BRAND MANAGEMENT AND NEW PRODUCT DEVELOPMENT SECTION 3 Brand Management and the Firm Brands and Brand Management: An Introduction ALAN L. WHITEBREAD

1
BRAND MANAGEMENT AND NEW PRODUCT
DEVELOPMENTSECTION 3Brand Management and the
Firm Brands and Brand Management An
Introduction ALAN L. WHITEBREAD
2
BRAND

• A NAME, TERM, SYMBOL, or ANY OTHER UNIQUE ELEMENT
  of a Product that Identifies One Firms
  Product(s) and Differentiates Them From the
  Competition
• -American Marketing Association

3
3
BRAND

• Merger and Acquisition Definition
• The value of your brands to an acquirer based
  on what they can do with it over the first five
  years of ownership.
• What makes up a brand?
• Name, logo, relationships, ..
• Intangible assets
• Customer lists, positioning, goodwill,
• Brand loyalty and long-term cash flows

4
WHAT DOES BRANDING DO?

• Identifies
• Differentiates
• Positions brand image and expectations
• Adds to the value equation
• Real or perceived benefits
• Command a price premium

5
WHAT DOES BRANDING DO?

• Aligns with market segmentation
• Creates preferences and builds brand loyalty
  repeat purchases
• Brand preference to brand insistence
• Increases sales
• Facilitates product line expansion

6
HOW ARE BRANDS USED?

• Position
• Create Google, Yahoo, Facebook
• Reposition Cadillac CTS
• Rejuvenate New Coke

7
THE BRAND SYSTEM
Brand concept value proposition Tangible and
intangible components
Consumer
Marketing
Product / service experience Personal or
referral success
Brand name and brand marks / symbols
8
BRAND LOYALTYLeo J. Shapiro Assoc. for DSN
Retailing Today 2008

• Greeting cards 77
• Stationary 68
• Domestics 63
• Groceries 60
• Glass dishware 58
• Housewares 58
• Childrens apparel 56
• Beverages 52
• Hardware toys 52
• Automotive 50

• Health Beauty 48
• Mens apparel 48
• Sporting goods 47
• Cameras 45
• Consumer electron. 44
• Entertainment soft. 34
• Intimate apparel 28
• Cosmetics 22

2013 13 of these categories have higher brand
loyalty than in 2008. Brand loyalty also changes
based on economics.
9
THE PATH FROM BRAND AWARENESS TO FINANCIAL VALUE
B2B

• BRAND ASSETS
• Awareness
• Reputation
• Brand personality
• Brand values
• Brand imagery
• Brand preference
• IP

• BRAND STRENGTH
• Market share
• Market position
• Growth rates
• Brand loyalty
• Value price premium

BRAND VALUE one definition The net discounted
cash flow less capital investment, operating and
marketing expenses.
10
THE PATH FROM BRAND AWARENESS TO FINANCIAL VALUE
B2C

• BRAND ASSETS
• Awareness an important first step
• Reputation comes from many places
• The firm, perceptions of product performance,
  innovation, technological leadership
• Recommendations are informal including social
  networks,
• Brand personality becoming more important
• Brand values the essence, or core values of the
  brand
• Quality Six Sigma and/or Malcom Baldridge, ISO
  9002, and standards met often have little
  consumer meaning
• Certifications of origin and quality seals are
  often promotional tools
• Brand imagery a key to consumers relating to
  the brand
• Brand preference can be anything
• IP
• All the standard ones plus some trade secrets
  formulas,

11
THE PATH FROM BRAND AWARENESS TO FINANCIAL VALUE
B2B

• BRAND ASSETS
• Awareness to even be considered
• Reputation usually required
• Firm, product performance, innovation,
  technological leadership, recommendations
• Endorsements carry weight,
• Brand personality rarely used
• Brand values are earned and based on
  performance
• Quality Six Sigma and/or Malcom Baldridge
• Consistency ISO 9002
• Standards met
• Brand imagery seldom used
• Brand preference can be anywhere
• IP
• All the standard plus heavy on trade secrets,
  confidentiality agreements, joint development,

12
THE PATH FROM BRAND AWARENESS TO FINANCIAL VALUE
B2B

• BRAND STRENGTH
• Market share to even be considered
• Size, number of locations, flexibility in and
  among the locations, back-up and contingency
  planning,
• Market position often to be considered
• One of the major competitors, cost or
  technological leadership,
• Growth rates rarely important
• Brand loyalty driven only by long-term
  performance excellence
• Rarely an issue
• Never an issue ship to stock rating
• Value price premium driven only by long-term
  performance excellence
• Team selling, joint teams for cost or product
  improvement or new product development,
  technological leadership,

13
1-GENERIC CORE PRODUCT Fundamental need or
want 2-EXPECTED Typical basic product
5-POTENTIAL PRODUCT Future most advanced product
THE EXPANDED PRODUCT CONCEPT
Warranty
Installation
Packaging
Features
Brand Name
3-BRANDED The variety of the product offering.
Design
Delivery Credit
After- Sale Service
Quality Level

