STRATEGY MM DEC

Mastering Metrics Membership Number: 38460216

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RESEARCH PORTFOLIO


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List of figures ......................................................................................................................................................................................... 3

List of Tables .......................................................................................................................................................................................... 3

1.0 Organization Background................................................................................................................................................................ 4

1.1 Role of Marketing Metrics in Victoria Secrets ................................................................................................................................ 6

1.1.1 Process of making Marketing Decisions in Victoria Secrets (VS) ............................................................................................ 6

1.1.2 How VS process “marketing decisions”? ................................................................................................................................. 6

1.2 Key metrics to measure brand and brand value ............................................................................................................................ 7

1.3 Key metrics that can be used to value brand valuation in VS ........................................................................................................ 8

1.4 The current metrics used at Victoria secrets to brand .................................................................................................................. 9

2.0 Brand value of Victoria’s Secret .................................................................................................................................................... 11

2.1: The elements involved in measuring brand. ............................................................................................................................... 11

2.1.2 Brand elements assisting the decision making at organizations .............................................................................................. 12

2.2 Valuation of Victoria’s Secret Brand. ............................................................................................................................................ 13

2.3 Brand Valuation Dashboard for Victoria’s Secret ......................................................................................................................... 15

3.0 Brand value and future decision making ...................................................................................................................................... 17

3.1. Marketing metrics assisting future decisions .............................................................................................................................. 18

3.1.1 Marketing brand metrics driving future decisions in Victoria secrets.................................................................................. 19

3.2 Primary and secondary research methods that assist to validate overall brand value. ............................................................. 20

3.3. Benefits and Challenges of using a metrics approach to value brand. ....................................................................................... 22

3.3.1 Challenges faced in evaluating the brand valuation metrics ................................................................................................ 23

Bibliography......................................................................................................................................................................................... 24

Appendix- Brand Valuation of Victoria secrets ................................................................................................................................... 26


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List of figures Figure 1 Victoria Secrets-L brands ........................................................................................................................................... 5

Figure 2 market share-L brands ............................................................................................................................................... 5

Figure 3 C.E.Os. Top concern ................................................................................................................................................... 6

Figure 4 7ps ........................................................................................................................................................................... 7

Figure 5 Royalty relief model ................................................................................................................................................. 11

Figure 6 Expected revenue-Victoria’s Secret .......................................................................................................................... 13

Figure 7 Average operating profit % of Victoria’s Secret ......................................................................................................... 14

Figure 8 operating profit & excess earnings ........................................................................................................................... 14

Figure 9 Brand Dashboard Victoria’s Secret ........................................................................................................................... 16

List of Tables Table 1 Metrics used for decision making at Victoria secrets .................................................................................................... 7

Table 2 Metrics that can be used to measure the brand value of the Retailer ............................................................................ 8

Table 3 marketing metrics are used in Victoria secrets ............................................................................................................. 9

Table 4 summary of Brand valuation models.......................................................................................................................... 11

Table 5 Brand elements & decision making ............................................................................................................................ 12

Table 6 Royalty rate Victoria’s Secret ..................................................................................................................................... 14

Table 7 Brand Beta analysis & Brand rating ............................................................................................................................ 15

Table 8 Dashboard brand metrics .......................................................................................................................................... 16

Table 9 brand value and brand elements driving future decisions ........................................................................................... 18

Table 10 Metrics & proactive decision making ....................................................................................................................... 19

Table 11 Research methods and data sources ........................................................................................................................ 21


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Task 1

Word count: 2329 Words

Page Count: 6 pages


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1.0 Organization Background

Overview

Victoria’s Secret, including Victoria’s Secret Pink, is the leading specialty retailer of women’s intimate and other apparel with fashion-inspired collections, prestige fragrances and cosmetics, celebrated supermodels and world famous runway shows.

Victoria Secrets (VS) is one of the biggest brands in the lingerie industry in the U.S. Market. Victoria's Secret Stores, LLC retails apparel, lingerie, and personal care products for women.

Victoria secrets is one of the Strategic business units of the Limited brands accounting to almost 50%

of sales, which currently owns and operate six other companies in the fast fashion industry.

