Manager of marketing, who are charged with the responsibility of getting and retaining business to produce profitable income for their employers, need to consider both the long and short-term requirements of their employer’s business. Decisions that have short term positive results may have long term negative consequences, and visa versa.
Thursday, November 11, 2010
A group of brand value measurement indicators has established itself parallel to the focus on psychographics values. Consultancy firms and academicians have proposed many composite models of brand valuation. The Interbrand’s brand valuation approach, AC Nielsen’s brand balance sheet and brand performancer, Gfk brand power model, Semion brand value approach and Sattler brand value approach are a few of the famous composite brand valuation models.
Interbrand consulting firm’s brand value system considers an earnings-based approach. The Interbrand model seeks to estimate the risk and inflation-adjusted benefits—the current and future earnings or cash flows—flowing from brand ownership. Under this model, the value of a brand is a function of two factors: its earnings and its strength. While the brand’s earnings are a measure of potential profitability, the brand’s strength is the measure of its reliability of its future earnings. The greater the brand’s strength, greater is the reliability of its future earnings and lesser is the risk. Since it is difficult to attribute all the earnings to the brand per se, adjustments need to be made to the earnings estimates.
In this model first of all the unbranded profit i.e., earning that would have accrued on a basic unbranded version of the product is eliminated and the historical profit at present day value is restated and adjusted for taxes. To calculate the actual brand earnings the profit attributable to other intangible associated with the business of the brand is deducted.
The model calculates the brand value by multiplying brand earnings with the brand earning with the brand strength multiple. This brand strength multiple is a function of multiple of factors like leadership, stability, market, internationality, trend, support and protection. These factors have been evaluated on a scale of 1 to 100 to calculate the brand multiplier. Some of the IT companies like Infosys, Rolta and Satyam are following a similar practice of valuation for their brands.
The seven determinants of the brand value are:
• Brand leadership—which stands for the ability of the brand to influence the market;
• Brand stability—the characteristic that has made the brand the inherent “fabric” of the market;
• Market—the structural attractiveness of the market, its projected growth, et al.;
• International presence of the brand—the brand’s attractiveness and appeal in a multiplicity of markets with a view to distinguish between regional, national and international brands;
• Brand trend—the brand’s ability to remain contemporary and relevant to the consumers;
• Marketing support—the quantity and quality of the investments made to support the brand and
• Legal protection enjoyed by the brand are the protection received from the legal system, patents, trademarks, etc.
Based on these parameters, Interbrand consulting determines the value of brand. Interbrand has given weighting to all these seven parameters like brand leadership has 25% weighting, brand stability enjoys 15%, market 10%, international presence of the brand 25%, brand trend 10%, marketing support 10% and legal protection enjoyed by the brand has 5% weighting.
Measurement of the seven variables, based on a detailed audit would determine a brand’s strength. This provides the discount rate that needs to be applied to the adjusted estimates of the brand’s earnings for determining its present value.
BV = Brand profit x Brand multiplier
The Interbrand approach while being valuable, especially in an acquisition and merger context, suffers from an accounting focus. This stems from the desire to ensure that the value arrived at is auditable. Further from a marketer’s perspective, the Interbrand approach does not explicitly measure consumers’ perception of the brand, which is critical for marketing decision-making, especially on brand extension.
Schulz and Brandmeyer, of AC Nielsen have used scoring model to develop a brand valuation model called “The AC Nielsen brand balance sheet”. The brand balance sheet relies on six criteria groups containing a total of 19 individual criteria that are deemed good indicators of brand value. The fundamental idea of the brand balance sheet is to relate a correlation between complex market environments, the significance of long-term brand cultivation and successful brand management. AC Nielsen felt that the brand balance sheet is not the absolute model for brand valuation and in search of better brand valuation model, it has developed an advanced model based on Brand Performancer.
The Brand Performancer attempts to deliver an integrative consumer and company-oriented brand valuation system. It provides tailor made data to the decision-makers for any specific information needed. The modular structure makes it possible to supplement gauges of brand value with analyses for the purpose of brand steering, financial brand valuation and tracking of brand leadership. The four modules are brand steering system, brand value system, brand control system, and the central element – brand monitor.
BV = [Annual sales of respective brands x Net operating margin x Relative brand strength x Perpetual annuity NPV discount factor]
One approach, which relies strongly on behavioral and image data in addition to financial values, is ‘Semion brand value approach’. He defines four brand values – financial value of the company, which is determined by earning before taxes and earning trends, brand strength that is determined by market share, market influence, marketing activities, distribution rate degree of familiarity, identity and potential, brand protection determined by product classification, brand environment and intern protection and brand image determined by consumer association, image position on market among consumer and vis-à-vis product.
BV = financial value x [financial value factor + brand protection factor + brand strength factor + brand image factor]
The market-oriented system of brand valuation, which combines a consumer-based perspective with a company-based perspective is proposed by Bekmeier-Feuerhahn model that operates on the assumption that brand value is derived from brand strength and brand earnings, both assessed on the basis of market prices. It is a comprehensive, integrative approach to build brand valuation that takes into account the special requirements of brand appraisal and yields a tangible monetary value.
The other well-known composite brand valuation approaches are Sattler brand value approach, Gfk brand power model and brand rating valuation model.
