profit beyond what the product alone could achieve. The only reason you would ever add more investment to create a brand is because you believe you can get more back from that investment than just selling the product. If you wish to succeed in Brand Management, you have to understand brand finance. After all, you are running a business. If you started your brand to fulfill a personal passion or promise, I will tell you that a profitable brand will allow you to fulfill a lot more promises. If you just like the activity of Marketing, then you should become a subject matter expert, not in charge of a branded business.

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The 8 ways for brands to drive profit

  1. 1. THE BRAND LEADER The 8 ways you can drive brand profits Anyone who does not include “profit” in their definition of brand likely has never run a brand before. To me, a product is the basic commodity you sell but a brand creates a bond, with the intention of achieving a power and profit beyond what the product alone could achieve. The only reason you would ever add more investment to create a brand is because you believe you can get more back from that investment than just selling the product. If you wish to succeed in Brand Management, you have to understand brand finance. After all, you are running a business. If you started your brand to fulfill a personal passion or promise, I will tell you that a profitable brand will allow you to fulfill a lot more promises. If you just like the activity of Marketing, then you should become a subject matter expert, not in charge of a branded business. Beloved Brands 1 We make brand leaders smarter The more loved your brand is by your consumers, the more powerful and profitable your brand will be. Brand Love ProfitPower
  2. 2. There are 8 ways that a Brand Leader can drive profits and increase the financial value to the brand: 1. Premium pricing 2. Trading up on price 3. Lower cost of goods 4. Lower sales and marketing costs 5. Stealing competitive users 6. Getting loyal users to use more 7. Entering new markets 8. Finding new uses for the brand Profit = (Price - Cost) x (Market share x Market Size) 1. How to use premium pricing While many Marketers think of price as a defensive reaction to counter inflation or something happening in the trade channels, the smartest Brand Leaders should use price as a weapon to drive brand value. It is crucial to understand the price/quality relationship of the brand and look for ways to increase the perception of quality, by separating the brand from competitors and then work to tighten the bond with consumers. Brands at the beloved stage are more capable at driving profits through pricing, leveraging their power with consumers to ensure the price premium is never perceived as excessive. For instance, consumers are certainly willing to pay $5 for a Starbucks latte, $500 for an iPad or $100,000+ for a Mercedes. It is also crucial to understand the competitive pricing situation, because price/value is always relative to other options the consumer could Beloved Brands 2 We make brand leaders smarter We make brands stronger. We make brand leaders smarter. Using LOVE and POWER to drive PROFITS with increased prices, lower costs, share gains and entering new markets Price Costs Share Market Size Premium Price • Perceived quality allows you to command price pricing Trading up/down • Take loyalists up to a better premium- priced version of brand Lower cost of goods • Economies of scale and use your power over suppliers. Efficient marketing • Higher volume helps spend ratios, use the media power. Stealing Share • Use brand momentum to gain tipping point. Higher usage • Get loyal users to use more, building routines/rituals. Enter new markets • Take brand idea to new products, getting loyalists to follow. Find new uses • Increase the ways that your brand can fit into the consumers life. Higher Margins % Higher Volumes 1 2 3 4 5 6 7 8 Brand Finance
  3. 3. choose. Look at the average pricing as well as the average promotional pricing and the percent that is sold on deal. • Price increase: Brands can execute a price increase when the market or the consumers allows the brand to do so. When the brand holds power over consumers and distribution channels, they can push price increases through. However when going through retail channel partners, brands usually require proof of explanations when the brand is passing along cost increases. Factors that help the brand story, include the health of brand, health of the market as well as the power of the brand versus consumers, competitors or the channels. A beloved brand would have an inelastic price, which means the quantity demanded does not change much, when the price changes. • Price decrease: This is used when battling a competitor, in reaction to sluggish economic conditions or