Type Of organization publicly quoted Company in the New York Stock Exchange (Parent Company: Limited Brand)

Share price: Lb (NYSE) $96.91 (6th November 2015)

The Business model

VS’s operations are seasonal in nature and consist of two principal selling seasons: Spring

(the first and second quarters) and fall (the third and fourth quarters).

VS adopts a Fast fashion Business model with limited turnaround times. The sourcing

Partner being MAST global allows Victoria secrets to Shelf intimate apparel within 2-4 weeks of designing.

Geographic reach & Distribution Network

VS sells its merchandise through company-owned specialty retail stores in the United States, Canada and the United Kingdom,

which are primarily mall-based VS stores, and through websites, catalogue and international franchise, license and wholesale

partners.

On the Shelves

Victoria’s Secret market products to the college-age woman with Pink and then transition her into glamorous and sexy product

lines, such as Angels, Very Sexy and Body by Victoria. While bras and panties are the core, these brands also give our customers

choices in clothing, accessories, fragrances, personal care, swimwear and athletic attire.

Competition

The sale of women’s intimate and other apparel through retail stores is a highly competitive business with numerous competitors, including individual and chain specialty stores, department stores and discount retailers. Brand image, marketing, design, price, service, assortment and quality are the principal competitive factors in retail store sales. Our direct response businesses compete with numerous national and regional direct response merchandisers. Image presentation, fulfillment and the factors affecting retail store sales discussed above are the principal competitive factors in direct response sales. (Lb.com, 2015)

North America's #1 specialty retailer of

women's intimate apparel (Lb.com, 2015)

Vision Statement: “To

building a family of the

world’s best fashion retail

brands, offering

captivating customer

experiences that drive

long-term loyalty”

(Lb.com, 2015)

Over $ 7.33 Billion revenue

in 2015

1149 Stores Worldwide

FIGURE 1 VICTORIA SECRETS-L BRANDS

FIGURE 2 MARKET SHARE-L BRANDS


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Marketing used to be about Creatives, but it’s not where we are anymore, METRICS is the new world… (Importance of

Marketing Metrics, INSEAD Executive education)

1.1 Role of Marketing Metrics in Victoria Secrets

A survey of CEOs conducted by Booz‐Allen Consulting

showed that CEO’s top concern about marketing was

their lack of performance metrics, as shown in Figure

1. Marketing needs marketing metrics to demonstrate

its performance as well as take a more responsible role

in managing profits and profitable

growth. (Boozallen.com, 2015)

Existing metrics are often difficult and impractical for

most marketers to successfully implement (O’Sullivan & Butler, 2010). Adding to the difficulty associated with implementing

marketing metrics is the lack of a universal model of measurement (Davies & Ardsley, 2012). Despite these difficulties,

marketing metrics are still a priority for organizations with a survey of marketing executives showing more than 90% viewed

marketing performance metrics as a significant priority (Stewart, 2009).

1.1.1 Process of making Marketing Decisions in Victoria Secrets (VS) Victoria secrets marketing is less siloed and more collaborative. This has increased the effectiveness of marketing and brand

value during the past few years for VS.

Victoria Secrets “360 Degree brand is a result of the successful integrating of the dots between the retail, catalog and web

sales. “ At Victoria Secrets across all channels catalogs, stores, internet, the same products are launched at the same time, in

the exactly the same way, with the same quality and same positioning. This Unison execution of the marketing plan is one of

the critical success factors of VS strong brand.

This symphonic-like marketing harmony is accomplished by long-range planning. The rolling year on year marketing Plans are

derived from the VS goals for the respective years ahead. The Annual Marketing plan is further broken down into sub elements

till the quarterly marketing plan that supports the business goals of VS.

1.1.2 How VS process “marketing decisions”? VS can be traced to the PDCA model of decision making on a very high level

Accumulation of the lot of customer data. Data warehouses and

databases of customer purchasing patterns from the color to the

sizes. From the macro factors to the micro customer detail level are collected at VS.

Measuring and analyzing the quantitative data and understanding the qualitative reasoning behind the metric: This is

getting to know the “Why” (rational) for the customers doing certain actions.

Using the information from the analysis and targeting the customers on different behavioral levels in achieving the

business goals of VS in alignment with the L brands.

