Copyright 2001

CONFIDENTIAL

A fact-based approach to align

your brand portfolio
Richard Bachem - DU
Oliver S. Bäte - CG
Mark Esser - DU
Fabian Hieronimus - FT
Martin Huber - DU

EM Guide: brand portfolio alignment

June 2001

This report is solely for the use of client personnel. No part of it may be circulated,
quoted, or reproduced for distribution outside the client organization without prior
written approval from McKinsey & Company.
 010417MU2_012207_119_v3

SUMMARY

• Objectives. Over the last years, many companies have grown through acquisitions. In this
process, the number of brands has risen dramatically (sometimes up to more than 100 brands),
resulting in a diverse and unstructured brand portfolio. This document outlines a comprehensive
but unitized approach to identify and quantify brand values and to shape the brand portfolio in a
value based manner
• Elements of brand valuation. The approach is structured in three key modules, which describe the
brand valuation and portfolio alignment process along three branding horizons
– Pre-evaluation of brand portfolio. The pre-evaluation of the brand portfolio is supposed to
identify the clients' brands. A criteria catalogue was established to give CSTs a tool to quickly
distinguish between brands and pure names (non-brands). The overall logic is to identify where
value creation is being realized with the help of branding
– Assessing and analyzing relative brand strength. Those brands which were identified as such in
the pre-evaluation should be analyzed further with the means of market research. This second
step uses a structured approach to quantify each brand's strengths and weaknesses and
understand functional and emotional drivers of brand equity
– Dynamic modelling of branding scenarios. In a final step, the findings from the market research
are linked to the economics of the respective industry (the document takes an example from the
insurance industry). A quantitative NPV model was built in order to be able to calculate
scenarios. Input parameters are taken both from market research and from company and
market data. Several different branding scenarios can be defined and analyzed and lead to a
value-based brand portfolio optimization

2
Source:McKinsey
 010417MU2_012207_119_v3

AGENDA

• The need for a new brand evaluation model

• Pre-evaluation of existing brand portfolio

• Assessing and analyzing relative brand strength

– Setup market research
– Results from market research

• Dynamic modelling of branding scenarios

3
 010417MU2_012207_119_v3

CORE BELIEFS – EXISTING BRAND VALUATION METHODS

• Existing brand evaluation models. Up to now, many brand evaluation methodologies have
been developed. Practitioners, such as advertising agencies, branding boutiques or market
research firms, as well as scientists have proposed evaluation models which differ in the
method chosen and the objective being pursued. A comprehensive compilation and discus-
sion can be found in PD # 19579 "Developing an improved brand valuation methodology"
• Valuation models for dynamic brand portfolio measurement. Existing brand valuation
methodologies cannot easily be applied to strategically shape your branding portfolio. The
main reason is that most existing methods address individual brand value and do not
explain interdependencies between brands from a holistic point of view. Furthermore, most
brand valuation tools lack an integrated business perspective, neglecting the specifics and
economics of the industry
• BPP-brand methodology. Therefore, the objective of the established methodology was to
overcome these caveats and to quantitatively evaluate branding strategies considering that
brands can have different values under different strategies

4
Source:McKinsey
 010417MU2_012207_119_v3

OVERVIEW OF EXTERNAL VALUATION METHODOLOGIES

Methodology Description

• Incremental P/E ratio • Attributes the difference in P/E ratio between branded and nonbranded
companies to the value of the brand
Market-
based • Market to book • Deducts the value of tangible assets from the total company value (public
listing, transaction) and ascribes the resulting value of intangible assets
to the brand
• Historic cost • Assumes the value of a brand to be equal to the cumulative historical
Cost- investment in a brand
based
• Recreation cost • Defines the value of a brand to be equal to the marketing investment it
would take to recreate it
• Price premium • Measures the NPV of incremental revenue from premium pricing
• Royalty relief • Estimates the NPV of the required royalty payments if the company did
not own the brand
• Premium ROA • Calculates the NPV of an income stream after deducting a reasonable
return on tangible and nonbrand-related intangible assets
Income-
based • Interbrand* • Discounts brand-related cash flows at a non-obvious discount rate driven
by a large number of qualitative factors
• “De-branded” DCF • Makes explicit assumptions about brand-related incremental prices,
production cost, marketing spend etc.; evaluation of the resulting
incremental (brand-related) cash flows