retail channel pressure. You can also use an aggressive price decrease is when you have a cost advantage, whether that’s manufacturing, materials or distribution, and you choose a strategy to aggressively deplete the resources of your competitor. There are watch outs for price changes. Make sure you understand the power relationships, especially with consumers, competitors and retailers. Price changes through retailers can be very challenging, as they will always be heavily scrutinized with retailers requiring proof of why you are changing the price. Price changes carry a risk of a competitive over- reaction. Always consider various potential competitive reactions when doing your financial analysis. Never take a price increase for granted, because as difficult as it is to implement a price change, it is almost impossible to change it back. Beloved Brands 3 We make brand leaders smarter Pricing Quality Relationships Indifferent Like It Beloved relative perceived valuelow high relative perceived price low high Risk of losing 
 customers and related volume Under-pricing vs potential, loses margins 10% price increase against a 10% volume decrease Current New Price 2.50 2.75 COGS 1.00 1.00 Margin 1.50 1.75 Margin % 60% 64% Unit Forecast 100,000 90,000 Impact On Revenue $250,000 $247,500 Impact on Profit $150,000 $157,500 Formulas: Impact on Revenue Price x Units Current: 2.5 x 100 = $250k New: 2.75 x 90 = $247.5k Impact on Profit Margin x Units Current: 100 x 1.5 = $150k New: 90 x 1.75 = $157.5k When looking at a price increase it is crucial to make assumptions as to what will happen to the unit volumes and then do the overall resulting revenue and profit for the options. Price Increase Formula
  4. 4. 2. Trading the consumer up or down Another strategy is to create a range of products at various price levels, with a good/better/best approach that allows the brand to reach up or down to a new segment of consumers. Make sure that you are doing this for the right reason or it could backfire on you. • Trading up: Make sure the brand can carve out a meaningful difference to create a second or third tier, so the consumer can see a clear reason for wanting to move up. Make sure the brand’s bond with consumer, the brand reputation and the product performance allows loyal consumers to trade up. • Trading down: When the brand sees a potential unserved market, where the move will bring minimal damage to the image or reputation of the brand. In a tough economy, creating a lower priced set of products can be a smarter strategy than lowering the overall price on your main brand. There are a few watch outs around trying to trade up or down. For a mass brand going through retail channels can be challenging to manage multiple price levels. The products with lower sales may receive poor shelf placement, and miss out on retailer-owned merchandising options. For the trading down, try to take costs out of the product to ensure margins rates stay consistent. Be careful not to lose focus on the brand’s core business or image. Stay focused because brands struggle when they try to be all things to everyone. 3. Using product costs as a strategic weapon Marketers usually assume that managing the cost of goods (COGs) is someone else’s job. However, product costs can be an effective strategic weapon that marketers should utilize.   • Decrease cost of goods: There are a few ways to drive down COGs. First, you can use your brand power and higher values to negotiate with suppliers. You can also find lower priced raw materials, drive process improvement or explore off-shore manufacturing. • Increase cost of goods: The biggest reason to increase COGs is when going after a premium market or looking to offer an added benefit. In a high technology business, you need to keep investing and may need to cover off those investments. Watch out for suppliers trying to pass along costs, beyond inflationary rates. Beloved Brands 4 We make brand leaders smarter Cost of Goods (COGs) formula Direct Materials $1.30 Direct Labor cost $0.90 Manufacturing Overhead $0.50   Cost of Goods Sold $2.70 Formulas: Per Unit Cost of Goods = direct materials + direct labor + manufacturing overhead 1.30 + 0.90 + 0.50 = 2.70 Overall Cost of Goods = beginning inventory + manufacturing cost - ending inventory 10,500 + 23,000 - 5,500 = 28,000 Gross Margin = Sales - COGS 500 – 300 = 200 Gross Margin % = (Sales – COGS) / Sales (500 – 300)/500 = 40% Per Unit COGS Beginning Inventory Cost $10,500 Manufacturing Cost for year $23,000 Ending Work in Process Costs $5,500   Cost of Goods Sold $28,000 Inventory COGS Sales $ 500 Cost of Goods Sold (COGS) $ 300 Gross Margin $ 200   Gross Margin % 40% Gross Margin