Measuring through defined and standardized metrics

What is a marketing Metric?

“Marketing metrics is the set of measures that

helps firms to quantify, compare and interpret their

marketing performance.”(Kotler and Keller, 2009).

2009).

Director New Media Marketing Victoria

Secrets Steve Kahn says online sales are

"...really about customers choosing the

channel that's most appropriate at the time

and place they're interacting."

FIGURE 3 C.E.OS. TOP CONCERN

http://sgo.sagepub.com/content/3/3/2158244013501332#ref-43




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1.2 Key metrics to measure brand and brand value

The decision making at VS is heavily data driven through rich data from social marketing

platform

Victoria secrets uses the in store and off store kpis and other KPIs for marketing decisions.

How the metrics are used to make marketing decisions are assessed based on the 7Ps

model of Extended Marketing Mix in 1981 by Booms & Bitner.

The table below summarizes how Victoria secrets uses metrics (KPIs) in the business from

the tactical level, through managerial to Strategic to make marketing decisions.

Metrics How Victoria secrets uses the metrics to make decisions 7Ps element

Average revenue per store

The KPI shows the revenue earned from the store. Victoria secrets uses the insights from this KPI to assess the profitability of the store. The decision of store closure is based upon these factors and other factors. Victoria secrets had a restructuring of stores and closure of stores was undertaken in 2011 (L brands 2014)

Place – Store closure decisions

Number of transactions

The number of transactions from the Store determines the store traffic and insights from which category is popular. The Victoria secrets store manager manages the inventory levels of these high volume merchandise. Reducing the chances of disappointments for the customer from stock outs.

Product- Vendor management decision

$ value per sale

The dollar value per sales is considered when considering in selecting the promotional activities for the stores. This allows Victoria secrets to identify “Hot stores”. The marketing decisions of stocking premium merchandise range at higher S value stores are based on this KPI.

Product-Inventory Decision

Margin $ for Merchandise

The Margin for each merchandise allows Victoria secrets to promote the right mix of merchandise for the customers. For example the Glamor range was introduced to more popular stores based in the locality of the store. Allowing VS to earn higher net profit from these store and also category management decisions are based on this primary KPI of margin $ for merchandise. Locality based marketing decisions are driven by the sales margin per merchandise

Promotion- Store based Promotion decision

In basket Price & Items per Basket

This analysis allows the store managers to effectively target the most valuable customer segment when pricing effectively to cross sell and up sell in the organization (Senior Customer Marketing Analyst-Victoria secrets Stores)

Pricing Decision

Customer Life time value

This metrics provide the information to the executive level of Victoria secrets to determine on the strategies for retaining the customers. And encouraging the repeat purchases. This acts as a leading KPI for no of repeat purchases

People- Customer Retention Strategies decision

Sales associates Turnover ratio

This provides Victoria secrets of the number of associates leaving the business and all the recruitment and training involves cost. Impacting other KPis like the cost per acquisition of a customer. This signals the Stores manager to take decisions on retaining the associates. This is involved in the manning the sales process of Victoria secrets

Process – Staffing decision

TABLE 1 METRICS USED FOR DECISION MAKING AT VICTORIA SECRETS

FIGURE 4 7PS


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1.3 Key metrics that can be used to value brand valuation in VS

“Brand Valuation is the estimating of the total financial value of the brand” (Kotler and Keller, 2009).

“It involves identifying the incremental value that the brand creates for the enterprise,” (Brand Resilience: Managing Risk and

Recovery in a High-Speed World, 2015)

Brand Measurement

Brand Metric Metric type

Theory to justify the selection of the Brand metric

Why it’s important to brand valuation

Source

1.Brand Penetration

% of Brand purchases as a % of total Population

Financial Brand Penetration is used to calculate the brand valuation in the commercialized brand valuing models like Inter brand model in valuing the brand.

The brand growth is a key driver of the brand value. The understanding of the growth would allow the marketing to make important strategic decisions

(brown, 2015)

2.Brand Preference

Top of the mind Market Metric

Brand Finance uses Brand Preference when evaluating the brand strength of a company. This is key element in understanding the market strength of the company relative to the company.

The Top of the mind allows marketing department to assess the brand loyalty and brand preference. A better brand saliency would drive the other lagging KPIs and financial and market.