• Durability • Measures value as incremental income from longer life of branded sales
*The Interbrand/Financial World method is an abbreviated version of the full Interbrand methodology published annually in the Financial
World magazine
5
Source:PD document # 19579 "Developing an Improved brand valuation methodology"
 010417MU2_012207_119_v3

ALTERNATIVE VALUATIONS UNDER DIFFERENT STRATEGIES

USD millions DISGUISED US EXAMPLE

Assumed Incremental Market Historic Recreation Royalty Price

strategy P/E ratio to book cost cost relief premium Durability

• Base case 63 51 112 99 99 31 69

• "Milk brand" –
cut marketing 63 51 112 99 72 58 99
spend

• Aggressively 63 51 112 99 192 65 148

grow

Market-based Methods do not Some flexibility to value alternative

methods only take address future strategies, but …
into account the strategy at all … ill equipped to deal with growth
current strategy … focus on brand separated from rest of
business
… no dynamic evaluation of value drivers
… no portfolio view possible 6
Source: PD document # 19579 "Developing an Improved brand valuation methodology"
 010417MU2_012207_119_v3

ASSESSMENT OF THE APPLICABILITY OF EXISTING METHODOLOGIES

Focus of PD
Applicability of
Potential use of most existing
brand valuation Requirement methodologies Rationale
Characteristics • Change in • Ability to put an Low • For existing business, it does
of existing ownership "objective" value not make sense to trade a
methodologies valuation on a tradeable brand separately from its
asset underlying business
• Not very well • Structure/frame- • In M&A discussions, brand
equipped to deal work to discuss/ valuation discussions often
with growth negotiate key focus on future growth potential
value drivers of a brand
• Focus mainly on
separating • Managing the • Clear insight into the Low • Corporate Management is
brand value value of a optimal, value interested in managing the
from the portfolio of maximizing portfolio value of a total business, not
rest of the brands strategy just the value of the brand
business • Link between quanti- name
tative valuation and • Existing methodologies do not
• Providing a qualitative strength address empirical strength
point estimate assessment indicators
of value is (awareness, etc.)
more important
than discussing • Valuation of • Objective valuation High • Existing brand valuation
value drivers intangible of brand assets methodologies provide some
assets for tax separate from other guidance on separating brand
purposes tangible and value from the total value of the
intangible assets business
7
Source: PD document # 19579 "Developing an Improved brand valuation methodology", Team
 010417MU2_012207_119_v3

REQUIREMENTS FOR NEW BRANDING PARADIGM FOR BRAND

PORTFOLIO EVALUATION

Challenges

• No satisfying approach available for Dynamic modelling

of branding
scenarios
brand portfolio alignment
Assessment and
• Static brand value does not reflect analysis of relative
brand strength
different branding strategies,
potentially resulting in different Pre-evaluation of
brand values existing brand
portfolio

• Clients often ask for a unitized

approach, not having the possibility
to conduct broad market research

8
Source:McKinsey
 010417MU2_012207_119_v3

ALIGNMENT OF BRAND PORTFOLIO ALONG THREE HORIZONS

Fact base of branding
decision
Dynamic modelling of
branding scenarios

Assessment and
analysis of relative
brand strength

Pre-evaluation of
existing brand
portfolio

4 -6 weeks

8 -16 weeks

12 -20 weeks

Outside-in analysis Primary market Modelling Depth of

research analysis/time
9
Source: McKinsey
 010417MU2_012207_119_v3

PRE-EVALUATION OF BRAND PORTFOLIO

Pre-evaluation of
existing brand
portfolio

Key questions End products

• How many brands does the client own? • Seperation of brands from legal
entities
• What is the brand inventory?
• Definition of brand inventory
• Are the brands present in the customer's
mind? • Status quo brand universe by country
• What are the key criteria to distinguish • Identification of "real" brands for a
brands from non-brands? potential further evaluation
• How can niche or regional brands
adequately be considered?
• Do the brands inhere any value creation
potential?

