Serving Self or Serving Society? Influencing External Stakeholders

Serving self or serving society?
Influencing external stakeholders

A presentation to The Council on Foundation Jan Lindemann Global Managing Director Interbrand Group 18 June 04
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Council on Foundation , 18 June 2004
Agenda
Background to Interbrand The value of brands The economic value of brands can be valued in $ terms The brand value chain The value of branding in the not-for-profit sector Summary
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Background to Interbrand
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Background to Interbrand
Global network - 1000+ employees - 32 offices around the world Subsidiary of Omnicom group Thought leader in the industry Full-service Brand Consultancy
Brand Protection Brand Research Brand Valuation
ge
E va
Ma na
te lua
Brand Implementation
Internal Brand Engagement Brand Identity
Brand Opportunity Brand Strategy
Naming & Verbal Identity Create
Worldwide
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Background to Brand Valuation

Interbrand pioneered Brand Valuation in 1988 We have valued over 4,000 brands for over 450 companies Our Brand Valuations have been audited by all of the big 4 accountancy firms, accepted by international tax authorities, and as evidence in the high courts Interbrand has published the definitive league table of the worlds most valuable brands for the past 5 years
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The value of brands
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A brand is a set of associations that impacts transactions between parties

Name logo tag line Promise Experience A stored synaptic connection between neurons that fire together in different patterns Metaphor, complex pattern of associations in the heads of individuals (customers, consumers, employees, investors, etc..)
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Emotional associations tend to have relatively stronger impact

Our brains store many brands approx. 10,000
Expensive German Car World-class Quality Well engineered For Self Driver Modern
Safe Status
Chauffeur Traditional
Stylish Dynamic Sporty
Timeless elegance
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A brand is capable of overruling our instinctive choice
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Brands are about choice
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and differentiation in crowded and competitive market place
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Brands are intangibles that have become the key source of corporate value
Dow Jones Industrial, Market Capitalization
% 100 80 60
95% 72% Intangibles Tangibles
5%
40 20 0 1978
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28%
2001
Source: Fortune, April 16, 2001 Council on Foundation , 18 June 2004
Brands create significant shareholder value

e.g. The 10 most valuable global brands
Brand Value 2003 $70.5 bn $65.2 bn $51.8 bn $42.3 bn $31.1 bn $29.4 bn $28.0 bn $24.7 bn $22.2 bn $21.4 bn % Market Cap. parent company 64% 23% 37% 15% 19% 42% 66% 92% 25% 61% Brand Value 2002 $69.6 bn $64.1 bn $51.2 bn $41.3 bn $30.9 bn $30.0 bn $29.3 bn $26.4 bn $24.2 bn $21.0 bn % Change 2002-2003 1% 2% 1% 2% 1% -2% -4% -6% -8% 2%
Source: Business Week, Interbrand, 2003
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Brands can generate significant price premiums

Retail Price of Selected Bottled Water Brands (Non-sparkling) in U.S.
Evian
1.49
Aquafina
0.89
Dasani
0.85
Store brand
Source: DKWR estimates, 2002
0.4
U.S.$ / litre
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Brands ensure long term sustainability
The estimated average life of a corporation is 25 years The Coca-Cola brand is over 100 years old
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Brands impact all key aspects of business value

Customers: Employees:
Rating agencies: Investors: Public: Gov. authorities:
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Brands impact all key aspects of business value

Customers: Employees: price x volume x frequency = revenues productivity (customer service, selling, R&D product development, efficiency) + acquisition/retention +relatively lower salaries = lower operating costs higher rating = lower cost of debt share price = lower cost of equity influence key decision makers in all other fields, eg opinion makers in media, NGOs price/return regulation, competition = revenues, profits
Rating agencies: Investors: Public:
Gov. authorities:
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Brands create higher returns at relatively lower risk