(brandfiance,2015) & (Farris et al., 2008)

3.Brand Loyalty

Realized Customer lifetime value

Brand Metric

Brand Loyalty is a key element identified in Aaker’s brand valuation model in understanding the overall brand value.

The realized customer lifetime value would provide the marketing managers improved understanding in improving customer experience in combination with cohort analysis. Launching campaigns deciding on the timing of the campaign

(kotler and kevin lane, 2015)

4.Brand performance

% of revenue earned by the brand out of the total parent company.

Financial Brand finance uses the revenue as an indicator to calculate the potential forecasted revenue to calculate the overall Brand Value

The financial performance of the company portrays the financial stability of the company

(http://www.include-digital.com, 2015)

5.Brand Popularity

No of Face book followers

Social Media

Inter brand uses this metric to quantify the strength of the brand.

The brand popularity shows the relevance of the brand to the consumers and this is usually the largest consumer group

6.Brand premium

Brand price Premium

Market Perceived Quality is used in Aaker’s Brand Equity model to value brand.

The understanding of the brand premium allows the marketers to set the price more realistically and capture the right target market and enhance the brand value of the company

TABLE 2 METRICS THAT CAN BE USED TO MEASURE THE BRAND VALUE OF THE RETAILER


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1.4 The current metrics used at Victoria secrets to brand

“Your brand is the single most important investment you

can make in your business”-Steve Forbes

Victoria secrets is a heavily data driven company

outsourcing the services from Alliance data. The

customized services provided have allowed Victoria

secrets to soar ahead of competition in terms of social

media.

Victoria's Secret use Gigya's products to harvest, manage and store social and identity data, and employ the information for

email programs and online ad targeting. Victoria’s Secret doesn’t extensively monitor the brand value, although interbred

and brand finance have ranked them in the annual brand valuation of companies. The valuation of trademarks and

intangibles are the indicators for the brand value in the company usually included in the published financial statements.

Victoria’s secret measures the brand value elements isolated for marketing decisions which affect the brand value of the

company.

The table below illustrates how the marketing metrics are used in Victoria secrets.

Brand metric

Frequency -Measurement

Applied in measuring brand value on the organization

Used in Victoria’s secret

Department /personnel responsible

1.Basket Value of the purchases (average customer spend )

Monthly The Basket values of the customer purchases are measured monthly or as and when required by the store managers to understand the customer demographics and take decisions with regard to the promotional activities especially during the festive season.

Used in Victoria secrets stores.

Sales and store managers

2.# of followers /likes

daily This is being tracked on a daily basis in assessing and monitoring the health of the fan base of Victoria secrets. This allows to calculate the brand engagement. This metrics allows to Victoria secrets to understand the customer requirement and satisfy the customer in providing styles currently trending.

Used directly in measuring the brand vale-brand engagement

Marketing and brand managers

3.Revenue per store

Used as when required and Yearly

A key determinant of The brand value is revenue. Revenue per store is used n decision taking as store appraisal for store closure or opening. Although not taken in direct relation to looking at the brand value. The metrics are used to take marketing decisions

Not used in relation to the brand valuing

Corporate

4.Store traffic No of customers during peak and off peak times

AS and when required

Victoria secrets tracks in store traffic and uses to evaluate the success of campaigns. VS launched a personalized push message campaign in hosting shopping nights with loyalty programs to complement the overall customer base. Brand reach is measured in the organization.

Used by the brand managers

Corporate marketing

TABLE 3 MARKETING METRICS ARE USED IN VICTORIA SECRETS

Ivan Szeftel, president of Retail Services for Alliance Data says

"Victoria's Secret is one of the most recognizable brands in the

world, and we are pleased to continue providing private label

services that reinforce their powerful brand promise and

support Victoria's Secret's overall marketing strategy through our

customized, targeted solutions," (Phx.corporate-ir.net, 2015)


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If Love is Blind, Why is there so much demand for

Lingerie?

Task 2

Word count: 2743 Words

Page Count: 6 pages


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2.0 Brand value of Victoria’s Secret

2.1: The elements involved in measuring brand.