  5. 5. When lowering product costs, make sure the product change is not significantly noticeable. Where there is a noticeable product change, understand the potential impact on the consumer perception of the brand’s performance or quality. When costs go up, make sure the increases can be covered through other parts of the profit statement, whether through price increases, volume increases or the cutting of Marketing costs. Managing your margins helps drive the long-term success of your brand. 4. Managing the sales and marketing costs Marketers get protective of their Marketing Budget. They usually hope to have as much money as possible to carry out the long list of activities on their priority list. Brand Leaders should act like the Owner/CEO in terms of managing budgets, not like a subject-matter expert trying to protect their turf. As brands mature and move along the Brand Love Curve, you should be able to leverage that added power to shift to a more efficient marketing spend level. The more loved a brand, the more efficient the ‘spend to sales ratio’ for the brand. The biggest impacts on the Marketing budget level are: a) Where does your brand stands on the product life cycle? b) Where does your brand sits on the Brand Love Curve? c) What is the degree of competitive warfare in the category? d) What is your brand’s power over the trade channels? Even though we think beloved brands have endless spending possibilities, they usually have a lower marketing investment to sales ratio. For example, as Apple’s sales exploded over the last decade, the Marketing spend remained fairly stable, giving Apple huge profit gains each year • Marketing cost decrease: Many times companies look at cost cutting to counter short term changes happening within other parts the P&L (price, volume or COGs). However, many of the best run brands keep the investment strong, aligning with the longer-term strategy, not the short term budget situational needs. • Marketing cost increase: This should be used when there is an opportunistic chance to gain share against a competitor or as a defensive position trying to hold share. The brand should see opportunity where significant revenue gains can cover off the lower profit ratios. Beloved Brands 5 We make brand leaders smarter Program Incremental Sales Volume $5000 Cost of Goods Sold (COGS) $3000 Gross Margin $2000 Gross Margin % 40%     Total Spend $1500 Contribution Income $500 Formulas: Gross Margin = Revenue - COGS 5000 - 3000 = 2000 Contribution Margin = Gross Margin – Spend 2000 - 1500 = 500 Option 1: Against just the Spend ROI = Contribution Margin/Spend 500/1500 = 33% Option 2: Against the Total Investment ROI = Contribution Margin / (COGS + Investment) 500/(1500+3000) = 11% Companies seem to measure ROI differently. Ask Your Finance Person how they Measure and Calculate ROI Assumes program cost of $1500 generates $5000 in incremental revenue Return on Investment (ROI) Formula
  6. 6. Always bring a Return on Investment (ROI) mindset to spending. Be careful of competitive warfare situations as competitor might over-react leading to spiraling spend escalations. Like a price war, Marketing investment wars can drain resources, with very little market share change after the war. 5. Stealing other users Externally, the share and volume game are traditional tools for brand. • Offensive share gains: Look to make share gains using a significant competitive advantage to steal share or when the brand sees an unmet need in the market. Use first mover advantage on new technology. • Defensive share stance: Use this to hold your market share until your brand can catch up on technology, by protecting your loyal base of consumers from a competitive attack. Be careful when trying to gain share. As discussed in the competitive thinking section, attacking competitors can prove difficult. Many times, an attack could result in a spend escalation with neither brand making any gains. Yet, after a share war which is not based on a substantive competitive advantage, there may not be any winners, just losers. 6. Getting users to use more Going after frequency can be a difficult strategy. It means telling consumers, who have already decided how to use your brand, they should uses your brand more. • Share of requirements: In many categories, even loyal consumers will work within a competitive set of favorite brands. You need to provide a reason, through claims, experiences, or emotions, to persuade loyal consumers to use your brand for every usage occasion.   • Get current users to use more: Look for opportunities with loyal users to create a potential routine around your brand. Changing behaviors is more difficult than enticing trial, which may make it a slow and expensive strategy. It is a good strategy to use, when your there is a real benefit to your consumer using more. It is hard to just get them to use more without a real reason. There has to be a real benefit connected to using more or it may look like a hollow or shallow money grab by the brand. Driving routines or rituals can be difficult. Even with lifesaving medicines, the biggest issue for consumers is compliance. Beloved Brands 6 We make brand leaders smarter Compound Annual Growth Rate (CAGR) Formula Year 1 Year 2 Year 3 Year 4 Year 5 Revenue $500k $600k $650k $700k $800k Annual Growth   20% 8% 8% 14% Formulas: Average Growth Rate = ((Y5 – Y1)/Y1))/# of years ((800 – 500)/500)/5 = 12% CAGR = ((Y5 / Y 1) to the power of (1/#years)) – 1 (800/500 to the power of 1/5) – 1 = 9.85% Knowing the compound annual growth rate is a crucial volume step to the ROI calculation. Scared off by Math, use the online CAGR Calculator at the Investopedia website