10
Source: McKinsey
 010417MU2_012207_119_v3

ASSESSMENT AND ANALYSIS OF RELATIVE BRAND STRENGTH

ar ch
ese
rk et r Assessment and
Ma analysis of relative
brand strength

Pre-evaluation of
existing brand
Key questions End products
portfolio

• What is the individual brand strength • Awareness and familiarity levels

of each brand in the portfolio?
• How are the brands performing
against competitors on a relative
basis (Branding KPIs)?
• How are the brands performing
along the branding funnel?
• What improvement levers can be
derived to improve funnel-
performance?
• What effect do different brand
consolidation scenarios have on
customer churn probabilities?
ot researched brands
• Relative brand strength of all
tested brands by country
• Performance of brands along
the branding funnel
• Performance of brands along
Branding KPIs
• Assessment of brand
personalities and strategic
positioning

11
Source: McKinsey
 010417MU2_012207_119_v3

DYNAMIC MODELLING OF BRANDING SCENARIOS

l l i ng
o de
ic m Dynamic modelling
am
Dyn of branding scenarios

Assessment and
analysis of relative Key questions
brand strength
• What different brand
Pre-evaluation of strategies can be defined
existing brand
portfolio and are in line with the
business system?
• How can those brand
strategies be measured
and evaluated?
• What is the bottom line
impact of different brand-
ing strategies?
• Which sensitivities have
substantial impact on the
modelling results?
End products
• Dynamic NPV-based
model to evaluate different
branding strategies based
on company, market and
customer data
• Net present values of
various branding scenarios
by country
• Understanding for the
sensitivities of the branding
decision

12
Source: McKinsey
 010417MU2_012207_119_v3

AGENDA

• The need for a new brand evaluation model

• Pre-evaluation of existing brand portfolio

• Assessing and analyzing relative brand strength

– Setup market research
– Results from market research

• Dynamic modelling of branding scenarios

13
 010417MU2_012207_119_v3

SUMMARY – KEY ISSUES

Key questions Analysis Sources Helpful hints

• How many and what • Gathering of all • Controlling data • Not all legal entities are
kind of brands does names with customer brands; interviews with
the client have? presence/ recognition
• Interviews with country experts helpful
marketing
department/ country
representatives
• McKinsey research
• How can brands be • Pre-evaluation of • Controlling • Adapt the pre-
seperated from non- entire brand universe department evaluation criteria to
brands? by country and the country which is
category
• Existing market analyzed, but make
research data
sure the distinguishing
• Customization of pre- criteria actually
evaluation tree
produce results

14
Source:McKinsey
 010417MU2_012207_119_v3

GENERATION OF BRAND INVENTORY

Data gathering Brand inventory*

Corporate controlling

McKinsey
Team

Group marketing Country organization

*In order to ensure client confidentiality in the following, flowers are being used as placeholders for brands
15
Source:McKinsey
 010417MU2_012207_119_v3

VALUE-BASED SHAPING OF BRAND PORTFOLIO ILLUSTRATIVE

Brand inventory Pre-evaluation process Brand evaluation and

classification*

GPW

Market
share

Brand
growth

Aided
brand
aware-
ness
Spe-
cialty
brand

Re-
gional
focus

No in-depth
evaluation**
*Detailed primary market research and modelling
**No market research, but included in scenarios, migration planning
16
Source:McKinsey
 010417MU2_012207_119_v3

BREAKDOWN OF PRE-EVALUATION CRITERIA – INSURANCE INDUSTRY

Criteria Rationale Example

• Annual GPW generated Brand significantly contributes to EUR 100 million

by brand client's revenue pool

• Market share Brand is a dominant player in the local 10%

market

• Brand growth Brand will become a significant > 20% and GPW
revenue source for client > EUR 50 million