Brand valuation definition

“Brand value is the amount that the customer would be willing to pay for merchandise

that carries the brand‘s name over and above the price. “.(Farris, 2010)

“Trademarks and associated IP including the word mark and trademark iconography”

(Brand Finance, 2015).

The academic and commercialized models for brand valuation have been analyzed and evaluated. The table below on brand

valuation shows the brand models that are available to value brand. The classification have been made on the basis of

information or elements used to value the brand.

“Value of a Brand” valuation methods The Models that can be used Theory/Practicality Source

1.Economic income approach In this approach the brand is valued using one or more valuation methods using discounting models to arrive at the present value of the expected future benefits

Inter brand model Practical model (brand finance)(include-digital.com, 2015)

Royalty relief model (Brand finance model)

Practical model (Inter brand, 2015)

2.Market comparable approach The brand is valued based on the customer knowledge, how has the brand referring to have differentiated the consumer’s choice due to the marketing of the brand.

Brand asset valuator (young and Rubicon)

Theoretical (Farris, 2010)

Aaker’s Brand equity model

Theoretical (Kotler and Kevin lane, 2015)

3.Cost approach This approach uses the sum of individual costs or values of the brand assets and liabilities.

Asset based accounting models to value the brand.

Theoretical

TABLE 4 SUMMARY OF BRAND VALUATION MODELS

From the above brand valuation approaches and the models. The Economic income approach have been chosen and royalty

relief method of valuation is selected to be explained in detail.

Royal relief methodology-Brand Finance

The royalty relief methodology have been used to value the top 500

companies all over the world and the methodology is acceptable all

over the world. The compilation of the brand value consist of three

major areas of valuation as depicted by the diagram.

The Brand strength index is calculated using several

attributes such as emotional connection, financial

performance and sustainability to name a few.

The Brand royalty rate is done by reviewing comparable

licensing agreements in the industry.

The brand revenues are forecasted and discounted to arrive

at the present value of the future expected revenue

Brand Equity model by David Aaker views the brand equity as a set

of assets and liabilities linked to brand that adds to or subtract

from the value provided by the product or service to the

customer. These include Brand loyalty, brand awareness, perceived quality, brand associations and other intellectual

proprietary assets.

“If this business were split up, I

would give you the land and bricks

and mortar, and I would take the

brands and trademarks, and I would

fare better than you." (John Stuart,

Chairman of Quaker, 1900).

FIGURE 5 ROYALTY RELIEF MODEL


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2.1.2 Brand elements assisting the decision making at organizations

The brand elements are the factors used in the valuation of the brand. The different elements from the models identified

above are used to illustrate how it is used in the decision making of the organization.

TABLE 5 BRAND ELEMENTS & DECISION MAKING

Brand Element

Brand model Decision area How the element affects the decision making at organizations.

Real world application

1.Brand Revenue

Brand finance-Royalty relief

model

Marketing, Finance

(investment)

The expected revenues could be used in the marketing decisions. The future expected revenue can be used in the appraisal of investments undertaken by organization to check the feasibility of the investment. This is done by calculating the Return on marketing investment.

General electric It’s not all about increasing the topline but also savings such as 1% can have a magnitude of more than 250 bn over 15 years across 5 General Electric business lines. The GE CMO Beth Comstock uses data visualization to optimize investment decisions and increase efficiency through data visualization models.(General Electric, 2014)

2.Brand loyalty

Aaker brand equity model

Marketing- Promotional

campaign

The brand loyalty can be used when rolling out new products to calculate the possibility of cross selling that can be done from the existing customer base. The customer Retention and number of repeat purchases can be used to determine the brand loyalty.

EBay uses customer cookies and recent searches for optimizing the relevance of the news feed items shown to the customer through the monitoring of repeat purchase models and customer trails analyzed. (eBay, 2014)

3.Brand strength

Index.

Brand finance-Royalty relief

model

Marketing- Product

development

The knowledge about brand strength would allow the managers to make better strategic decisions such as product extensions and brand extensions. The brand strength can be depicted through market share of organization. The current situation and positioning in terms of the other competitors can be assessed in terms of sales volume.

