The Business Case for Brand Relationships

1. The Business Case for Brand Relationships

2. Presentation Content • Overview of the BlackBar Brand Relationships Model • Demonstration of how and which brand relationships influence consumer franchise power • Contribution of Consumer Brand Relationships to brand pricing power (perceptions of worth) • Explanation of how branded business valuation multiples are significantly impacted by Consumer Brand Relationship Equity, customer franchise power and operating profit • Exploration of how consumer brand communication and Consumer Brand Relationships work together to build consumer franchise

3. Brand Perceptions Brand Relationship is defined by the combination of a specific brand image with a specific attitude of the brand; Brand Relationships are defined by the combination of Brand Perceptions and Brand Attitudes or Experiences. Brand Relationships are a two way street. Definition of Brand Relationships

4. Five Archetypal Relationships • Reinforcement • Identification • Role Model • Self-Differentiation • Playful

5. Reinforcement Your brand of choice makes you look and feel good

6. Identification Let the brand you love tell the world who you are

7. Role Model Be empowered by brands that lead the way

8. Self-Differentiation Let a brand with a difference make a difference to you

9. Playful Fun brands that are just to enjoy

10. Constructing and Measuring Brand Relationships

11. Our Definition of Brand Relationships • Based on the concepts of Relational Psychology, in which relationships -- with other people and things -- form an integral part of the individual‟s personality. • Relational Psychology recognizes how inanimate relationship partners -- so-called “Transitional Objects” -- may be invested with the same type of characteristics (personality, motivations, imagined behaviours, etc.) as animate ones. • The Brand is a “Transitional Object”, represented in the individual‟s psyche simultaneously as both the object and source of emotions, feelings and behaviors. The relationship with the brand reflects both sides of these inner exchanges.

12. A Brand Relationship is defined by the conjunction of one dimension of brand perception (image, personality, attributes…) and a dimension of brand attitude or experience Brand Attitudes/Experiences Brand Perceptions Self- Esteem Self- Expressio n Mentoring There For Me Pleasure Performance/ Satisfaction Emotional Attachment Charisma Positive Differentiatio n Relaxed & Stylish

13. Brand Perception Factors Relaxed and Stylish Fun Cool Easy Friendly Stylish Different Positive Differentiation Distinctive Unique Charisma Dynamic Excitingly Innovative Leader Progressive Functionality Performs well Gives Satisfaction Emotional Values Love it Fits my life COPYRIGHT 2012 BRANDYIELD CONSULTING LLC

14. Brand Attitude/Experience Factors • Mentoring Challenges Me To Think Differently Teaches Me Inspires Me Shares My Values • There For Me Appreciates My Business Is Recommended By People I Care About Responds To My Needs Has My Interests At Heart • Pleasure Brings Back Good Memories Provides A Little Treat For Me Excites Me • Self-Expression Simplifies My Life Helps Me To Express Myself Frees Me To Be Myself • Self-Esteem Makes Me Look Good To Others Makes Me Feel Good About Myself COPYRIGHT 2012 BRANDYIELD CONSULTING LLC

15. These 5 Universal Brand Relationships have been identified across multiple brands and categories with emergent properties: the combination of the two components has an effect greater than the sum of their parts Brand Attitudes/Experiences Brand Perceptions Self- Esteem Self- Expressio n Mentorin g There For Me Pleasure Performance/ Satisfaction Emotional Attachment Charisma Positive Differentiatio n Relaxed & Stylish Reinforce ment Identification Role Model Self- Differentiating Playful

16. Brand Perceptions Acquisition Growth MaintenanceRetention Brand Relationships influence the size and composition of brands’ Customer Franchise

17. Acquisition of New Users is Influenced by Brand Relationships 4 of the Universal Brand Relationships contribute significantly to trial consideration among non-users Entertaining /Playful Identification Reinforcement Self- Differentiating 0.54* 0.48* 0.38* 0.22* Acquisitions Brand Relationships Build the Customer Franchise * Standardized regression coefficients

18. Reinforcement Role Model 0.24* 0.10* Maintenance Identification 0.16* Brand Relationships Build the Customer Franchise Influence of Brand Relationships on Franchise Maintenance A different combination of relationships are significant influencers of brand preference among users * Standardized regression coefficients

