Case Study: Brand Extension

A key challenge facing brand owners is how to expand the “economic footprint” of their brand across additional products or product categories without sacrificing premium margins or diluting the strength of the brand’s franchise with consumers. The goal of this assignment was to quantify the extendibility of four of our client’s brands across six target categories and assess the value opportunity in each category. Our approach involved analyzing the opportunity from both the consumer and financial perspectives, then synthesizing the findings to produce recommendations about which set of brand/category combinations was likely to yield the highest return on investment. We presented the results in the form of the matrix below. The vertical axis represented the brand elasticity score, which can be thought of as a probability of success score. The financial opportunity, standardized in terms of the likely Market Value Added (MVA) per dollar of added sales, was measured along the horizontal axis. In this way, we demonstrated where the opportunities lay for value creation, which brand was best suited to realize the opportunity in each category from the consumer prospectus and what was the likelihood of success in each category.
100

Brand C - Category 3
90

Diameter of bubble represents revenue opportunity

Brand Elasticity Score

80

Brand D - Category 4

Brand A - Category 5

70

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Brand D - Category 5
60

Brand B - Category 6 Brand D - Category 1

50 $0

$

$

$

$

MVA per $1 of Sales

Each brand/category combination was evaluated in terms of its forecast return on capital. research was conducted over the four weeks prior to the assignment.Brand Analysis The priority brand/category combinations Our approach was to review the attribute profile of each brand and evaluate it in terms of its “fit” with the target category and its potential to achieve a differentiated position. Factor analysis (a data reduction technique) on the 48 BAV attributes enabled us to develop a detailed understanding of the perceptual framework driving brand performance in each category. we began with an analysis of the operating variables and likely future performance of each category. The FGV analysis involved deriving the growth expectations for each category from the market values of the companies competing in that category. Ability to play * X X * * * X Ability to stand out X This brand elasticity analysis required a tailored research study to incorporate an additional 80 brands into the BrandAsset® Valuator database in order to generate comprehensive coverage of the six categories under consideration. Gaining an understanding of both the EVA and the FGV drivers in each category allowed us to generate a prospective valuation for each brand/category combination.The performance of each brand was then compared against the factor profile for Relevance and for Differentiation for each target category. or Q-BAV. Capital Turnover Category 3 Category 1 Category 4 Category 2 Category 5 NOPAT Margin Bubble size represents addressalbe market This involved profiling the current EVA® (Economic Value Added) and Future Growth Value™ (FGV) for each category. The Quick BAV. X Category 1 Category 4 Category 2 Category 5 * Category 3 Category 6 Financial Analysis Category 6 In order to establish the potential for value creation in each category. decomposed into its operating margins and capital turns. expressed in terms of the market value added (MVA) it could be expected to produce. This allowed us to assess each brand in terms of its ability to play (does the brand have the threshold attributes necessary to compete?) and its ability to stand out (does the brand have the ability to achieve a differentiated position?) in the six categories. . The EVA analysis was based on the current financial performance of companies in each category.

BrandAsset® Valuator is a Young & Rubicam proprietary discipline. and considerably simplifies the strategic review process. One insight that emerged was that. due to their differing profiles of participation in the value chain. which tend to rely exclusively on consumer perceptions and sales growth opportunity. using MVA (Market Value Added) to prioritize brand extension opportunities is a considerable improvement over the traditional evaluation process used by most companies. finance and marketing functions. EVA® is a registered trademark of Stern Stewart & Co. Equipping brand managers with the information and framework for assessing the likely value impact of a particular brand extension enhances the dialogue between the strategic planning. Current Operations Value™ and Future Growth Value™ are trademarks of Stern Stewart & Co. the brand with the highest probability of success in a given category was not always the brand that was likely to generate the highest financial return.Synthesis and Recommendations The BAV analysis of brands and categories was integrated with the financial analysis to select the brand best able to exploit the opportunity in the six categories and develop strategies for successful entry. BrandEconomics™. Our final recommendations were therefore based on the brand/category combinations that maximized the forecast returns for our client. Copyright © 2002 BrandEconomics LLC . Conclusions In our experience.