• Aided brand awareness Apart from economic measures, 50%

brand inhibits relevant brand value

• Specialty brand Brand is a dominant niche player Top 5* and GPW

> EUR 30 million

• Regional focus Brand is a dominant player in a Top 5** and GPW

specific region > EUR 30 million

• Strategic fit Apart from existing economic Strategic reasons

relevance, strategic reasons qualify
certain brands for an in-depth analysis
*In "specialty" market segment
**In "regional" market segment
17
Source:McKinsey
 010417MU2_012207_119_v3

PRE-EVALUATION TREE

 EUR 100 m

 10%
GPW
 20% and GPW  EUR 50 m
Market
share
< EUR Brand  50%
Extensive
100 m
growth evaluation
and GPW (primary
< 10% Aided Top 5* and market
brand GPW  EUR 30 m
aware- research)
< 20% ness
and/or GPW Special- Top 5** and
< EUR 50 m ty GPW  EUR 30 m
< 50% brand
Regional
Rank > 5*
focus
and/or GPW
Other
< EUR 30 m
Nonquantitative fac- strategic
Rank > 5** factors***
tors to be included: and/or GPW No
< EUR 30 m
• Strategic fit extensive
• Legal constraints evaluation
(no
primary
market
*In specific market segment research)
**In specific region
***High strategic relevance, development potential
18
Source:McKinsey
 010417MU2_012207_119_v3

AGENDA

• The need for a new brand evaluation model

• Pre-evaluation of existing brand portfolio

• Assessing and analyzing relative brand strength

– Setup market research
– Results from market research

• Dynamic modelling of branding scenarios

19
 010417MU2_012207_119_v3

SUMMARY – KEY ISSUES

Key questions Analysis Sources Helpful hints

• What type of • Check scope of • Team discussion • Consumers and

stakeholders are project salesforce are most
impacted by the
• Marketing practice relevant in most cases
brand?
• How can each • Marketing science • Quantitative market
stakeholder group be specialist research in inevitable for a
measured or fact based brand decision
analyzed?
• What criteria help to • Develop relevant • Team • Contact marketing science
select a research criteria specialist for a list of the
• Marketing science most relevant players
institute? specialist
• Rank institutes along
criteria
• What are the relevant • Determien building • Team • Use building blocks
building blocks of blocks from this document as
each research? a basis

20
Source:McKinsey
 010417MU2_012207_119_v3

CLASSIFICATION OF STAKEHOLDERS

Employees

• Motivation
level
• Aspiration, Capital
Customers • Buying culture,
opportunities markets
process • PFS perception
• Brand image • Branding "story"
• Customer • Strategy trans-
satisfaction parency
Brand

• Positioning in • Intentions
portfolio • Compliance
• Brand percep- • Business
• Motivation level tion (aspira-
• Benefits for practices
tion, opportu-
Channels channel Regulators
nities, culture)

Talents
21
Source:McKinsey
 010417MU2_012207_119_v3

BREAKDOWN OF STAKEHOLDER GROUPS Focus of primary research

Research objectives Methodology

b-2-c • n/a • n/a

Agents/third-party • Positioning of brand within portfolio • How will a brand change effect sales through free agents?
Customers sales force of agents • What role do client's brands play in their portfolio?
SMEs • Purchase behavior • How are brands perceived in the b-2-b environment?
b-2-b • Role of brand image • What drives brand value?
• Customer satisfaction • How important is branding?
Large corporations • Purchase behavior • How are brands perceived in the b-2-b environment?
• Role of brand image • What drives brand value?
• Customer satisfaction • How important is branding?

Top managers/ • Brand image fit with key decision • Can the brand assist in hiring excellent individuals?
experienced hires criteria (compensation, entrepre- • What is the relevant importance of the brand attribute?
Talents neurism, etc.)
Graduates • Fit with job decision criteria • Can the brand assist in hiring excellent individuals?
• What are other key decision criteria?

Country CEOs • Potential loss of high-caliber staff • How does a potential rebranding issue affect individuals?
due to rebranding • Which psychological dispositions are affected (e.g., pride,
satisfaction)?

