Managing Expectations: How Investors Determine Value

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Managing Expectations How Investors Determine
Value

• George Zagoudis
• Financial Relations Board
• MA Today Symposium

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Increasing Investor Scrutiny

• Regulatory changes
• Accounting watchdogs
• Shareholder activism
• Reg FD (full disclosure)

MARKETING STRATEGY ...
Integrated into financial communications.
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Not All Brands Create Value

• Intense competition
• Overly optimistic projections
• Customer adoption issues
• Impact on firm cash flows

FOCUS ON CUSTOMERS...

• It takes more than aiming for market leadership
  to satisfy the skeptics

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Relative Importance of Brands
Source Interbrand
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Economic Returns Drive Value

• Traditional Branding
• Awareness
• Growth
• Market Share
• Product Focus

• Financial Branding
• Sales
• Margins
• Cash Flows
• Duration

The marketing message has to be grounded in
economics.
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Financial Branding

• Commanding a Premium over Book
• Patents pending
• Technology
• Human capital
• Customer assets
• Management credibility

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What Investors Want to Hear

• Why Will Your Customers
• Buy more?
• Pay more?
• Buy more frequently?
• Stay with you?

What will drive demand?
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How Investors Measure Strategy

• Revenues
• Profit margins
• Cash flows
• Investment
• Return vs. risk

FINAL EXAM GRADE ROI
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Stock Prices Follow Returns
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Case Study Category Leader
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Case Study Returns Decline
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Case Study Market Laggard
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Managing Brands by Returns
Positive Spread
Cash Flow Return (ROI)
Discount Rate
(Cost of Capital)
Neutral
SHRINK
FIX
GROW
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Case Study Building Brand Value with a New
Strategy Medical Device Manufacturer
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Analysis Starts with Revenues
LTM in millions
Inflection Point
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High Cost Marketing Strategy
LTM in Millions
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Technology Value in Question
LTM
Inventory Turns
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Level of Investment Too High?
LTM
Fixed Asset Turns
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ROI Falling, No End in Sight
LTM
Higher Cash Burn?
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Investors Dont Value the Future
Price / Sales Ratio
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CEOs New Priorities

• Improve returns
• Phase out equipment sales
• Focus on recurring revenues
• Speed up collections
• Change sales incentives

FOCUS ON CUSTOMERS AND CASH...

• Investors responded positively to revised
  marketing strategy.

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Revenue on a Growth Track
LTM in millions
Inflection Point
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Investors Now See the Future
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Integrate Your Marketing Message

• Speak Simply to All
• Your market opportunity
• Key benefit, not features
• Your strategy to exploit it
• Competition and challenges
• Sales incentives
• Corporate assets