The pressure is on marketing to quantify the benefits of the huge spend including brand) it incurs. It\'s not particularly difficult, although it is a fair amount of work. This presentation shows you how! Let me know if you need help!

1. Branding in Banking and Finance 2011 Guy Pearce CEO The Global Banking Board Toronto (HO) New York Sao Paulo London Johannesburg Moscow Mumbai Hong Kong Sydney (Mauritius) Communicating marketing’s impact in the language of shareholders: A modern Board-level imperative

2. Summary There are five take-aways from this presentation An objective, researched definition of the marketing value chain as a frame of reference Item 1 Item 2 An objective, research-based assessment of marketing’s burning platform from the Board’s perspective Integrating items 1 and 2 in terms of three things the Board are increasingly expecting from Marketing Item 3 How market size, brand equity, customer equity, customer lifetime value, contribution and value all fit together Item 4 Integrating Items 3 and 4 into measurements, and discussing their strategic and management implications Item 5

3. 1. Build brand, and develop brand equity over time Brand equity is a reservoir of unrealised cash flow 2. Convert brand equity to acquisition and customer equity Brands are the ‘bait’ that attracts customers from whom value is extracted 3. Convert customer equity into contribution* Build brand equity, and then allow brand equity to build sales and profits Understanding the marketing value chain PROOF: Stahl, Matzler and Hinterhuber (2003:275), Kumar, Lemon & Parasuraman (2006:89), Rust, Zeithaml and Lemon (2004:117) , Leone et al (2006:131), Ambler et al(2002:15), Ambler (2005:12), Piercy(2006:13), Marks(2007:12), Read(2007:1-2), Ambler (n.d.) *Risk-optimised

4. 1. Marketing is often some of the biggest spend, besides IT and payroll Prove that marketing spend is optimised 2. Boards worldwide are demanding more accountability for marketing spend Develop strategic marketing metrics and show the strategic value of marketing spend 3. Quantify the link between brand, brand equity, and e.g. EPS impact Show that marketing spend was allocated to the best shareholder value creation options There are 3 board-level imperatives for marketing PROOF: Common across independent research by AMA Insight, Forrester Inc, GlobalSpecInc and MarketingProfs 2010 n=3,449

5. Indeed, with compliance and risk, only three other things matter to the Supervisory and Executive Board* 1. How much value did you create?Contribution, ex capital and provisions. Variability (distribution) of contribution is a vital insight, showing riskiness 2. WHAT is your short/MEDIUM term value creation potential? Leveraging the CLV of your customer portfolio (customer equity) by CRM, and directing resources appropriately 3. what is the long term value creation potential of YOUR brand? Leveraging brand equity and converting it to cash *In a marketing context

7. Assumptions vary per Bank

8. Capital is not accounted for

9. Capital cost (Basel) and WACC is not accounted for

10. Excludes provisions What the board wants to know It’s easy to calculate the probability distribution around contribution, insight is required for customer portfolio and marketing spend optimisation. It is a key component of determining the EPS impact of ALL marketing initiatives, including Brand

11. Customer Equity The “easy” part Σ(Customer lifetime value) per customer is the output of many software packages. It is parameter-driven, often based on behaviour of the median customer, at a per segment level. Without a software package, good estimates can still be made quite quickly What the board wants to know The period-to-period effectiveness of your CRM initiatives in converting Customer Equity into Contribution is 𝜌=(𝑑𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛𝑡,𝐶(𝑡−1)/𝑑𝑡)/𝐶𝑢𝑠𝑡𝑜𝑚𝑒𝑟 𝐸𝑞𝑢𝑖𝑡𝑦𝑡−1,𝐶(𝑡−1) Attrition is included in advanced models

12. Brand Equity There is no easy part Successfully calculating Brand Equity depends on a synergy between correctly specified market research (external) and customer analytics (internal) If the market research is specified poorly, there will be no unique way to link the market research with the internal data Piggy back What the board wants to know The period-to-period effectiveness of your marketing initiatives in converting (expensively acquired) Brand Equity into Customer Equity 𝜌=(𝑑𝐶𝑢𝑠𝑡𝑜𝑚𝑒𝑟 𝐸𝑞𝑢𝑖𝑡𝑦𝑡,𝐶(𝑡)/𝑑𝑡)/𝐵𝑟𝑎𝑛𝑑 𝐸𝑞𝑢𝑖𝑡𝑦𝑡−1 The change in brand equity with respect to market potential is a powerful tool to determine if brand spend works