Employees
Captive sales force • Churn rate • Will sales agents leave the company after a name change?
Sales force
• Increase/decrease in motivation • If not, does motivation level decrease?
could be reluctant to brand • How can the research be conducted without worrying the
portfolio alignment sales force in advance?

Other personnel • Reaction of staff towards • How will the motivation of the employees be affected?
rebranding

Financial markets/analysts • Perception of various PFS
providers within financial
community
• Insights into capital market
requirements re. branding strategy
Source:McKinsey
• What brand characteristics are important in communication
with the financial community?
• Is there a distinctive profile regarding financial markets'
perception?
• What kind of branding strategy would analysts like to see?
22
 010417MU2_012207_119_v3

SETUP OF BRAND RESEARCH

Building blocks of Selection of

Research objectives
questionnaire research agency

• Awareness, familiarity • Synthesize research • Scan relevant

of brands among objective into " key research agencies
target group building blocks" for
– Does client have a
briefing research
• Brand-centric agency; define:
solid relationship
segmentation of with any research
target group – sociodemographic agency?
criteria
• Brand strength – Leverage McKinsey
– switching indicators marketing practice
• Reluctance regarding
a name change – brand strength • Write Briefing
(brand consolidation) evaluation method andsend out to at
least three agencies
• Switching behavior • Be sure to incorpo-
rate branding funnel

23
Source:McKinsey
 010417MU2_012207_119_v3

RESEARCH OBJECTIVES

Examples Watch-outs

General assessment of
• How many people know each • Be sure to incorporate all relevant
brand? brands
brand
• How familiar are they with the
brand?

• How much stronger is brand A • Use proposed methodology

Brand strength vs. brand B

Performance along
• How many people consider to • Include all funnel-relevant criteria in
purchase any of my client's questionnaire
branding funnel
brand? • Make sure to interview a sufficient
base of customers of each "funnel-
brand"

Performance along
• How many customers do I lose • Do not forget the absolute values
from being considered a good when discussing implications on a
branding KPIs
choice to being actually relative level
purchased?

• How high is the customer churn • Do not overestimate customer

Consolidation issues ratio? churn, usually people are less
• How high is it for each brand? willing to switch than they indicate
in a questionnaire
24
Source:McKinsey

DESIGN OF QUESTIONNAIRE*
Key building blocks Examples
Customer profiling • Behavioral analysis
• Sociodemographics
Awareness/buying • Awareness
process • Familiarity
• Consideration
• "Brand equity"
Brand preference
• Brand character
Emotional attributes • Heritage
• Trust/reliability
• Modern/innovativeness
Functional attributes/ • General items (availability,
customer satisfaction friendly service, etc.)
• P&C items
• Life items
Loyalty/bonding • Past switching behavior
• Personal switching barriers
*Contact authors for copy of questionnaire
Source:McKinsey
010417MU2_012207_119_v3
Findings
• Segmentation of cus-
tomer base (socio-
demographic, Sinus)
• Customer buying
process
• Relative brand strength
of client brands and ist
competitors
• Key brand charac-
teristics of client brand
and its competitors
• Strategic position
mapping
• Customer satisfaction
benchmark
• Switching probability of
customers by brand and
other important
segmentation criteria
25
 010417MU2_012207_119_v3

RELATIVE BRAND STRENGTH CALCULATION

Assessment of brand preferences ILLUSTRATIVE
Customers going through a sequence of brand comparisons, indicating
their brand preferences by allocating points to brands in trade-off
decision

Questionnaire
"Please indicate your
preference by
allocating a number of
points to each brand"
11 points • With the help of a
preference sum
algorithm, brand values
are being calculated
• This method is
proprietary to the
2 vs. Competitor
brand A 9 agency Research
International (as aprt of
Competitor the "equity engine")
6 brand B vs. 5
Competitor Competitor
6 brand A
vs. brand C 5
••
•
26
Source:McKinsey, market research agency
 010417MU2_012207_119_v3