Birch box utilizes big data when they launch a new service or offering. Birch box discovered that there was a high demand for male-focused products which led to the highly successful limited edition men’s range. (Birch box VP of Marketing Deena Bahri) via (Mashable, 2013)

4.Perceived Quality

Aaker’s model

Marketing-Pricing

The knowledge of perceived quality allows the management of organization to determine the price premium the customers are willing to pay. This would assist the managers to price the products more competitively.

Tesco’s improved big data analysis was able to improve customer perception by cutting promotions by ¼.This was due to the better understanding the customer through rich data. Coupon redemptions shot from3% to 70%. (Tesco, 2015)

5. Brand finance-Royalty relief

model

Marketing decision-

Brand ambassadors

The perceived quality is important for the marketing managers in selecting the brand ambassadors for organization. The ambassadors are the reflection of the brand and it is a critical decision at Victoria secrets in making the selection to complement the perception of the customer.

Victoria secrets selects the brand ambassadors based on the customer’s perception of the models. The ambassadors are handpicked to reflect the customer persona of Victoria secrets. This allows a better reach and engagement by the customers.


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2.2 Valuation of Victoria’s Secret Brand.

Royalty Relief Method is used to value Victoria’s Secret.

Royalty relief is based on the notion that a brand holding company owns the brand and licenses it to an operating company. The

notional price paid by the operating company to the brand company is expressed as the notional rate. The net present value of

all future expected earnings is the value of the brand to the Victoria’s secret

Brand finance uses the Royalty relief model to calculate the brand value of over 500 companies worldwide. This is a highly

accepted and commercialized method to valuing brand.

This method is favored by tax authorities and the courts as it calculates brand values by reference to documented,

third party transactions.

It can be done based on publicly available financial information.

The forecasted revenue for Victoria secrets is based on the past trends (historic analysis) analysis done on the revenue figures

using the published annual reports from 2008-2015. The revenue is expected to grow by around 6% after the analysis. (Refer

annexure).

Step 1. The expected revenue figures are calculated using a

linear growth model by using the data from the past annual

reports and Bloomberg economists forecasting.

The Victoria secrets sales forecast for the five years ahead

have been calculated and the forecasted figures are depicted

by the graph. (Refer Annexure for workings)

According to the forecast the revenue is expected to be $

9,645 MN. The expected revenue growth rate of Victoria’s

secret is calculated to be 6%. The justification for this figure

follows in the explanation beside.

This expected revenue calculation is used to calculate the

Expected revenue as a perpetuity for Victoria secrets

Using Gordon browns growth model the

Victoria’s secret revenue as a perpetuity was

calculated to arrive at the figure below.

Justification on the use of expected revenue growth rate to be 6% for Victoria secrets

The historic trend analysis of the revenue growth rate of Victoria secrets using the financial statements for the past 5 years is

5.5% (L brands, 2010-2015)

Industry revenue growth rate expected: The industry growth rate for the lingerie market is 5.5 %.( Ibisworld.com, 2015).

Economic Outlook of US –Victoria Secrets main market: The employment projects are positive for the US market. The Projects in

the economic environment of US, the main market in which Victoria secrets outlook looks positive with a Positive GDP growth

rate of 2.5% on average for the next 5 years till 2020. (Tradingeconomics.com, 2015)

The unemployment rates are under control for the next two years and tends to rise towards year 2020.Howver the impact on

Victoria secrets is favorable for business at least on the short term With more favorable employment trends, per capita

disposable income is expected to rise at an average annual rate of 2.3%, allowing consumers to increasingly splurge on higher-

end lingerie items. (IBISWorld, 2015)

Taking the economic, industry analysis and past trend analysis. It would be justifiable to use the revenue growth rate of 6%.

Step 2. Calculation of notional Royalty rate calculation

Royalty rate

There are two fundamental factors that influence a royalty rate. The first is the earnings generated by the intellectual property,

and the second is how this is shared between the owner and the licensee.

Expected revenue of Victoria’s secret as Perpetuity= $127,781mn

Figure 2.2.1: Expected revenue-Victoria’s Secret FIGURE 6 EXPECTED REVENUE-VICTORIA’S SECRET


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Royalty determination is often complicated by uncertainty regarding the extent of the economic contribution of the IP. This is

accentuated by the fact that IP is typically bundled with complimentary assets in order to generate earnings. Dissecting the

earnings of a business between the contributing assets is a complicated and often imprecise task.