14. The increase of community productivity by the Qhubeka “Kids on Bikes” initiative

15. Qhubeka Enterprise Development (community bike mack job creation)

16. Qhubeka community greening by the 100 trees planted per person (audited) per bike

17. 23% increased financial inclusion of the marginal contributors

18. Includes the negative brand impact of restrained credit growthBoard Summary: Brand Equity Brand equity quantification limited to p(E(CLV)>0) > .33, median customer portfolio by segment using p(P), t=6yrs, discounted at WACC

20. R22m customer equity was created by new customer acquisitionBoard Summary: Customer Equity Customer Equity quantification based on median customer portfolio, by segment, t=6yrs, discounted at WACC, ex mortgages

22. 8 CRM-driven Up sell campaigns

23. 26 Targeted acquisition campaignsBoard Summary: Contribution Variable contribution ex provisions and capital

24. Marketing Efficiency Return on marketing 11/10 +110%  Return on branding 400/22 18x  Various campaign success was hampered by tightened credit criteria and reduced loan extension Brand spend was more efficient, but there was no increase in converting brand equity to cash. The return on our CRM initiatives are however improving y-yand our IP continues to increase Marketing Effectiveness Brand Equity growth +17%  Brand equity conversion 64/2300 +3%  Customer equity conversion 64/197 +32%  Even given the lag indicator, no Brand Equity leverage was evident during the period under review Board Summary: Marketing Productivity

25. Finding opportunities to leverage Brand Equity ANALYSIS: There are customers whose contribution volatility is higher than would be expected for the returns they generate Analysing the cross sell ratios, it is clear this is a wallet share problem

26. Finding opportunities to leverage Brand Equity To estimate Brand Equity drivers, we analyse the social media trends related to your brand If the bank was Absa, it’s clear that Brand Equity is heavily weighted towards Rugby over the evaluation period, and NB it’s not dominated by a single source (above). It would be foolish for Absa not to leverage the outcome of their Brand Equity investments with e.g. the high volatility, low risk customers identified on the previous page, with the time-sensitive marketing objective of increasing wallet share

27. Finding opportunities to leverage Brand Equity To estimate Brand Equity emotion, we also analysethe social media trends related to your brand So if this was happening at e.g. ScotiaBank (Canada), I would know that the sentiment of Social Media interactions were positive at the current time, and would be comfortable leveraging brand equity at this time NOTE: An adaptation of the methodology as outlined here can be used to estimate the value of your social media brand equity too

28. About the Methodology The core of the methodology was presented for global critique to the International Academy of Marketing - an academic, peer review institution with a focus on developing marketing theory - at the University of Birmingham in the UK in 2008PROOF: Thought Leaders International Conference on Brand Management 2008; http://www.docstoc.com/docs/44802132/Thought-Leaders-International-Conference-on-Brand-Management; page 6A requirement for acceptance is that the contribution be rigorous, and that the material is a unique contribution to global marketing knowledge. Peer review: Global marketing experts determine whether your material meets these requirementsThe methodology has been continually expanded and refined since then

29. Conclusion It might be a fair amount of work to measure Marketing Productivity to the Board’s requirements, but as demonstrated here, it is neither difficult nor impossible Item 1 An objective model of the marketing value chain An objective understanding of the Board’s imperatives for marketing performance measurement Item 2 A qualification of three measurement categories the Board expects from marketing Item 3 Defining and measuring the productivity of Brand Equity and of Customer Equity, as well as measuring Contribution Item 4 Example of addressing a strategic implication brought about by measurement and analysis Item 5

30. Business Phone +27 (0)82 371 5914 Contact Business Email guy.pearce@globalbankingboard.com General Email pearcegf@gmail.com Postal 456 Marlatt Drive River Oaks Oakville ON L6H5X4 Canada