EVALUATION CONSUMER RESEARCH PROPOSAL

ILLUSTRATIVE

Research Research Research

Evaluation criteria agency A agency B agency C

• International reach and

expertise
• Expertise in brand equity
measurement
• Experience with
industry/client

• Modelling/ interpretation
of data
• Associated costs xxx DM xxx DM xxx DM

Overall
assessment

27
Source:McKinsey
 010417MU2_012207_119_v3

COST CALCULATION
ILLUSTRATIVE

Pure research
costs up to 70% of
total costs

Management fee
20% of total costs

Manage- Interviews Data Data Total Prepera- Manage- Interviews Data Data Total
ment fee analysis I analysis II tion ment fee analysis I analysis II

Germany International
(four more large countries) 28
Source:Market research proposal
 010417MU2_012207_119_v3

AGENDA

• The need for a new brand evaluation model

• Pre-evaluation of existing brand portfolio

• Assessing and analyzing relative brand strength

– Setup market research
– Results from market research

• Dynamic modelling of branding scenarios

29
 010417MU2_012207_119_v3

ANSWERING THE RESEARCH OBJECTIVES

How to?

General assessment of
• Market research fact pack should contain these general numbers
brand
• No further analysis needed

• Calculated brand strength (indexed)

Brand strength • Analysis to be done by research agency (proprietary algorythm)
unless otherwise calculated by CST

Performance along
• Use results from market research fact pack for funnel assessment
branding funnel
• Cross check plausibility
• Calibrate carefully and systematically according to industry specifics

Performance along
• Use results from branding funnel for calculation of KPIs
branding KPIs
• Even though this is supposed to be a relative scale, be sure to bear
in mind absolute numbers as well

• Analysis can directly be drawn from the market research fact pack
Consolidation issues • Do not overestimate effect; switching behavior usually much smaller
than indicated due to inertia

30
Source:McKinsey
 010417MU2_012207_119_v3

MARKET RESEACH FACT PACK*

Document structure Examples

Customer Profiling • Composition of sample

• Sociodemographics
Awareness/Buying process • Awareness
• Familiarity
• Relevant set
• Exclusion
Copyright 2001

CONFIDENTIAL Brand preference • Qualitative description of

Market research - fact pack brands
• Brand strength
Germany Emotional attributes • Emotional attributes customer
sample
Munich, Februar 2001

This report is solely for the use of client personnel. No part of it may be circulated, quoted,

•
or reproduced for distribution outside the client organization without prior written

Emotional attributes
approval from McKinsey & Company.

representative sample
Functional attributes • Functional attributes customer
sample
• Functional attributes
representative sample
• Customer satisfaction
Loyalty/Bonding • Recommendation probability
• Switching probability
• Local vs. international provider
*Contact authors for sample fact pack
31
Source:McKinsey
 010417MU2_012207_119_v3

RELATIVE BRAND STRENGTH

Weighted brand equity index*
ILLUSTRATIVE

Brand strength

1 Competitor A
2
3 Competitor B
4 Competitor C
5 Competitor D
6
7 Competitor C
8 Competitor D
9
10 Competitor E
11 Competitor F
12
13 Competitor G

*Paired brand comparisons with preference sum algorythm, for detailed calculation check PD document # xxxxx
32
Source:McKinsey, market research
 010417MU2_012207_119_v3

BRANDING FUNNEL

Brand elements
Branding dimension Underlying question Key findings
("3 Ps")
Unaided Is the brand part of the
awareness "relevant set" of brands?
Presence
How well is the brand
Awareness
known in the market?
Low scores in any
Is the perception of the
Reputation brand positive (e.g., branding dimension
trustworthy)? compared to market
Personality average or specific
Is the perception of the
Consideration brand positive enough to competitors indicate
consider purchase? need for specific
Does the consideration marketing activities
Purchase
result in trial/purchase?
Performance
Would/will the policy
Loyalty holder resign with the
company?