Hence in the valuation model used does not consider the economic contribution of the intellectual property.

In calculating the Notional royalty rate. The following methods are used for further assurance and cross checking of the royalty

rate being used as recommended by Brand Finance.

The Income approach to royalty valuation

25% rule

Apparel Industry Royalty rate.

The income approach to royalty valuation takes into account

the operating margin of Victoria’s Secret in calculating the

royalty rate. The trend line depicts the average operating

margin of Victoria’s secret. The average operating margin is

15%. (Refer annexure for the working).

The excess earnings or margin attributable to unique

intangibles in Victoria’s secret have to be determined.

In order to do this the apparel industry average for the main US

market have been identified

as 7.46%. (Pages.stern.nyu.edu, 2015)

TABLE 6 ROYALTY RATE

VICTORIA’S SECRET

The Calculated Intangibles

(trademarks) Victoria’s Secret is

3.41% using the L brands annual

report taking the Intangibles of

Victoria’s Secret as a % of the

total revenue of Victoria’s

Secret.

This allowed us to arrive at the Royalty rate of 4.13% using the income Approach to Royalty rate calculation.

Using the 25% rule.

The Royalty rate would be 3.75% (25% of the Operating margin of Victoria’s Secret)The industry Royalty rates gathered shows

that the average royalty rate is 6.8 for apparel overall. (Entrepreneur, 2014)

The cross check of the royalty rate is shown in the table 2.2.1 Royalty rate Victoria’s secret

Triangulation process is used to arrive at the recommended royalty rate of 5.2%. The industry Royalty rate was for the apparel

sector. The Skewness in this was identified and the adjusted in arriving at the royalty rate.

Step 3: Brand beta analysis

The Brand Beta analysis considers the strength, risk and future potential of the brand relative to the competitors in the

industry. The analysis consists of a number of qualitative and quantitative measures in measuring the Brand Performance.

Step 4: Calculating the Weighted Average cost of capital adjusted for the Brand Strength Index

Victoria’s secrets weighted average cost of capital adjusted for the brand beta is 9.7%. The Weighted average cost of capital is

calculated by using the data of L brands as Victoria secrets as the other divisions are similar to the performance of Victoria’s

secret or the amount is not significant to impact the calculation heavily.

METHOD ROYALTY RATE

1.INCOME APPROACH 4.13%

2.25 % RULE 3.75%

3.INDUSTRY ROYALTY RATE 6.8%

RECOMMENDED ROYALTY RATE 5.2%

Weighted average cost of capital without brand strength index adjustment= 10.7%

FIGURE 7 AVERAGE OPERATING PROFIT % OF VICTORIA’S SECRET

FIGURE 8 OPERATING PROFIT &

EXCESS EARNINGS


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Step 5: Brand notional future royalty income stream for Victoria’s secret.

The Notional brand value for Victoria’s Secret is provides the value that the brand would be worth without any adjusted for

the time value of money.

Step 6: Discount Future royalty income

The brand value is calculated by discounting the notional brand value by the discounting rate determined for Victoria’s

secret. This is done to take account of the time value of money and state the brand vale in the present value terms.

Refer the appendix for the calculation of the brand value.

Brand value of the Victoria secrets derived through this calculation is approximately close to the published value by Brand

finance.

2.3 Brand Valuation Dashboard for Victoria’s Secret

The brand evaluation dashboard below is a high level view of how the Victoria’s secret brand is performing overall in

comparison to the market and past. The dashboard aims facilitate strategic marketing decisions through providing a one stop

shop for the brand related elements and to make data driven decisions by the C level personnel

Measure type Brand Measure

Brand Elements Metric (measure in dashboard)

Research method

Brand rating out of 10

1.Qualitative Measures

1.Input Measures

Quality of Brand Management Brand recall

Survey

10

Brand Presence No of followers/likes 10

Brand Equity

Familiarity Brand Penetration % 10

Functional performance No of Complaints 10

Emotional Connection Brand Perception Index

10

Brand Preference Net Promoters score 10

2.Quantitative Measures

Output Measures

Revenue Growth Sales growth %/Sales L Brands annual

report and Bloomberg

reports.