Average annual performance of strong US brands vs. market
2.5 2 1.5
13%
21%
Market Interbrand weighted portfolio by brand value
1 0.5 0 Average monthly return %
1.0
0.9
(Risk of portfolio, 1=Market)
Source: BRANDS MATTER: AN EMPIRICAL INVESTIGATION OF BRAND B UILDING ACTIVITIES AND THE CREATION OF SHAREHOLDER VALUE, Thomas J. Madden, University of South Carolina, Frank Fehle, University of South Carolina, Susan M. Fournier, Harvard University, 2002
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The economic impact of brands can be valued in $ terms
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Interbrands approach is widely endorsed

Academics Auditors Accountancy firms Analysts Advertising agencies Banks Government bodies High courts Management consultants Stock exchanges Tax authorities
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and used
Established 18 years ago Industry standard Breadth of applications Used by more than 400 leading companies Interbrand has completed more than 3500 brand valuations
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Principles of Brand Valuation

Marketing
Combining marketing and financial analyses
Brands create demand (price, volume, frequency) Brands secure demand (loyalty, re-purchase, retention)
Finance
Net Present Value from expected future earnings generated by the brand
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Brand valuation model

Market Segments
Financial Analysis
Demand Drivers
Competitive Benchmarking
Intangible Earnings
Role of Branding
Brand Strength
Brand Earnings
Brand Discount Rate
Brand Value
(net present value of future Brand Earnings)
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Brand valuation model
Role of Branding analysis
Campaign Revenues EBIT Intangible Earnings Brand Earnings
Year 1
Year 2
Year 3
Year 4
Year 5
Brand Strength analysis
Brand Value
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Brand value calculation

Year 1 Branded Revenues Cost of Sales Gross Margin Marketing Costs Depreciation Other overheads Central cost allocation EBITA (Earnings Before Interest,Tax and Amortization) Applicable taxes NOPAT (Net Operating Profit After Tax) Capital Employed Working Capital Net PPE Capital Charge Intangible Earnings Role of Branding Index Brand Earnings Brand Strength Score Brand Discount Rate Discounted Brand Earnings NPV of Discounted Brand Earnings (Year 1-5) Long term growth rate NPV of Terminal Brand Value (beyond Year 5) Brand Value 66 7.4% 55,477,916 329,546,442 2.5% 1,454,475,639 1,784,022,082 62,106,597 68,230,515 74,200,384 69,531,031 79% 59,583,281 71,638,469 84,526,229 98,724,122 99,357,367 8% 375,000,000 150,000,000 225,000,000 67,500,000 2,812,500 18,750,000 3,750,000 132,187,500 35% 46,265,625 85,921,875 131,250,000 112,500,000 18,750,000 10,500,000 75,421,875 Year 2 450,871,875 180,348,750 270,523,125 81,156,938 3,381,539 22,543,594 4,508,719 158,932,336 55,626,318 103,306,018 157,805,156 135,261,563 22,543,594 12,624,413 90,681,606 Year 3 531,983,725 212,793,490 319,190,235 95,757,071 3,989,878 26,599,186 5,319,837 187,524,263 65,633,492 121,890,771 186,194,304 159,595,118 26,599,186 14,895,544 106,995,227 Year 4 621,341,172 248,536,469 372,804,703 111,841,411 4,660,059 31,067,059 6,213,412 219,022,763 76,657,967 142,364,796 217,469,410 186,402,351 31,067,059 17,397,553 124,967,243 Year 5 625,326,631 250,130,653 375,195,979 112,558,794 4,689,950 31,266,332 6,253,266 220,427,638 77,149,673 143,277,964 218,864,321 187,597,989 31,266,332 17,509,146 125,768,819
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The brand value chain, e.g. BMW
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The Brand Value Chain