4-AUGMENTED PRODUCT Attributes, benefits, or
services for competitive advantage
14
GOODS - SERVICES CONTINUUM
HIGH IN SEARCH QUALITIES Visual, tangible
inspection
HIGH IN EXPERIENCE QUALITIES Some / all product
attributes can be assessed only through experience
HIGH IN CREDENCE QUALITIES Product attributes can
rarely be assessed / learned
PURE SERVICE
PURE GOOD
Good w/ Services
Service w/ Goods
Hybrid
Restaurants
Groceries
Autos
Rental Movies
Medical Care
CHARACTERISTICS
TANGIBLE
INTANGIBLE
15
UNDERSTANDING TYPES OF RISK

• FUNCTIONAL
• The product does not perform as expected.
• Manage expectations. Especially services!
  Utilize safety factors.
• PHYSICAL
• The product can be potentially dangerous to the
  consumer.
• B2C Provide more than minimal warnings.
• B2B Minimal plus HAZMAT and/or, MSDS
• FINANCIAL
• The product is not worth the price.
• Fix the value equation.

16
UNDERSTANDING TYPES OF RISK

• SOCIAL
• The product may be embarrassing.
• Let the package to minimize this effect.
• PSYCHOLOGICAL
• The product affects the mental well-being of the
  consumer.
• What type of product might this be?
• TIME
• The failure of the product results in an
  opportunity cost expense of finding another
  solution.
• Manage both quality and consumer expectations.

17
MINIMIZING RISKSIn-class exercise
RISK EXAMPLE OFFSETS
FUNCTIONAL Inadequate product performance ? Set realistic expectations Be sure quality level is correct
PHYSICAL Threatens well-being Drano Proper use instructions Warning messages
FINANCIAL price and volume forecast realization Insufficient value ? Set realistic expectations Be sure positioning is correct Find the right value equation
18
MINIMIZING RISKSIn-class exercise
RISK EXAMPLE OFFSETS
SOCIAL Embarrassing Generic peas white can with black print ?
PSYCHOLOGICAL Users mental well-being ? ?
TIME Opportunity cost to find a substitute ? Proper use instructions Set realistic expectations Be sure quality level is correct
19
BRAND EQUITY AND SHAREHOLDER VALUE

• Brands provide at least four sources of value for
  shareholders.
• Equity and market effects of owning the brand and
  its long-term performance expectations.
• Net present value of the current cash flow due to
  the brand.
• Company book value and hard assets directly
  attributable to owning the brand.
• All of the off-balance sheet items attributable
  to the brand.

20
BRAND EQUITY AND OFF-BALANCE SHEET ASSETS

• Brand name, image, and drawing power
• Intellectual property and trade secrets
• Market knowledge / Customer relationships
• Customer and other mailing lists
• Systems, processes, and procedures
• Fully depreciated assets
• Many, many more

21
BRAND EQUITY

• Estimating the value of brand equity is both
  difficult and quite hypothetical with the typical
  marketing models.
• Cost approach
• How much would it cost to 1 reproduce or 2
  replace the brand?
• Market approach
• The incremental cash flows from the sale of the
  branded vs. the unbranded product.
• Income approach
• The NPV of discounted cash flows from the branded
  product.

22
BRAND EQUITYMA Definition

• The perceived value of owning the brand an
  off-balance sheet number.
• Balance sheet approximate current value of
  tangible assets and goodwill
• Profit Loss measures historical sales and
  profit levels based on key business assumptions
• Cash flow shows how much cash a business can
  generated EBITDA
• Altria PMI Kraft Foods 13B 600 of book
• KKR RJR Nabisco 5.8B 550 of book
• http//bwnt.businessweek.com/brand/2005/index.asp
  

23
BRAND EQUITYMA MODEL FREE CASH FLOW
PROJECTION PROJECTION PROJECTION PROJECTION PROJECTION
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
NET SALES 15,225,305 110,654,231 187,149,914 225,687,518 286,405,622
AFTER-TAX INCOME -4,598,715 20,869,507 36,399,557 44,386,498 61,588,823
PLUS INTEREST 0 0 0 0 0
PLUS TAXES 0 4,226,576 13,633,532 16,839,933 24,187,772
EBIT -4,598,715 25,096,084 50,033,089 61,226,432 85,776,595
PLUS DEPRECIATION 1,647,705 7,065,591 11,003,969 11,273,760 11,593,510
EBITD -2,951,010 32,161,675 61,037,058 72,500,192 97,370,105
PLUS AMORTIZATION 439,958 487,178 504,918 534,398 563,878
EBITDA -2,511,052 32,648,853 61,541,976 73,034,590 97,933,983
LESS CAPITAL EXPENDITURES -10,844,832 -23,347,138 -11,927,540 -11,939,493 -10,987,290
LESS INVESMENT IN WORKING CAPITAL LESS INVESMENT IN WORKING CAPITAL -962,038 -3,015,648 -3,509,064 -4,231,645 -5,370,110
FREE CASH FLOW -14,317,922 6,286,066 46,105,372 56,863,452 81,576,583
176,513,551
24
BRAND EQUITYOFF-BALANCE SHEET ITEMS IRS Ruling
59-60

