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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, Nestlé, Cadbury Schweppes, Tesco, Hewlett-Packard, Novartis and AstraZeneca.
He has written over 100 books and articles on marketing strategy and brands. His latest book, ‘Value-Based
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 firm’s opportunities to move into new markets and find new, more profitable,
growth opportunities.
This paper looks at how brands contribute to the firm’s strategy and how brand planning needs to
be geared to market economics and management’s central objective of creating shareholder value.
20 䉷 HENRY STEWART PUBLICATIONS 1350-231X BRAND MANAGEMENT VOL. 9, NO. 1, 20–30 SEPTEMBER 2001
SHAREHOLDER-VALUE-BASED BRAND STRATEGIES
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DOYLE
Shareholder
value
Market
economics
Differential
advantage
Customer relationships
Core business
processes
Investment
cost. Achieving this differential ad- customers, the firm must have out-
vantage in turn depends upon the standing business processes that enable
effectiveness of the firm’s business it to be more innovative than its rivals
processes. The core business processes of (eg Sony, 3M); have operations that
most firms can be grouped into three deliver customer solutions at lower
categories: the product development total cost (Wal-Mart, Toyota); or
process, which enables a firm to be outstanding at managing customer
create innovative solutions to customer relationships (Dell, American Express).
problems; the supply-chain manage- It is important to recognise that these
ment process, which acquires inputs core processes are not independent. For
and efficiently transforms them into example, if a company’s marketing
effective products and services; and strategy is based on achieving superior
the customer relationship management customer relationships through in-
process, which identifies customers, dividualised solutions, it will also need
understands their needs, builds cus- the product development and supply-
tomer relationships and shapes the chain management processes to design
perceptions of the organisation and its and deliver the tailored responses
brands. efficiently. Without the combination of
To be able to make superior offers to effective core processes it will not be
22 䉷 HENRY STEWART PUBLICATIONS 1350-231X BRAND MANAGEMENT VOL. 9, NO. 1, 20–30 SEPTEMBER 2001
SHAREHOLDER-VALUE-BASED BRAND STRATEGIES
able to execute the strategy. Secondly, insights into the role of brands and the
while the company has to manage creation of shareholder value. First,
these processes, it does not have to marketers should beware of exaggerat-
conduct them. Increasingly firms are ing the importance of brands. In many
part of networks and processes are industries much more important drivers
outsourced to specialists. Companies of core processes and shareholder value
like Dell and Virgin, for example, are the firm’s patents, technology and
focus on the product development particularly the skills and commitment
and customer relationship management of its staff. An impression of the relative
processes and outsource most of their importance of brands against other
supply-chain activities. tangible and intangible assets is given
Core business processes are the by some estimates from Interbrand
drivers of the firm’s differential (Table 1).5 Only in luxury consumer
advantage and its ability to create goods are brands the dominant source
shareholder value. But these processes of value. In many of the newer,
themselves are founded on the firm’s faster-growing industries such as IT,
core capabilities, which derive from the pharmaceuticals and financial services,
resources or assets it possesses. A firm brands play a much smaller role. If
cannot have superior business processes companies overinvest in traditional
unless it has access to the necessary branding activities, they underinvest in
resources and the ability to coordinate other tangible and intangible resources.
them effectively. Resources can be For example, an underinvestment in
divided between tangible and intan- new technology and lack of genuine
gible assets. Traditionally, the firm’s innovation appears to have played an
tangible or balance sheet assets were important part in the decline of P&G
seen as its most vital resource — its and Heinz.
factories, raw materials and financial Secondly, strong brands can be
assets. But in today’s information age, undermined by a poor marketing
investors increasingly view intangible strategy. A poor marketing strategy is
assets — the firm’s knowledge, skills one that is not geared to creating
and reputation — as the key to shareholder value. Marketers often set
superior business processes. In 2000, their strategic objectives to maximising
tangible assets accounted for less than awareness, growth or market share
20 per cent of the value of the world’s rather than the value of long-term cash
top 20 companies. Finally, maintaining flow. When this happens the brand’s
the up-to-date asset base on which value is eroded by the cost of servicing
everything is founded depends upon too many low-profit accounts, by
investment. It requires investment in overinvestment in marketing com-
physical assets, but even more in munications, and by underpricing.
recruitment, training, staff develop- Finally, successful brands impact
ment and, in the case of brands, most directly on the customer relation-
advertising and communications. ship management process — enhanc-
Brands form part of the intangible ing the confidence and satisfaction
asset base that drives the firm’s core customers gain from the product.
business processes. The resource-based But effective brand management also
model of the firm suggests several engages with the product develop-
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Utilities 70 0 30
Industrial 70 5 25
Pharmaceutical 40 10 50
Retail 70 15 15
Info-tech 30 20 50
Automotive 50 30 20
Financial services 20 30 50
Food and drink 40 55 5
Luxury goods 25 70 5
Source: Interbrand
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SHAREHOLDER-VALUE-BASED BRAND STRATEGIES
Attractive
Market
economics
Unattractive
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DOYLE
some brands, even those maintaining difference between a strong brand and
high awareness and market share, do a weak brand is that the former has
not represent sensible investments for more positive associations with these
shareholders. Rather than swimming four determinants of value — if it is
against the tide, it is better either to properly managed. In general, the task
refocus on innovation and strike off in of brand management is to ensure that
new directions towards markets with the level of cash flow is high, that it
more favourable economics or, if there achieves its full cash-generating poten-
are no viable profit opportunities, to tial fast, that the brand endures, and
give the money back to shareholders that the cash flows are not put at
through share buy-backs or raised unnecessary risk.
