Using Brand Strategy to Increase Stock Price

© 2000 BrandSolutions, Inc.

Chuck Pettis (Author of TechnoBrands)BrandSolutions, Inc.6144 Wahl RoadFreeland, WA 98249(360) 331-6667cpettis@brand.com

To Be Covered

Proven brand strategies for increasing stock price and profitabilityEffective brand strategies for dot-com companies

What is a Brand?

A trademark: a brand name and logoA TrustmarkMost simply, a promise to the customerPerceptual – exists in the minds & hearts of your customers, employees, and suppliers

What is a Brand?

The proprietary visual, rational, emotional and cultural image surrounding a company, organization, product, or person

The Purpose of a Brand

Assumes a quality product and marketingDIFFERENTIATE Provides springboard for new products and acquisitionsEnduring profitable growth Increased perceived value = premium pricing

Soda

Coca Cola $2.59Safeway Select $1.59

Price difference $1.00

When You go to a Restaurant….

Guest: “Can I have a Coke?

Server: “You bet. Is a Safeway Select OK with you?”

The Purpose of a Brand

P/E RatiosStock Price

Stock Options

Brand Equity

Brand Strategy & Stock Price

“The big thing is that brand equity and the strategies to build it matter. Brand strategy does influence the financial performance of any company.”

Robert Jacobson, leading brand researcher & chairman of University of Washington Marketing Department

Research shows that improvements in brand strategy programs produce positive stock market returnSee Morgan Stanley reports on www.brand.com

Elements of Brand Strategy

The major elements for measuring and building brand equity:

Brand identity: brand name, brand associations, messages, images, symbolismBrand name awarenessPerceived qualityBrand extension potentialBrand loyalty/switchingProprietary brand assets (trademarks, patents, etc.)

A brand strategy is a plan to measurably improve each element of brand equity

Customer-Based Brand Identity & Stock Price

The entry point for all brand strategy activities is brand identity developmentYou have to know the most compelling category descriptor, purchase factors/selling messages, organizational values, etc., and then link the brand identity to operations

In 1995, Sun Microsystems was seen as a manufacturer of technical workstations and wanted to reposition itself as a maker of computers and servers for corporationsBrand-Solutions conducted research to identify the top purchase factors for business servers, benchmark Sun’s brand equity, and to select the best brand name In April, 1997, Sun Ultra Enterprise Servers were introduced using the brand name and brand identity Brand-Solutions recommended

After the introduction, all analysts issued “Buy” recommendations and Morgan Stanley predicted the stock would climb to $70. In two weeks, the stock went from $47 to $67. Sun’s success in repositioning itself is confirmed in the headline of an article in the August 19, 1997, Wall Street Journal: “Sun Microsystems Goes on a Roll, Astonishing Many: Computer Maker Reinvents Itself, Stressing Servers for Big Corporations.”

Packet Engines: Gigabit Performance, Enterprise Reliability

Alcatel Acquires Packet Engines for $325M

When Do You Sell?

The King of Gigabit Ethernet reckons he missed out on a $3 billion IPO by selling Packet Engines too early

Keep an eye out for Bernard’s newest company, World Wide Packets! (www.worldwidepackets.com)

Bernard Daines

Simon: The Brand

Simon – The leading developer and manager of shopping malls in the US.1999 – Not known by shopping center shoppers. No mall management category existed.3/1/99 – Branding campaign begins – “Simon. Simply the best shopping there is.™”Brand strategies are based on a carefully-researched, shopper-based brand identity.

1/1/2000 – 53% of shoppers recognize and understand the Simon Brand.

Simon “owns” the mall category.Annual sales/sq.ft. of $377 vs. industry average of $340.“Simon has been able to use its branding concept to drive revenues and improve operating margins.” – Robert L. Levy, Sr. Real Estate Analyst

Simon: The Brand

Brand Extension & Stock Price

Brand Extension Examples:The Gap → Baby Gap + Gap Maternity + Gap Kids Nokia: mobile phones → IP networking

Purpose of Brand ExtensionsLaunching new brands is expensiveGood trademarks may be hard to findStrong competition for distributionGain quick acceptance of new products

Danger: If you introduce a defective product or a product that is too far afield from the product category, you can risk failure

Brand Extension & Stock Price

(High Brand Awareness + Positive Brand Attitude) + Brand Extension = 2% to 9% Stock Price Increase

Consumers value new products with well-established brand names because they quickly convey the brand’s attributes and reinforce a sense of trust. Brand extensions save the company marketing costs and generate higher revenues more quickly than new brands.Extensions of brand with very low brand awareness and esteem also provide a positive return because they have high upside potential and little downside risk.