33
Source:McKinsey
 010417MU2_012207_119_v3

BRANDING FUNNEL
Percent

Competitor A Competitor B Competitor C

Unaided awareness 82 43 15 14

Awareness 99 84 56 68
-30% -45% -49% -49%

Reputation 69 46 28 35
-24% -15% -56% -63%

Consideration 53 39 12 13
-49% -54% -64% -55%

Purchase 27 18 5 6
-40% -41% -30% -50%

Loyalty 16 11 3 3

34
Source:McKinsey
 010417MU2_012207_119_v3

BRANDING KEY PERFORMANCE INDICATORS (KPIs)

Brand elements Branding Key Performance Indicators

Branding dimension (KPIs)
("3 Ps")
Unaided
awareness
Presence
Ratio
Awareness
Awareness
Reputation
Reputation
Reputation
Personality Consideration
Consideration
Consideration
Purchase
Purchase
Purchase
Performance
Loyalty
Loyalty

35
Source:McKinsey
 010417MU2_012207_119_v3

BRANDING KPIs

Ratio Awareness Reputation Consideration Purchase

Reputation Consideration Purchase Loyalty
0

Competitor A

Average
- 50
Competitor C

- 100
1 2 3 4

36
Source:McKinsey
 010417MU2_012207_119_v3

CUSTOMER CHURN PROBABILITY

Percent
ILLUSTRATIVE

Definitely 100%
and probably 9 6 5 5
switch
18 17

Undecided/
depends on
55 56
circum-
stances/
company

77 78

Definitely
and probably 36 38
not switch

Takeover Takeover Change Basic

by inter- by of name switching
national domestic rate
company company

37
Source: Market research, McKinsey
 010417MU2_012207_119_v3

EXCLUSION/CONSIDERATION RATIOS WITHIN CLIENT PORTFOLIO

Customers
Customers from
from …
… … would consider next time

66 24 21

21 80 21

27 26 68 High exclusion and low

consideration regarding
specific consolidation
scenarios helps predicting
… would not consider next time
customer churn in a specific
Customers
Customers from
from …
…
consolidation scenario

2 17 18

20 5 20

23 26 12

38
Source:McKinsey
 010417MU2_012207_119_v3

COUNTRY PREFERENCE OF INSURANCE PROVIDERS

Preferred geographic reach

of insurer Least preferred nationality of insurer
Percent Percent

100%
No preference 16
Regional 4
12
National 40

7
6 6
4
International 40

Preferred base France Germany UK US Italy

of insurer

39
Source:Market research, McKinsey
 010417MU2_012207_119_v3

MAPPING INSURERS VIA CORRESPONDENCE ANALYSIS

0.4

Attribute 1

Brand A Competitor 1
Competitor 2

Attribute 2 Attribute 7
Competitor 3
CompetitorCompetitor
4 9
AM
Competitor 6
0.0 Competitor 5 Attribute 6
Brand B Attribute 8 Attribute 5
Brand C

Attribute 3

Competitor 7 Attribute 4

Competitor 8

-0.4
-0.4 0.0 0.4

40
Source:Market research agency
 010417MU2_012207_119_v3

AGENDA

• The need for a new brand evaluation model

• Pre-evaluation of existing brand portfolio

• Assessing and analyzing relative brand strength

• Dynamic modelling of branding scenarios

41
 010417MU2_012207_119_v3

SUMMARY – KEY QUESTIONS

Key questions Analysis Sources Helpful hints

• What is the value of • Calculation of Brand- • Conjoint analyses of • Try to support with
brands in this related Premium Pool your respective country additional analyses
industry? (BPP) for different and industry (support such as intangible
countries and lines of by marketing practice) assets analysis
business

• What is the value of • Calculation of brand • Team

the client's existing equity scores (market
portfolio? research) and
multiplication with BPP

• How can the brand • Assessment of • BPP model • Be sure to contact

value be maximized? impact of different (PD#xxxxx), team any of the authors to
branding strategies correctly apply model

42
Source:McKinsey
 010417MU2_012207_119_v3

MODEL STRUCTURE FOR CALCULATION OF DYNAMIC BRAND VALUE

Brand-related
Premium Pool
Gross
(BPP)*
brand
value Brand presence
Relative brand
Brand personality
strength
Brand performance