Friday, May 14, 2010
IBM has unveiled a new business analytics tool that allows organisations to derive useful customer data from the slang and emoticons used by consumers on social networks.The SPSS Modeler text mining and analytics software aims to enable organisations to scour the internet for feedback on products and services, uncovering and analysing information from social media sources, such as social networks and blogs, to provide a more accurate view of what consumers are saying. Recognising that each industry has unique priorities and its own vernacular, the new software analyses trends and captures insights from industry-specific terminology. Within these domains, the software includes new semantic networks with 180 vertical taxonomies (from life sciences to banking and insurance, and consumer electronics), and more than 400,000 terms, including 100,000 synonyms and thousands of brands. This allows customers to draw better links and understanding between sentiment and products without having to spend time building their own definitions.
Simplistic as this example may be, it highlights the problem with the way many retailers currently segment their customer data and subsequently target their communications. So what can be done to overcome these problems? The answer might very well lie with a fresh new method called character-based segmentation.
Typical segmentation works by either segmenting customers’ behaviour by using simple RFM variables (Recency, Frequency & Monetary value), which effectively shows your best and worst customers. Or at the next level, using FRAC variables (Frequency, Recency, Amount and Category) to then separate your best customers over the various products you sell.
The obvious problem with this approach is how do you differentiate between your ‘best’ customers or indeed, your ‘worst’? Do you just assume all your ‘best’ customers share the same characteristics, tastes, attitudes, preferences and market to them in the same way or do you find a more sophisticated segmentation process? One which is capable of identifying the distinct segment groups within your ‘best’ customer base?
And it’s here that character-based segmentation really comes into its own.
Character-based segmentation: an introduction
This emerging method puts a great deal more variables into the pot than traditional segmentation processes. In addition to transactional data, which tells you what people are doing, character-based segmentation also incorporates two other important and powerful sources of information. Firstly, unlike traditional techniques, it draws on enhanced personal and derived consumer lifestyle data to add that extra level of detail about how individuals behave and engage with brands. Such details might for example include the consumer’s previous purchases of multiple brands, their reading habits, musical tastes or their preferred media channels for engaging with individual brands. The third and final source is external digital data, which includes sources such as web browsing data andemail engagement. These additional sources of information provide vital information about what consumers are thinking, their personalities and their preferences.
When you bring all these different sources of data together and analyse the results, distinct and highly detailed customer segments soon define themselves. In this way you get multiple groups of your best customers and multiple groups of worst customers. But importantly, each group has a unique personality and characteristics, based not just on transactional data but individual attitudes and preferences. Understanding what your customers look like and how they think outside of the context of the brand, provides an enormously effective weapon with which to shape your marketing communications strategy.
The character-based segmentation maximises engagement and forges strong connections with both customers and prospects, allowing the most compelling creative ideas to be developed. With this detailed picture of your customer base, key strategic or creative insight is revealed that otherwise is very likely to be missed. By identifying these key differentiations segmentation adds so much more value to the bottom line, often as much through the creative variations used as in the increased ability to add further discrimination in the data selection.
It becomes possible to tailor all aspects of your marketing to the specific demands of each group, from the communication channel and message to frequency and offers. Importantly, each segment is appended to named individuals, moving from marketing based on assumption to marketing based on facts. The effectiveness of your communications is dramatically improved with increased response and conversion rates, reduced costs and long lasting connections with your customers made.
More than online retailers
The detailed insight gained from character-based segmentation can be transferred across the whole organisation, from the marketing team to sales, buying and customer service. As a retailer if your buying team knows there’s a distinct segment of your customer base that has a high propensity to buy specific designer brands on a regular basis, then your purchasing strategy can be adjusted to include more products that are likely to be of interest to this group of customers. The whole organisation moves from a product to customer focused orientation. Character-based segments can be brought to life for a whole company by using and sharing visualised, engaging descriptions of the character segments across departments through use of intranets and interactive media. This provides the collateral to deliver a customer driven focus for a brand in a way that is so often talked about but so rarely delivered by companies.
Character-based segmentation is by no means limited to online retailers. It can be equally applicable to any brand or market sector. If we took the travel sector a customer that goes surfing for a week in Spain and then follows it up with a two week winter holiday in Egypt could be placed in two segments by typical segmentation methods: 'Budget travel in Europe' or 'Adventure travel further afield'. While this method might be able to identify destination preferences it will not explain the underlying reason why the customer is travelling.
Character-based segmentation would understand the personality who is after adventure in holidays, whether it be near or far afield. A tailored marketing message selling a selection of holidays to this adventure seeking individual would be very different to the message that would be created on the back of knowing only that they had spent a certain amount on holidays in both Spain and Egypt.
In today’s environment the most mutually beneficial brand relationships are built on detailed customer understanding. Success comes to those companies that take the time to understand the needs, preferences and life stage of their customer and treat them as individuals. It’s no longer enough to know what your customers want; you now need to be able to understand why they want it.
Newer online brands such as ASOS are moving this way and households brands, particularly those who have seen such success with loyalty cards will be following close behind. Character-based segmentation gets to the very heart of the customer decision making process, uncovering key drivers of behaviour to allow brands to make real connections with their customers. In the complexity of today’s multi-channel world, such a step-change in approach to customer segmentation has never been more timel