19. Brand Perceptions $Pricing Power Brand Relationships Contribute to Pricing Power

20. Brand Relationships Contribute to Consumer Pricing Power (perceptions of Worth) • The Five Universal Brand Relationships account for almost 25 % of consumer price evaluations ( willingness to pay/perceptions of worth) • Identification has the most influence on pricing power; the implication is that brands that inspire a strong emotional bond (“ I love the brand/it loves me”) and facilitates self expression are worth paying more for • Self Differentiating and Role Model have significantly less impact of pricing power. Brand Relationships built around differentiation do little to assist a brand‟s power to price.

21. Relative contribution of Universal Brand Relationships to Pricing Power

22. Brand Perceptions $Financial & Market Returns Brand Relationships influence brands’ Market value directly, and also indirectly via their influence on Customer Franchise.

23. Relationship Equity and Stable Franchise Size are both very significant Influences on Sales to Market Cap. multiple. R2=.42 Market Cap. /Sales .48* .43* Stable Franchise is defined as the percentage of customers saying they use the brand regularly less the percentage saying they do so only if there is no alternative. Brand Relationships Directly Influence Branded Business Valuation Relationship Equity Stable franchise * Standardized regression coefficients

24. Relationship Equity Operating Profit Stable franchise R2=.86 Market Cap. .14* .89* .32* -.22 The negative correlation between Relationship Equity and Operating Profit reflects the fact that there is a trade-off between investment in the brand and the quarterly or yearly earnings statement. Nothing comes without a cost. Actual Market Cap. is a function of Relationship Equity, Operating Profit and Stable Franchise Size Brand Relationships Directly Influence Branded Business Valuation * Standardized regression coefficients

25. Assessing Individual Company Brands: Relative Contribution of Relationship Equity, Operating Profit & Franchise to Market Capitalization When we apply this regression to 2012 financial data for the 30 „mono” brands in our data, the relative contributions of each of the three factors average out as follows: – Relationship Equity 40% – Operating Profit 47% – Stable Franchise Size 13% • However, as shown in the following examples the relative contributions on the three factors to the individual brands‟ market capitalization vary significantly from the above averages

26. 99% 92% 91% 83% 81% 76% 0% -5% 0% 0% 15% 4% 1% -4% -9% -17% 5% 20% -25% -5% 15% 35% 55% 75% 95% LinkedIn JC Penney Red Robin Denny's Discover Best Buy For some brands, RelationshipEquity is virtually the only thing creating value Relative Contributions toMarket Capitalisationof: RelationshipEquity Operating Profit Stable Franchise Brand Relationships Directly Influence Branded Business Valuation

27. 92% 76% 70% 70% 64% 62% 31% -5% 4% 13% 5% 24% 15% 44% -4% 20% 17% -25% 12% 24% 24% -25% -5% 15% 35% 55% 75% 95% JC Penney Best Buy Lowes Sears Home Depot Target WalMart "Big Box" Retail- The value of the Walmart brand draws on all three componentsin a balanced way Relative Contributions toMarket Capitalisationof: RelationshipEquity Operating Profit Stable Franchise Brand Relationships Directly Influence Branded Business Valuation

28. Brand Perceptions $Financial & Market Returns Marketing investment in Brand Relationships shape their strength and pattern. Marketing Investments Non-purchase Behaviors/ Word of Mouth Specific Brand Relationships Encourage personal and electronic word of mouth

29. CONSUMER COMMUNICATION ABOUT BRANDS What‟s this got to do with the business case ?.... Work with the right relationships and empower your marketing strategy

30. Summary • Identification prompts the most positive communication about the brand – whether or not people use it. – People can use brand communication as a form of self expression; that doesn‟t mean they necessarily love the brand – or love it enough to use it.