  7. 7. The best strategy is to link your brand into a part of their current life. Two great examples are Special K’s “Use for 2 meals a day for 2 weeks and you will lose 5 pounds” and McDonald’s “Free coffee for 15 straight days”, both brilliant ways to drive the routine. Using the brand funnel to help your sales forecast 7. Enter new categories Use when the brand sees an untapped consumer need that fits the brand. Make sure the new category feels like a natural fit with your brand’s Big Idea and you are able to transfer your brand’s reputation to gain entry into the new category. You must have a strong bond with your loyal users to bring them into a new category. There should be something within the new product that fits with the brand, enough to fuel success past any initial trial. Do not let it distract you from protecting the base business. For example, McDonald’s coffee entry has been successful, however they took their eye off their food businesses, where they have lost significant sales. 8. Create new uses Take the brand and create similar experiences into a new format or new offering. Need to make sure current brand is in order before you divert attention, funding and focus into an expansion area. Be careful of the temptations, because the legendary stories (Arm & Hammer or one-a-day Aspirin) do not come along as much as you might hope. Beloved Brands 7 We make brand leaders smarter Using the Brand Funnel can help to do the Brand Math. Leveraging the brand funnel, you can do the math. ➢ Purchase: 2.5 Million x $5 = $12.5 Million ➢ Repeat: 1 Million x $5 $ 5.0 Million ➢ Loyal: 200K x $5 $ 1.0 Million TOTAL $18.5 Million Assumptions 10 Million ppl @$5 per item Awareness 90% 9 million aware of it Familiar 75% 7.5 million familiar Consider 50% Half the people consider it. Purchase 25% 2.5 million buy it at $5 per Repeat 10% 1 million buy it a 2nd time at $5 Loyal 2% 200k buy a 3rd time at $5 The Brand Funnel Awareness Familiar Consider Purchase Repeat Loyal Unknown Indifferent Love It Like It Beloved The Brand Love Curve
  8. 8. Here are 10 probing questions to assess Brand Wealth 5 Lessons learned for driving more profits for your brand. 1. Higher volume can help drive down costs in operations, materials, distribution or even media. 2. Try to get more for less from your retail customers, by exerting your brand’s power in negotiations. This would trim variable costs with retailers, while maintaining shelf space, merchandising and price margins. 3. Smarter, efficient management leads to higher profits. Make smarter choices in forecasting and cost control that can be invested back into driving growth. 4. Drive sales growth that outpaces any increases in cost of goods or Marketing costs. 5. Focus on opportunities and activities that drive ROI. Whenever your brand responds positively to a certain program, you should continue to invest behind that program to continue fueling growth. The tighter the connection, the more power your brand will have in the marketplace. And with that power, you can drive added profit. Here’s to a strong 2017, 1. Brand’s CAGR? (Compound Annual Growth Rate) 2. What are your contribution margins over last 5 years? Margins broken out by product line? 3. What is your budget breakout? Working dollars versus non-working dollars? Media versus production? Consumer versus trade? 4. Pricing Elasticity studies? 5. How are you performing overall and by line of business? 6. What are your current brand/business performance measures? 7. What programs are driving the highest ROI? 8. What is driving your profit? What are you focusing on right now? 9. What are your forecasting error rates? Fill rates? 10. What are the financial pressures you face? Quarterly results? Beloved Brands 8 We make brand leaders smarter