Dynamic Efficiency through standardization of

brand value communication process (production
(EUR) costs)
Synergies through brand-strategy-
Cost savings related, lean management process
(headcount)
Reduction of advertising spend through
Cost reduced number of brands
Build-up of brand presence
Brand
Creation of distinctive brand personality
investments
Assurance of consistent brand delivery
*Based on conjoint analyses
43
Source:McKinsey
 010417MU2_012207_119_v3

MODEL LOGIC
Share of BPP as
driven by relative ILLUSTRATIVE
brand strength
(Percent)
Drivers of Brand-
Total = 100% related
Investments brand strength
Premium
15 Pool

"What branding "How do 40

investments changes in Distribution-
Scenarios

20
are necessary presence, related
to achieve the personality, and Premium
objectives of performance Pool
brand strat- affect the 25
egy?" client's share of Price-
BPP?" related
Brand-related Premium Pool
(BPP) according to relative Premium
brand strength of client's Pool
brands compared to
Other
competitors
Total GPW
(private lines,
new business) 44
Source:McKinsey
 010417MU2_012207_119_v3

METHODOLOGY OF BPP CALCULATION ILLUSTRATIVE

Determination of relative Additional validation

importance of brand attribute: through other Result:
conjoint analysis* methods assessment of BPP
Percent
Illustration of conjoint interview
• Price premium
analysis: Which price
differences can be 100%
Which option do you prefer? 10
observed in the 20
Concept A Concept B respective markets?
• Brand X • Brand Y
• Price -10% • Price +20% • Industry P/E analysis:
• No physical • Agents doing Are findings in line
agents home visits with long-term P/E
Strongly Strongly ratios?
prefer left 0 prefer right
• Country adaptations:
How can specific
market factors be
• Customers "forced" into trade-off taken into account
decisions (e.g., historical adver-
tising spend levels)? Life P&C
• Most valid technique to reveal actual
utility functions
*Meta-analysis of existing conjoint studies
45
Source:McKinsey
 010417MU2_012207_119_v3

DEDUCTION OF ADVERTISING SPEND REQUIREMENTS

Total advertising spend (5 years)

Index*:
Unique target positioning
100
(personality)
Distinctive value
proposition
Nonunique target
150
positioning (personality)
De-novo
brand
Unique target positioning
200
(personality)
Nondistinctive value
proposition
Nonunique target
Brand 250
positioning (personality)
investment Medium awareness gap
** 75
depending on Distinctive value
advertising
Small awareness gap 50
proposition
norm strategies No awareness gap 30
Existing positioning
(personality) Medium awareness gap 150
Nondistinctive value Small awareness gap 80
proposition
Established No awareness gap 50
brand
Distinctive value Medium awareness gap 250
proposition 200
Significant change Small awareness gap

of positioning
(personality) Nondistinctive value
Medium awareness gap 400
proposition Small awareness gap 300
*Actual levels to be calculated locally: current industry spend level, growth projections, threshold levels
**Awareness gap categories: "small" (<15 points), "medium" (16 - 40 points) 46
Source:McKinsey, advertising agency
 010417MU2_012207_119_v3

MODEL STRUCTURE

• In order to evaluate the different branding scenarios on an NPV

basis a comprehensive Excel model was set-up

• Taking into consideration the compexity of the model it si

necessary to explain the model verbally and understand the
parameters

• For a detailed description of the valuation model (PD # xxxxx) and

the model itself please contact one of the following people:

– Mark Esser - GE/DU

– Fabian Hieronimus - GE/FT
– Dirk Graudenz - GE/HA
– Jochen Günnewig - GE/CG

47
Source:McKinsey
 010417MU2_012207_119_v3

MODELING RESULTS ILLUSTRATIVE

Status quo National consolidation Global consolidation

BPP share of
company P&C Life P&C Life P&C Life
Percent
2000

2005

Total brand
investment
Advertising

Other

NPV of branding
strategy

48
Source:McKinsey