Customer touchpoints
Advertising Sponsorship Promises Online Direct marketing PR CRM Product Price Delivery Point of sale Packaging After-sales
Touchpoint metrics
Advertising brand fit Exposure & preference Sponsorship brand fit Exposure & preference Online brand fit Exposure & preference DM brand fit Diff. & consistency PR brand fit PR exposure CRM brand fit Cross-sell Product brand fit Design & functionality Price premium Perceived pricing Display brand fit Dealer recommendation Packaging brand fit Packaging satisfaction Complaint handling After-sales satisfaction
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Advertising Sponsorship Promises Online Direct marketing PR
Touchpoint metrics
Brand Platform
CRM Product Price
Brand Perception
Delivery
Point of sale Packaging After-sales
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Advertising Sponsorship Promises Online Direct marketing PR
Touchpoint metrics
Brand Value Creation
Customer behaviour Brand Perception Sustainability
Revenue, Profit
Intangible Earnings
Brand Platform
RBI
CRM Product Price
Brand Earnings
Brand Strength
Disc. brand earnings
Delivery
Point of sale Packaging After-sales
Brand Value
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Values of BMW now and in 1985
Innovation
Dynamism
Aesthetics
Long-term
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These values drive product positioning...
Innovation
Leadership Mobility
Dynamism
Aesthetics
7 series 5 series 3 series compact 3 series touring Z3 roadster
Experience
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... and communications at all touchpoints
Innovation
Leadership Mobility
Dynamism
classical advertising sponsorship
Aesthetics
Experience
trade fairs
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...providing a consistent and holistic brand experience
Point of sale
BMW Group VM-4 October 1999 Seite 3
Blindtext
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Advertising
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Trade shows
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Website
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Sponsorship
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Brand platform drives customer perceptions

Promises Delivery Customer perceptions 1 2 3 4 5
BMW Group VM-4 October 1999 Seite 3
Dealer networks
Blindtext
Dynamic Aesthetics Innovation
Magazine adverts
Dynamic Aesthetics Innovation
Safety
Online
Comfort Efficiency
Exhibitions Direct mail
Environmental friendliness
Mercedes Audi BMW
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delivering brand value

16.0 13.0
Brand Value (US$ Billion)
13.9
14.4
15.1
12.0
11.3
8.0
4.0
0.0
1999 2000 2001 2002 2003
*Based on information in the public domain and as published in the Interbrand/BusinessWeek Global Brands League Table
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The economic benefit of brands to the not-for-profit sector
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Not-for-profit brands
Philanthropy results from the desire to directly impact an ethically positive change in society: e.g. to cure cancers, tackle overseas poverty, stop animal cruelty, etc. Their brands are therefore emotionally deeper, more credible and more authentic than those of most commercial brand
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e.g.
Brand value in 02 $1.8 billion Doubling of minimum contribution Nearly 50% increase in donations from companies Multi-million cross-sector sponsorship from Lowes and Whirlpool Long-term exclusive partnerships with selected firms Better senior access at partner companies Screening framework for corporate partnerships
Source: Harvard Business Review May 04 42 |

Other benefits
Attract and retain high-caliber employees Motivate donors and volunteers to increase commitment Justify efforts to protect the brand and its consistence use Justify marketing investments as they can directly related to brand drivers Greater influence with policy holders
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Mean of top 10 brands Mean of top 100 brands
Non-for-profit brands show a relatively higher value creation
Hennessy Gucci Yahoo! Hermes MTV Rolex Pepsi
Not-for-profit brands
Gillette
Louis Vuitton
Mercedes Marlboro McDonald's Disney Nokia Intel GE IBM Microsoft Coca-Cola
Top 10 Brands
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Coca-Cola
Top 10 Multiples
Multiple
Benefits to corporate donors

Target audiences
General public Special audiences (interest groups, c-suite, etc.)
Strength of emotional impact Specific values

Caring Warm Personable Human face Corporate citizenship Community focus Etc.
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Non-for-profit organizations have a relatively high level of value creation