dividends. This paper will now briefly sum-
marise the evidence of how successful
branding impacts on cash flow and
BRAND STRATEGIES AND FINANCIAL then illustrate the practical implications
PERFORMANCE for managers.7
The value-creating potential of a brand
is determined by its differential ad-
vantage and its market economics. But Brands increase the level of cash
whether the brand achieves its poten- flow
tial depends upon a third factor — the The level of cash flow is the most
strategy the managers pursue. important determinant of shareholder
Many great brands have failed to value. A brand’s cash flow is deter-
deliver for their companies because mined by four factors: its price,
marketing managers have not un- growth, costs and investment. If a
derstood the objective of a brand brand can achieve a brand premium
strategy. Evidence shows that they this has a major impact on its value.
commonly pursue objectives such as There is considerable evidence that
sales, market share, customer awareness successful brands do achieve price
or favourable attitudes.6 Such goals lead premiums. Successful brands should
to marketing decisions that destroy also grow faster, again increasing the
rather than create value. The objective level of cash flow. Brand leaders
of a brand strategy should be one thing commonly have lower costs, par-
only — to maximise shareholder value. ticularly because of scale economies in
The corollary is to understand what marketing spend. Finally, strong brands
determines shareholder value. Again can have lower investment levels (as a
this is well understood by investors — proportion of sales) because of their
value is determined by expectations greater potential leverage over the
about the present value of the long- supply chain.
term cash flow the strategy will
generate.
The present value of a brand’s future Accelerating cash flow
cash flow is a function of four factors: Because money has a time value,
the level of its cash flow, the speed it opportunities to reduce the lag in a
comes in, the duration it lasts, and the brand’s achievement of its potential
riskiness of these future returns. The increase the value of the brand to
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Year
0 1 2 3 4 5
28 䉷 HENRY STEWART PUBLICATIONS 1350-231X BRAND MANAGEMENT VOL. 9, NO. 1, 20–30 SEPTEMBER 2001
SHAREHOLDER-VALUE-BASED BRAND STRATEGIES
⫺5% 0 5%
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their value erodes. But this is not a rather than solely marketing criteria
blank cheque — just as bad market such as market share or consumer at-
economics have made investing in UK titudes and awareness.
textile or car factories a misguided
strategy, so sometimes it can be for References
brands. (1) See, for example, Aaker, D. A. and
Whether a brand will create value Joachimsthaler, E. (2000) ‘Brand
Leadership’, Free Press, New York; Pringle,
for shareholders depends upon three H. and Gordon, W. (2001) ‘Brand
factors. First, it should have a differen- Manners’, John Wiley, Chichester.
tial advantage in lower costs or superior (2) Business Week (2000) ‘The CEO Trap’,
perceived quality. ‘Quality’ here may Business Week, 11th December, pp. 48–59.
(3) Collis, D. and Montgomery, C. (1995)
be in terms of perceived functional ‘Competing on Resources: Strategy in the
benefits or the emotional associations 1990s’, Harvard Business Review, July/August,
the brand’s image conveys. A differen- pp. 119–128; Peterlaf, M. A. (1993) ‘The
Cornerstones of Competitive Advantage: A
tial advantage translates into a cash flow Resource-Based View’, Strategic Management
gain through the potential of superior Journal, July, pp. 179–192.
profit margin. The second determinant (4) Levitt, T. (1960) ‘Marketing Myopia’,
Harvard Business Review, July/August, pp.
of value creation is market economics. 24–47.
A market’s attractiveness changes over (5) Perrier, R. (1997) ‘Brand Valuation’,
time. In some markets, however strong Premier Books, London, pp. 43–53.
the brand, excessive competition and (6) Evidence that marketing managers are
orientated to objectives other than
powerful price-sensitive buyers make it shareholder value is contained in the annual
very difficult to earn returns that cover surveys of the IPA/KPMG (2000) ‘Survey
the brand’s cost of capital. of Finance Directors’ Attitudes to
Marketing and Advertising’, IPA, London.
Finally, brand value creation depends (7) The financial principles and the evidence of
upon a strategy based on maximising how brands affect cash flows are detailed in
the present value of future cash flow. Doyle, P. (2000) ‘Value-Based Marketing:
Marketing Strategies for Corporate Growth
This means objectively projecting fu- and Shareholder Value’, John Wiley,
ture market economics and assessing Chichester.
the implications for future investment (8) Fuller explanations of these valuation
in the brand. It also means aligning methods are presented in Doyle, Ibid., pp.
32–65; or Brearley, R. A. and Myers, S. C.
sales objectives, prices and marketing (2000) ‘Principles of Corporate Finance’,
spend to shareholder value creation New York, McGraw-Hill.
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