  9. 9. We make brands stronger and brand leaders smarter. Our role is to challenge you to think differently about your future, so that you can realize your full potential. We will unleash the full potential of your brand. We will lead a 360-degree assessment of your business, help you define your Brand Positioning, create a Big Idea that will transform your brand’s soul into a winning brand reputation and help you build a strategic Brand Plan everyone who works on the brand can follow. Here’s how we can help your brand: • We lead a 360-degree assessment of your business, looking at the marketplace, consumers, channels, competitors and the brand. • We help you define your brand, with a simple, unique, inspiring, motivating and own-able Brand Positioning Statement. • We will create a Big Idea that will transform your brand’s soul into a winning brand reputation. • We help you build a strategic Brand Plan that everyone who works on the brand can follow • We coach on Marketing execution, helping to tighten the bond with your consumers and drive brand growth • We will make your team of Brand Leaders smarter so they produce exceptional work that drives stronger brand results. We offer brand training on strategic thinking, brand analytics, brand planning, brand positioning, creative briefs and marketing execution. Beloved Brands 9 We make brand leaders smarter We make brands stronger. We make brand leaders smarter. Graham spent 20 years in Brand Management leading some of the world’s most beloved brands at Johnson and Johnson, Pfizer, General Mills and Coke, rising up to VP Marketing. In his career, he has won numerous Advertising and Innovation awards. Graham played a major role in helping Pfizer win Marketing Magazine’s “Marketer of the Year” award. Graham started Beloved Brands believing he could make brands stronger and brand leaders smarter. Graham will challenge you and your team to think differently and strategically. He leads workshops that will help define your Brand Positioning Statement, create a Big Idea for your brand, and write Brand Plans to motivate and focus everyone that works on the brand. He will build Brand Management training programs that will help unleash the full potential of your team, so your team can produce exceptionally smart work that drives stronger brand results. The Beloved Brands robust client roster has included the NFL Players Association, Reebok. Acura, Shell, Jack Link’s, 3M, Melitta, Capital One and Pfizer. Graham Robertson at Beloved Brands One of the voices of today’s Brand Leaders.
  10. 10. Beloved Brands Training program At Beloved Brands, we can build a Brand Management Training Program, to unleash the full potential of your Marketing team 1. How to think strategically: Strategic Thinking is an essential foundation for Brand Leaders, so they ask big questions that challenge and focus their decisions. We teach Brand Leaders how to think strategically, to ask the right questions before reaching for solutions, mapping out a range of decision trees that intersect and connect by imagining how events will play out. We take Brand Leaders through the 7 elements of good strategy: vision, opportunity, focus, speed, early win, leverage and gateway. We introduce a forced choice to help Marketers make focused decisions. We teach the value of asking good questions, using five interruptive questions to help frame your brand’s strategy. This helps to look at the brand’s core strength, consumer involvement, competitive position, the brand’s connectivity with the consumers and the internal situation the brand faces. We show how to build strategic statements to set up a smart strategic brand plan. 2. Write smarter Brand Plans: A good Brand Plan helps make decisions to deploy the resources and provides a road map for everyone who works on the brand. We demonstrate how to write each component of the Brand Plan, looking at brand vision, purpose, values, goals, key Issues, strategies and tactics. We provide definitions and examples to inspire Marketers on how to write each component. We provide a full mock brand plan, with a framework for you to use on your own brand. We offer a workshop that allows Marketers to try out the concept on their own brand with hands on coaching with feedback to challenge them. At each step, we provide the ideal format presentation to management. We offer unique formats for a Plan on a Page and long-range Strategic Road Maps. We show how to build Marketing Execution plans as part of the overall brand plan, looking at a Brand Communications Plan, Innovation Plan, In-store plan and Experiential plan. This gives the strategic direction to everyone in the organization. 3. Create winning Brand Positioning Statements: A winning brand positioning statement sets up the brand’s external communication and internally with employees who deliver that promise. We show how to write a classic Brand Positioning statement with four key elements: target market, competitive set, main benefit and reason to believe (RTBs). We introduce the Consumer Benefit ladder, that starts with the consumer target, with insights and enemies. We layer in the brand features. Then, get in the consumers shoes and ask “what do i get” to find the functional benefits and ask “how does this make me feel” to find the emotional benefits. We introduce a unique tool that provide the top 50 potential functional and top 40 emotional benefits to help Marketers stretch their minds yet narrow in on those that are most motivating and own-able for the brand. We then show how to build an Organizing Big Idea that leads every aspect of your brand, including promise, story, innovation, purchase moment and experience. 