100 90
Brand contribution to EVA in %
80 70 60 50 40 30 20 10 0
Perfumes Soft Drinks Not-For-Profit Household Appliances Financial Services Hotels Bulk Chemicals
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Not-for-profit sector offers attractive values and audiences

e.g. Role of Brand Analysis Corporate Sponsors
Enhancement of brand values
Specific Audience Profile
Implied ROI
Corporate Social Responsibility
Brand Other Intangibles 0 20 40 60 80 100
Role of Branding 72%
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Top 10 corporate donors in the US

Company Wal-Mart Stores Ford Motor Altria Group SBC Communications Exxon Mobil Target Wells Fargo Citigroup Verizon Communications Pfizer Source: BusinessWeek 12/1/03 Money Given 2002 ($ millions) 156.000 129.800 113.400 100.000 97.200 87.200 82.300 77.754 75.000 73.800
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Benefits to corporate donors

Indexed Price
31-May-1994 to 11-May-2004 (Monthly) 29-Apr-1994=100; Local Index: Top_Donor (INDEX:TOP_DONOR) 374.6 S&P 500 Index (Reported Basis) (SP50) 243.0 400 350 300 250 200 150 100 50 0 95 96 97 98 99 00 01 02 03
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Summary
Brands are key influencers of human behaviour Brands create significant economic value in the commercial as well as in the not for profit sector Not for profit brands tend to have a relatively higher value generation due to the strong emotional bond with donors Corporate philanthropy is value enhancing due to the unique brand equities offered by non for profit brands The relative importance of corporate philanthrophy
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Serving Self or Serving Society? Influencing External Stakeholders

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Serving Self or Serving Society? Influencing External Stakeholders

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Serving self or serving society?

Influencing external stakeholders

Council on Foundation , 18 June 2004

Council on Foundation , 18 June 2004

Council on Foundation , 18 June 2004

Internal Brand Engagement Brand Identity

Brand Opportunity Brand Strategy

Naming & Verbal Identity Create

Council on Foundation , 18 June 2004

Background to Brand Valuation

Council on Foundation , 18 June 2004

The value of brands

Council on Foundation , 18 June 2004

A brand is a set of associations that impacts transactions between parties

Council on Foundation , 18 June 2004

Emotional associations tend to have relatively stronger impact

Stylish Dynamic Sporty

Council on Foundation , 18 June 2004

A brand is capable of overruling our instinctive choice

Council on Foundation , 18 June 2004

Brands are about choice

Council on Foundation , 18 June 2004

and differentiation in crowded and competitive market place

Council on Foundation , 18 June 2004

Source: Fortune, April 16, 2001 Council on Foundation , 18 June 2004

Brands create significant shareholder value

Source: Business Week, Interbrand, 2003

Council on Foundation , 18 June 2004

Brands can generate significant price premiums

Council on Foundation , 18 June 2004

Brands ensure long term sustainability

Council on Foundation , 18 June 2004

Brands impact all key aspects of business value

Rating agencies: Investors: Public: Gov. authorities:

Council on Foundation , 18 June 2004

Brands impact all key aspects of business value

Rating agencies: Investors: Public:

Council on Foundation , 18 June 2004

Brands create higher returns at relatively lower risk

1 0.5 0 Average monthly return %

(Risk of portfolio, 1=Market)

Council on Foundation , 18 June 2004

The economic impact of brands can be valued in $ terms

Council on Foundation , 18 June 2004

Interbrands approach is widely endorsed

Council on Foundation , 18 June 2004

Council on Foundation , 18 June 2004

Principles of Brand Valuation

Combining marketing and financial analyses

Council on Foundation , 18 June 2004

Brand valuation model

Brand Discount Rate

Council on Foundation , 18 June 2004

Brand valuation model

Role of Branding analysis

Campaign Revenues EBIT Intangible Earnings Brand Earnings

Brand Strength analysis

Council on Foundation , 18 June 2004

Brand value calculation

Council on Foundation , 18 June 2004

The brand value chain, e.g. BMW

Council on Foundation , 18 June 2004