brand strategies
Received: 8th January, 2001
PETER DOYLE
is professor of marketing and strategic management at the University of Warwick.
Previously he has taught at London Business School, INSEAD and Stanford University. He
acts as a consultant to many top international companies, including Coca-Cola, Nestl,
Cadbury Schweppes, Tesco, Hewlett-Packard, Novartis and AstraZeneca. He has written
over 100 books and articles on marketing strategy and brands. His latest book, ValueBased Marketing: Marketing Strategies for Corporate Growth and Shareholder Value was
recently published by John Wiley.
Abstract
Companies like Procter & Gamble, Unilever, Xerox, Heinz, Apple and Gillette
possess great brands and outstanding brand management competencies,
yet they have failed to generate value for shareholders in recent years.
What these companies are learning is that having strong brands which
consumers value is not enough. Whether strong brands create value for
shareholders depends upon the economics of the markets in which they
operate and the strategies managers pursue. By underestimating
shareholder value dynamics, marketing managers risk misallocating
resources and handicapping the firms opportunities to move into new
markets and find new, more profitable, growth opportunities.
This paper looks at how brands contribute to the firms strategy and how
brand planning needs to
be geared to market economics and managements central objective of
creating shareholder value.
CV4 7AL, UK
Tel: +44 (0) 2476 523911;
E-mail: P.Doyle@warwick.ac.uk
Peter Doyle
Warwick Business School,
University of Warwick,
Coventry
INTRODUCTION
This paper shows that many marketers
hold a view of brands that is too nave.
Through an uncritical belief in the
importance of brands and the case
for brand investment, the views of
marketing professionals often become
marginalised when top management
debate the big strategic issues facing
their business. Marketers are seen as
unsophisticated advocates, rather than
serious professionals able to engage in
an objective review of the problems
and opportunities facing the firm.
Brands are the big thing in
marketing. Marketing is not a highly
developed discipline like economics
or finance. Marketing lacks theory,
breakthrough insights and firm principles that can guide the development of
strategy.
But
marketing
does
own the concept
of the brand, and
brands
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BRANDS
RESOURCES
AS
HENRY STEWART PUBLICATIONS 1350-231X BRAND MANAGEMENT VOL. 9, NO. 1, 20-30 SEPTEMBER 2001
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Shareholder
value
Market
economics
Customer relationships
Product development
Differential
advantage
Core business
processes
Core capabilities
Tangible
assets
Technological
Strategic
assets
Brand
assets
Resources
Human
resources
Organisation
and culture
Investment
Figure 1
customers, the firm must have outstanding business processes that enable
it to be more innovative than its rivals
(eg Sony, 3M); have operations that
deliver customer solutions at lower
total cost (Wal-Mart, Toyota); or
be outstanding at managing customer
relationships (Dell, American Express).
It is important to recognise that these
core processes are not independent. For
example, if a companys marketing
strategy is based on achieving superior
customer relationships through individualised solutions, it will also need
the product development and supplychain management processes to design
and deliver the tailored responses
efficiently. Without the combination of
effective core processes it will not be
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Table 1
Utilities
Industrial
Pharmaceutical
Retail
Info-tech
Automotive
Financial services
Food and drink
Luxury goods
70
70
40
70
30
50
20
40
25
Bran
d
%
0
5
10
15
20
30
30
55
70
Other
intangibles
%
30
25
50
15
50
20
50
5
5
Source: Interbrand
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HENRY STEWART PUBLICATIONS 1350-231X BRAND MANAGEMENT VOL. 9, NO. 1, 20-30 SEPTEMBER 2001
Attractive
Equivocal
can be a profitable brand
High value-creating
potential brands
Always value-destroying
brands
Low value-growth
potential
Market
economics
Unattractive
Weak
Figure 2
Strong
HENRY STEWART PUBLICATIONS 1350-231X BRAND MANAGEMENT VOL. 9, NO. 1, 20-30 SEPTEMBER 2001
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Accelerating
flow
cash
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DEMONSTRATING EFFECTIVE
BRAND MANAGEMENT
To illustrate the problem faced by
companies like P&G, Unilever and
Heinz, the paper will look at
Upbrand.
Upbrand is the leading brand in its
sector of the household goods market.
Sales are 100m, making it comparable in size to Unilevers Comfort
or P&Gs Daz. It has been No. 1 for
over 20 years and remains outstanding
in terms of awareness and preferences.
Its pre-tax profit margin is a healthy 12
per cent and its EVA (post-tax profits
less capital charge) is over 3m.
Surely, such a 20-year marketing
success should be a source of acclaim in
the company. Unfortunately, investors
think otherwise. Upbrand has two
major problems. First, it is in a
no-growth market. Investors know it is
virtually impossible to create long-term
value added without volume growth.
Secondly, there has been a slow decline
in Upbrands margins. To maintain
volume in a sector attracting increasing
own-label competition, management
has not been able to raise prices
sufficiently to recover rising operating
and marketing costs. Annually, costs
have risen 1 per cent faster than prices
and investors expect similar pressures in
the future.
Table 2 shows how analysts typically
estimate the value-creating potential of
brands and the companies that own
them. Explicit forecasts of cash flow are
usually made for five to ten years
ahead, and then the value of the brand
at the end of the period is called
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Table 2
Price
Quantity m.
Sales
Operating costs
Marketing expenses
NOPAT
Net investment
Cash flow
Present value of cash flow
Cumulative present
value
PV
of continuing value
Shareholder value
Initial shareholder value
Shareholder value
added
1.0
100.0
100.0
66.0
22.0
8.4
0
8.4
1.0
100.0
100.0
66.7
22.2
7.8
0
7.8
7.1
7.1
1.
0
100.
0
100.
067.
3
22.
47.
2
0
7.
2
5.
9
13.
0
Yea
r
3
1.0
100.0
100.0
68.0
22.7
6.5
0
6.5
4.9
17.9
1.0
100.0
100.0
68.7
22.9
5.9
0
5.9
4.0
21.9
1.0
100.0
100.0
69.4
23.1
5.3
0
5.3
3.3
25.2
32.6
57.8
84.0
26.2
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Table 3
Increase growth
Price increase 1%
pa Price increase
+5% pa Operating
costs cut 5%
Marketing costs cut
10% Investment level
cut 10%
67.4
2.0
63.
1
3.5
13.1
28.0
5%
26.2
3.6
130
16.
6
4.2
17.1
23.2
for ruin. As
shows, even if
Table
SUMMING UP
Being passionate about brands is a questionable
attribute for marketing professionals; far better to
be rational about managing
them.
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