Vicki Lan and Robert Jacobson, “Stock Market Reactions to Brand Extension Announcements: The Effects of Brand Attitude and Familiarity,” Journal of Marketing, January, 1995.

Announcements of Advertising Slogans & Ad Changes and Stock Price

On average, 1% increase in market cap after announcementResulted in an expected increase in firm’s annual profit of $6-8 millionConclusion: Publicize ad changes carefully and appropriately

Lynette Knowles Mathur and Ike Mathur, Journal of Advertising Research, Jan/Feb 1995

Increased Perceived Quality & Stock Price

Quality is a function of trust and customer satisfaction with the brandIncreased perceived quality = increase in stock return“Quality” brand building for 34 major US corporations did pay off where it really counts – for the shareholder

David A. Aaker and Robert Jacobson, “The Financial Information Content of Perceived Quality,” Journal of Marketing Research, May 1994.

The First Intel Inside Ad

New Company Brand Name & Stock Price

In most cases, name changes signal improved profit performance and increase stock price (+.44%).A change in company brand name says to the market, “We have changed our company (i.e., brand strategy, management, organization, product offerings) and those changes are for the better.”Both cosmetic name changes (e.g., Paine Webber to Paine Webber Group) and radical name changes (e.g., Consolidated Foods to Sara Lee) signal a change in the firm’s activities.

Dan Horsky and Patrick Swyngedouw, “Does it Pay to Change Your Company’s Name? A Stock Market Perspective,” Marketing Science, Fall, 1987.

Name Change: InfoSpace.com to InfoSpace

InfoSpace Stock Price

217

238

259.5

253.5

259.8261.1

218.1225.3

200

210

220

230

240

250

260

270

280

290

300

2/25 2/26 2/27 2/28 2/29 3/1 3/2 3/3 3/4 3/5 3/6 3/7

S to c

k Pr

ice

March 1 Press Release

Brand Attitude, ROE & Stock Price

Brand attitude = % positive company opinion minus % negative opinionIn high-tech markets, change in brand attitude helps predict future business performance and leads accounting ROE, by 1-2 quartersROE, in turn, influences stock return/price

David A. Aaker and Robert Jacobson, “The Value Relevance of Brand Attitude in High-Technology Markets,” April 2000 article to appear in future issue of The Journal of Marketing Research.

Brand Attitude, ROE & Stock Price

Drivers of Brand AttitudeVisible, dramatic new products increase brand attitudeProduct problems decrease brand attitudeCompetitor actions: e.g., aggressive comparison advertisingHighly visible changes in top management (CEO)Legal actions & lawsuitsNote: Major advertising initiatives are not linked to

substantial movement in brand attitude.

David A. Aaker and Robert Jacobson, “The Value Relevance of Brand Attitude in High-Technology Markets,” April 2000 article to appear in future issue of The Journal of Marketing Research.

Sears Builds Brand Equity from the Inside-Out

Employee satisfaction and attitudes about their job and the company

predict

Employee behavior in front of customer

predicts

Likelihood of customer satisfaction, retention and recommendation

predicts

Superior financial performance and revenue growth

“Bringing Sears Into The New World,” Fortune Magazine, October 13. 1997.

Lessons in Dot-com Brand Building

How Amazon.com built a corporate reputation and a strong on-line presence on the Internet…

(And why barnesandnoble.com and CDNow did not)

Violina R. Rindova and Suvesh Kotha, “Building Reputation on the Internet: Lessons from Amazon.com and its Competitors,” revised September 1999.

Brand Equity & Reputation

Brand EquityThe added value provided to a product or company by its brand identityThe set of associations and behaviors that increase or decrease the value of the brand compared to its asset value alone

ReputationThe general estimation in which a person is held by the publicThe state or situation of being held in high esteem

How Amazon.com Built a Corporate Reputation and a Strong On-line Presence on the Internet…

Corporate reputation or “brand equity” is one of the few resources that provides a firm with sustainable competitive advantage.

Reputation is an asset to be created, nurtured and exploited.Reputation building – a flow of orchestrated strategic actions and signals interpretable in the market placeReputational stock = ƒ(media visibility + positive media mentions)

On the Internet, reputation:Is of greater importance in purchasing decisions than direct comparisons of competitive productsIs a mechanism for generating sales

Amazon did many more strategic actions and more actions earlier than bn.com and CDNow

Violina R. Rindova and Suvesh Kotha, “Building Reputation on the Internet: Lessons from Amazon.com and its Competitors,” University of Washington Business School, Revised September 1999.