4. Write smarter Creative Briefs: The Creative Brief frames the strategy and positioning so your Agency can creatively express the brand promise through communication. Marketing Execution must impact the brand’s consumers in a way that puts your brand in a stronger business position. The Creative Brief is the bridge between the brand strategy and the execution. Through our Brand Positioning workshop, you will have all the homework on the brand needed to set up the transformation into a succinct 1-page Creative Brief that will focus, inspire and challenge a creative team to make great work. The hands-on Creative Brief workshop explores best in class methods for writing the brief’s objective, target market, consumer insights, Beloved Brands 10 We make brand leaders smarter
  11. 11. main message stimulus and the desired consumer response. Brand Leaders walk away from the session with a ready-to-execute Creative Brief. 5. Be smarter at Brand Analytics: We show how to build a deep-dive business review on the brand, looking at the category, consumers, competitors, channels and brand. We start with the smart analytical principles that will challenge your thinking and help you gain more support by telling analytical stories through data. We teach you the steps to complete a deep-dive Business Review that will help assess the health and wealth of the brand, looking at the category, consumer, competitors, channels and brand. We show key formulas you need to know for financial analysis. We teach how to turn your analysis into a presentation for management, showing the ideal presentation slide format. We provide a full mock business review, with a framework and examples of every type of analysis, for you to use on your own brand. We show you how to turn your analytical thinking into making projections by extrapolating data into the future. 6. Get better Marketing Execution: We show Brand Leaders to judge and decide on execution options that break through to consumers and motivates them to take action. We provide Brand Leaders with tools and techniques for judging communication concepts from your agencies, as well as processes for making decisions and providing effective feedback. We talk about the crucial role of the brand leader in getting amazing marketing execution for your brand. We teach how to make marketing decisions with the ABC’S, so you can choose great ads and reject bad ads looking at tools such as Attention (A), Branding (B), Communication (C) and Stickiness (S). We teach how to provide copy direction that inspires and challenges the agency to deliver great execution. We also talk about how to be a better client so you can motivate and inspire your agency. 7. How to generate Brand Love: Why does Brand Love Matter? We believe the more loved a brand is by your consumers, the more powerful and profitable that brand will be. We challenge Brand Leaders to find brand love through the by creating a Big Idea to rally around, strategically focusing all their resources and instilling passion in the work to exceed the consumer’s expectations: • Build an organizing Big Idea that connects consumers at every touchpoint, tightening the bond, reflecting the inner Brand Soul and desired external reputation. • Need strategic focus in deploying the brand’s limited resources to breakthrough points, moving consumers along the brand love curve to enable your brand vision. • Put all your passion into the execution creates breakthrough ideas that surprise and exceed consumer expectations, becoming a favorite brand of the consumers. 8. Winning the Purchase Moment: Brand Leaders need to know how to move consumers on the path to purchase, helping consumers to test, decide and then experience the brand so that they try, repeat and become loyal brand fans. We provide brand leaders with analytics, planning and decision making tools to help their instincts and judgement for moving consumers to purchase. Complete in-store business review, looking at categories, consumer shopping behavior, competitors, customers and the overall brand performance. We teach the basics of customer marketing planning, identifying the target consumer, in- store messages, strategies, tactics and project management. We look at the available tools for customer marketing including pricing, promotions, retail shelf management, merchandising and operational execution. Beloved Brands 11 We make brand leaders smarter

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