• Management team
• Brand recognition
• Earning power of the brands
• Leverage of the brands
• Intellectual property
• Distribution channels
• Product offerings
• Proprietary designs
• Technology
• Knowledge of the firm

• Reputation
• Processes
• Systems
• Methods
• Manuals
• Drawings
• Customer / prospect \ / supplier bases lists
• Data bases
• Recession-resistant industry

25
BRAND EQUITY

• "The secret to our enduring brand lies in
  delivering an experience rather than just a
  collection of products and services."
• Harley-Davidson Annual Report, 2003
• See also Fosters Investors Presentation
  http//www.fosters.com.au/investors/docs/merrill_l
  ynch_ny_presentation_september_2004_final.pdf

26
THE OPPORTUNITY TO BRAND

• To create perceptual differences
• For easy identification for additional purchases
• To reduce consumer perceived risk and cognitive
  dissonance
• To maximize shareholder value

27
ENDURING BRAND LEADERSHIPTellis and Golder

• VISION OF THE MASS MARKET
• Pampers expands usage through product
  development, segmentation, and new applications
• MANAGERIAL PERSISTENCE
• Breakthrough technology
• FINANCIAL COMMITMENT
• Every major brand does this
• RELENTLESS INNOVATION
• INTEL , Gillette
• ASSET LEVERAGE
• Coca-Cola Tab leveraged into Diet Coke

28
BRAND CHALLENGES In-class exercise
CHALLENGE SUCCESS REQUIRES
SAVVY CUSTOMERS Correct sales organization, sales approach, and great market / product / technical knowledge in sales
COMPLEX BRAND FAMILIES ?
MATURING MARKETS ?
INCREASING COMPETITION ?
DECREASING BRAND LOYALTY ?
GROWTH OF PRIVATE LABELS ?
INCREASING TRADE POWER ?
FRAGMENTING MEDIA ?
STOP
29
BRAND OPPORTUNITIESMORE SPECIFIC
CHALLENGE SUCCESS REQUIRES
PENETRATE MULTIPLE CUSTOMER TYPES Use multiple brands name brand, fighting brand, generic Outstanding market segmentation Nearly unique segment definition based on needs and wants
SELL TO OTHERS TO IMPROVE TOTAL COST EFFICIENCY OEM and private label sales Product level acceptable to OEM and private label accounts Multiple strong channels of distribution
INTERNATIONAL Understand international business Solid understanding of other cultures, business systems, international transaction types, and international financing instruments

30
BRANDS AND MARKETS
MARKETING FACTOR CONSUMER BUSINESS Non-technology BUSINESS Technology
Market characteristics Mature Emphasize share Varied Rapidly changing New categories
Product Life Cycle Usually long, stable, evolving Varied Short, generations, leap-frog
Product complexity Low, few features High, large number of features High, large number of features
Product architecture Simple, usually a single unit Complex, possibly modular Complex and modular
Customer behavior Simple decision-making process Simple to complex Complex decision-making process
Channels and partners Mostly vertical Vertical and horizontal Vertical and horizontal
31
BRAND CHALLENGES
CHALLENGE SUCCESS REQUIRES
SAVVY CUSTOMERS Understanding of consumer needs and wants to deliver believable messages that get through the noise.
COMPLEX BRAND FAMILIES Excellent market segmentation Crest example to deliver brands to segments.
MATURING MARKETS Build and use channel power targeted new product development
INCREASING COMPETITION Better value equation brand extensions / add a fighting brand
DECREASING BRAND LOYALTY Brand Personality
GROWTH OF PRIVATE LABELS Supply for cost reduction Introduce fighting brand
INCREASING TRADE POWER Outstanding negotiation skills
FRAGMENTING MEDIA Careful selection watch effectiveness and efficiency
32
BRAND OPPORTUNITIES In-class exercise
CHALLENGE SUCCESS REQUIRES
DELIVER SPECIFIC SOLUTIONS ?
EXPAND DISTRIBUTION COVERAGE ?
PENETRATE MULTIPLE CUSTOMER TYPES Excellent segmentation, channel alignment, correct types of sales organizations and sales approaches.
SELL TO OTHERS TO IMPROVE TOTAL COST EFFICIENCY ?
INTERNATIONAL ?
? ?
33
BRAND OPPORTUNITIESTOO SIMPLISTIC
CHALLENGE SUCCESS REQUIRES
DELIVER SPECIFIC SOLUTIONS Detailed understanding of consumer wants and needs
EXPAND DISTRIBUTION COVERAGE Exceptional market segmentation to channels align with market segments
PENETRATE MULTIPLE CUSTOMER TYPES Use multiple brands name brand, fighting brand, generic
SELL TO OTHERS TO IMPROVE TOTAL COST EFFICIENCY OEM and private label sales
INTERNATIONAL Understand international business
? ?