Internet Reputation & Brand- Equity-Building Strategies

Create balanced symbolic communications –diverse, yet consistent. Balance novelty and familiarity.

Amazon.com – a metaphorical link to Earth’s largest riverDot-com name = Internet-basedA compelling story – not limited to one product category“Store” symbolism – e.g., shopping cartAds use physical symbols to represent the huge size of product selection

Violina R. Rindova and Suvesh Kotha, “Building Reputation on the Internet: Lessons from Amazon.com and its Competitors,” University of Washington Business School, Revised September 1999.

Internet Reputation & Brand- Equity-Building Strategies

Take Competitive ActionsUse symbolic counter-moves and signals to competitive actions (e.g., match Barnes & Noble price cuts) by attacking, defending and disseminating knowledgeRedefine the industry paradigm: Barnes & Noble’s motto of “The world’s biggest bookstore” vs. Amazon.com positioning itself as “The Earth’s largest bookstore.”

Violina R. Rindova and Suvesh Kotha, “Building Reputation on the Internet: Lessons from Amazon.com and its Competitors,” University of Washington Business School, Revised September 1999.

Internet Reputation & Brand- Equity-Building Strategies

Build close and communal relationships and participate in networks that increase reach and leverage reputation

Many personalized, one-on-one messages and services –automated, free-of-chargeGrassroots associates programProactive Investor Relations communicationsBorrow reputation from VC firm – Kleiner, Perkins, Caufield & ByersInvite customers to talk with one anotherKnow customer preferencesProvide many opportunities for interaction, conversation and sociability

Violina R. Rindova and Suvesh Kotha, “Building Reputation on the Internet: Lessons from Amazon.com and its Competitors,” University of Washington Business School, Revised September 1999.

An Inductive Model Of Reputation Building On The Internet Through Strategic Actions

diversity and consistency of symbols

reputational stock

balance of novelty and familiarity

positioning

redefining industry paradigm

close relationships

aggregation of traffic and information

reputation borrowing and lending

story

advertising

lawsuits

capacity expansion

personalization

community

participation in networks

symbolic actions

competitive actions

relational actions

naming

retail facade

price cutting

Violina R. Rindova and Suvesh Kotha, “Building Reputation on the Internet: Lessons from Amazon.com and its Competitors,” University of Washington Business School, Revised September 1999.

Reputation & Internet Success

Reputation/Brand Equity building activities are one of the key determinants of competitive success for Internet firms

“Reputation Building and Firm Performance: An Empirical Analysis of the Top-50 Pure Internet Firms,” Suresh Kotha, Shivaram Rajgopal and Violina Rindova, University of Washington Business School, November 1999.

Reputation & Internet Success

Marketing Investments in ReputationCreate brand awareness & signal your true character as a quality producer

AdvertisingCustomer serviceAffiliate programs

The more an Internet firm invests in reputation by committing resources to marketing and advertising, the higher will be its market valueThe impact lasts for two – three quarters. Therefore, continuity is important.

“Reputation Building and Firm Performance: An Empirical Analysis of the Top-50 Pure Internet Firms,” Suresh Kotha, Shivaram Rajgopal and Violina Rindova, University of Washington Business School, November 1999.

Reputation & Internet Success

Borrow reputation from VC firm reputation to increase market value & sales growthMedia Exposure/“Buzz”

Major newspaper/magazine press → releases articles → higher market value & sales growthImpacts last for one quarter and are more short-lived than marketing investments

“Reputation Building and Firm Performance: An Empirical Analysis of the Top-50 Pure Internet Firms,” Suresh Kotha, Shivaram Rajgopal and Violina Rindova, University of Washington Business School, November 1999.

InfoSpace – Master of “Buzz”

Brand Strategy Secrets for Increasing Stock Price

Carefully research, define & execute on your company & product brand identities.Know the top-ranked reasons buyers purchase your brand. Internal opinions usually don’t match what customers actually want. Link the brand to operations.Track the level of brand awareness & positive/negative esteem to predict future business performance.

Brand Strategy Secrets for Increasing Stock Price

Track employee and customer satisfaction to produce superior financial performance.Avoid “brand-name-itus.” Centrally manage new brand name and brand extension decisions. Develop & execute on-going programs for raising perceived quality to earn the associated increase in stock return.Publicize brand strategy news within the investment community.

Thank You!

Good luck with your brand strategy programs!