Creating brand value for sustainable business

Rohantha N.A. Athukorala

Given that the financial year is over, we see on a daily basis the highlight on record profits and bottom line growths. But, I seldom see a Chairman commenting on aspects like brand value and the importance a brand plays for sustainable business.

Let me take a global example of a company that ran into serious issues by just focusing on revenue and bottom line.

Walt Disney is the leading entertainment entity in the world that started business way back in 1923 with the Disney Brother Studio in Hollywood in California. Today, it is a multibillion dollar empire in diverse business areas such as;Theme Parks ( Disneyland ) and resorts, Media networks (ESPN and ABC networks), Studio Entertainment and Consumer products. If we track back to its tough times in 1984, Disney was languishing and had narrowly avoided takeover and dismemberment. By the end of 2000, however, revenues had climbed from $1.65 billion to $25 billion under the CEO Eisner, while net earnings had risen from $0.1 billion to $1.2 billion . During Eisner’s first 15 years, Disney generated a 27% annual total return to shareholders.

Brand Magic

The brand Walt Disney is about creating a fun and magical environment for families around the globe to unite over the “Happiest place on Earth”. The “magic kingdom” created and imagined by Walt Disney was started and run by the very well known Mickey Mouse , which has helped make it one of the most powerful brands. “The company was ranked ninth in the Top 100 Global Brands ranking of the Business Week magazine and Interbrand whilst its ethos was making US families have fun together.

The problem

If we analyse the performance of Walt Disney as a company in the last five years we see how the organization has increased its sales value from 33 billion dollars to a staggering 40 billion whilst profits from $7.8bn to $9.9bn which is a stellar performance given that the US was in recession right across this time periods and in fact one of the most difficult times in business.

However, if one analyse the brand value of Disney, it has been declining continuously from the year 2007 except for just one year and finally in 2012 it has crashed to an all time low of just $15 billion. If one does a deep dive what emerges is that it not only has declined in brand value but also on Enterprise value (EV) which is the economic measure reflecting the whole business.

The EV captures security-holders: debt holders, preferred shareholders, minority interest, common equity holders and this number has decreased gradually for the last five years and finally settlled down to a just $49 bn from the earlier held value of a record $94billion.Which is a serious issue from a business perspective. The question is how did this happened.

The Analysis

One of the reasons could be the diffusion of the imagery of the brand due to varied acquisions. With the acquisition of the number of well established brands , Disney deviated from its origonal brand promise of kid-friendly, family-oriented fun and entertainment grain. This even though drove the overall sales and profits it eroded the brand’s clear positioning.

The acquisitions included Miramax Films, Capital Cities/ABC (including ESPN), Baseball’s Anaheim Angels (renamed the LA Angels of Anaheim ), Fox Family Network (now ABC Family), Saban Entertainment (owners of the “Power Rangers” series), The Muppets (but not Sesame Street), Pixar, New Horizon Interactive (creators of Club Penguin, now called Disney Online Studios Canada), Marvel Entertainment, Playdom and the last being Lucasfilm.

According to the Haedrich (1993) Brand image is diffrent from Corpotare image. Brand image is the image of the products of the company, while the corporate image is the image of the company itself. Whatis believe is that Disney has developed their Corporate image among stakeholders by achieving comtinous sales and profit growth. But they have failed to maintain the brand image of Disney which they have developed through more than a half a decate of its existince.

CEO’s

Michael Eisner,former CEO of Walt Disney is the one who had initiated this business strategy and then the current CEO, Robert Iger followed same stregy, outpacing Eisner.

As at today, Disney‘s business composition and the contribution towards the sales and profit from diffrent business units also have changed considerably. For an example, Media Netwoks contributes 46% of sales out of groups total sales and 66% of groups profit, while the importance of Studio Entertainment, Park and Resorts and Consumer Products are dicreasing gradually.

Deep-dive

If one does a deep dive on both CEO’s who had contributed to this turnaround of Disney, both of them have worked for media giant ABC and they held top positions at ABC before joining with Disney. They were very experienced on the media side of business. Their orientation at Disney also guided towards the media rather than core business sectors of Disney on which they have originally developed their band name.

This is apparent given that the meadia business genarates better profit margins than any other operation. It is proved that the sales contribution from media network recorded 46% of total sales for the year 2012 and the same year profit contribution of media networks has recorded 66% out of Disney’s total profit.

Real Issue

Hence rather than securing and developing the brand equity of Disney, the managment recognised increasing the corporate value of Walt Disney by acquiring more profitable businesses mainly the media organizations. The CEO’s remuneration was also not based on the brand vaue and its sustainability of the business but on the top and bottom line which is why the company was struggling on the equity dimensions.

For instance Robert Iger earned the total remuneration of USD 51.7 Mn during the year of 2010 for his fiancial achievements, though the brand value recorded its lowest in the same year. The remuneration composition included a remuniration package that was ranked the third highest in the world.

The salary was only a $2 million which is incidentally only 2% of total remuneration for the year and the rest accounted as bonuses. It included cash bonus (43%), Stock (28%), Options (17%) which is why the company was focusing on a quantitative roadmap even though brand value was being eroded on a yearly basis.

Implications to Sri Lanka

1) It’s important that all annual reports include the brand value of the organization and its entities and how it has progressed.

2) The Chairman/CEO of the organization must be evaluated on the brand value it has also accrued during a financial year than just Revenue growth and profits.

The remuneration of the board must include ‘ Brand Value building” so that there is a balance between short term performance and long term sustainability.

3)Though Sales revenue doubled the brand value has declined from $23bn to just $15bn