31. 10.5 5.0 6.3 6.3 7.6 7.8 65.2 44.6 62.7 62.5 64.6 61.7 24.3 50.4 31.0 31.1 27.8 30.6 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Reinforcement Identification Role Model Differentiating Playful Total Primary Relationship with Brand Communications About the Brand by Primary Brand Relationship - all Brands net communication about brand positive no communication net communication about brand negative If Identification is the Relationship with the most power; It is likely to prompt positive communication about the brand and discourage negatives communication

32. Summary • Reinforcement generates the most negative and least positive comment about the brand – The brand‟s satisfactory performance will not bond consumers with the brand unless it also provides active support for self esteem – they are independent.

33. 5.4 4.5 4.6 4.9 4.9 4.9 48.6 41.2 51.4 51.9 53.1 49.3 46.0 54.3 44.0 43.2 42.0 45.8 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Reinforcement Identification Role Model Differentiating Playful Total Primary Relationship with Brand Communications About the Brand by Primary Brand Relationship - Brands Used net communication about brand positive no communication net communication about brand negative Users’ generate more positive comments among all relations But Users brand relationships discriminate little between am positives and also little among negatives type of communica

34. YouTube Google Outback Steakhouse amazon.comJohnson & Johnson Herbal Essences L'Oreal 3M Apple Olive Garden Lowes Target Applebees Head & Shoulders Dove Hair Care Pantene Clairol Home Depot Denny'sRed Robin General Electric VisaJohn Frieda Facebookhomedepot.com Best BuyFriendly'slowes.com walmart.comjcpenney.com JC Penney WalMart SearsPfizer MasterCard LinkedIN American Express Chevron JP Morgan Chase Wells Fargo Discover Exxon MobilCitibank Bank of America BP Goldman Sachs -5 5 15 25 35 45 55 65 75 85 95 20.0 25.0 30.0 35.0 40.0 45.0 50.0 55.0 60.0 65.0 Net(PositiveminusNegative)%ofTotal Communicating about the Brand Consumer Brand Communication: • Little communication (bottom left) • Little communication – but what there is, positive (top left) • A lot of communication, generally positive (top right)

35. Statistical Appendix

36. Best Buy LinkedIn Discover Lowes Target Goldman Sachs MasterCard 3M Facebook American Express Home Depot CitibankBank of America Visa BP Pfizer JP Morgan Chase WellsFargo Johnson & Johnson Google WalMart Chevron GeneralElectric ExxonMobil Apple .00 50000.00 100000.00 150000.00 200000.00 250000.00 300000.00 350000.00 400000.00 450000.00 0 100000 200000 300000 400000 500000 600000 PredictedMarketCapitalisation($000) Actual Market Capitalisation ($ 000) The Market Valuation Model: Produces an Excellent Fit Predicting Market Capitalization Predicted vs. Actual market cap

37. Relative Contribution of Relationship Equity, Operating Profit and Stable Franchise - calculation of percentages for Individual Brands In order to apply the regression equation to actual data – where operating profit is measured in $m‟s , franchise in terms of % of consumers, and Relational Equity in terms of a constructed scale measure – it is necessary to use non-standardized coefficients. The three components of MarCap are: MarCap= (c1 x RE) +(c2 x OP) + (c3 x StabFran) 1 2 3 The relevant percentages are calculated for each brand as:: 1/MarCap, 2/Marcap 3/Marcap

38. Specific Brand Relationships and Pricing Power Regression vs3 pt. Value Scale Model R R Square Adjusted R Square Std. Error of the Estimate 1 0.5000 0.2500 0.2499 0.6700 a Predictors: (Constant), Entertaining/Playful, Reinforcement, Self-Differentiating, Role Model, Identification Coefficients Unstandardized Coefficients Standardized Coefficients t Sig. Model B Std. Error Beta 1 (Constant) 1.700 0.007 249.659 0.000 Reinforcement 0.287 0.016 0.144 17.520 0.000 Identification 0.351 0.017 0.176 20.469 0.000 Role Model 0.199 0.019 0.083 10.522 0.000 Self-Differentiating 0.218 0.016 0.104 13.679 0.000 Entertaining/Playful 0.335 0.019 0.137 17.926 0.000 a Dependent Variable: value (3 pt.)

39. Consumer Brand Communication & Relationship Equity There is relatively little difference in Relationship Equity between those communicating negatively and those not communicating at all about the brand. For brands used, Relationship Equity is actually higher among the former - No news is not necessarily good news.