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Market Share Market share 10

Profitability Operating Profit % 9

Consensus Analyst ratings Goldman Sachs rating

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Brand Strength Index 95

Brand rating AAA+ TABLE 7 BRAND BETA ANALYSIS & BRAND RATING

Notional Brand Value Victoria’s Secrets= $ 6645.mn

=

Brand Value Victoria’s Secrets= $4,186.mn

Weighted average cost of capital with brand strength index adjustment= 9.7%


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FIGURE 9 BRAND DASHBOARD VICTORIA’S SECRET

TABLE 8 DASHBOARD BRAND METRICS

Brand Metric Victoria secrets decision making Frequency of decision

Brand Preference :Net Promoter score

The Net Promoter Score which ranges from -100 to 100 allows Victoria’s Secret to measure the willingness of customers to recommend a company's lingerie to others. It is used as a proxy for gauging the customer's overall satisfaction and the customer's loyalty to the brand.

Monthly and as required. VS can use the information to assess the current situation before launching a campaign.

Brand Equity :Customer value

Customer value allows Victoria secrets to assess the lifetime of the customers preference for and evaluation of lingerie attributes, performances and consequences arising from use that facilitate (or block) in meeting the customer’s needs. The Leading KPIs would be churn and leads to customer ratio.

Monthly and as required. Vs could use in forecasting revenues and evaluating performance of campaigns.

Functional Performance: :# ofComplaints

The number of complaints allow VS to assess the level of customer satisfaction by using the lingerie products of VS and allows to see what developments are required after looking at the complaints

Used as and when required. Medium to long term planning.

Familiarity : brand Penetration

Brand Penetration % allows VS to determine the Brand Popularity and take decisions with regard to promotional and advertising campaigns in line with the marketing objectives. This shows the potential of the VS lingerie in the market.

Used as and when required. Medium to long term planning.

Brand Presence :# of likes/followers

This allows Vs to gauge the level of engagement by the target market and allows to understand the market in terms of customer trends. This allows to make informed decisions in product innovations

Weekly and monthly. New product introductions. Medium to short term p

Quality of Brand management

Brand Recall allows VS to assess the overall brand. This is the starting point of the sales funnel in getting into the customers head. This is a lagging KPI for most of the brand Portfolio activities.

Monthly and long-term strategic planning.

Financial Performance

These lagging KPIs provide the results that the marketing personnel need to convince the Finance department and the Top line especially in assessing the overall success of the marketing function as a whole

Strategic planning and long-term decision making


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Task 3

Word Count: 2576 Words

Page Count : 6 Pages

Very Very Sexy…..


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3.0 Brand value and future decision making

3.1. Marketing metrics assisting future decisions

Victoria’s secrets at the moment measures the brand value elements in isolation. A complete dashboard providing data at

one stop shop would allow the marketing to be more focused on the Omni integrated marketing platform that Victoria’s

secret is operating.

The evaluation process of brand valuation helping the future decision making.

1. Facilitates integrated SMART decision making for the future.

The strategic objectives can be set up using better and more integrated and comprehensive information to formulate and

establish SMART goals for the future. Performance evaluations of the brand can be done more precisely with the ability to

trace the result of marketing campaigns. Which at the moment for Victoria secrets is challenging.

2. Overall Pulse check of brand performance and

3. Facilitate a proactive approach to decision making with early identification of trends driving the marketing strategy more

purposefully,

4. Marketing mix improvements can be optimized with the improved knowledge of the Brand Value.

Better understanding of how the brand elements contribute to the whole of the brand value could allow the marketing teams

to see where Victoria’s’ secret is performing well and where more attention is needed to develop the brand. The monitoring

facilitates the improvement of a balanced marketing plan development.

The impact of measuring and evaluating the brand valuation metrics of Victoria’s secret marketing is being summarized in the

table below in applying the 7ps framework in use along with the level of decision making

The table below illustrates how the knowledge about the brand value and brand elements drives future decisions in Victoria’s

secret.

Level of decision making

Marketing area concerned

Brand element

How it helps in future making marketing decisions for Victoria secrets

Strategic level

1.Product- New lingerie range development

Brand attributes/Perceived value

The better understanding of the brand provides the designers to develop products to reflect the perception of the customers of the brand. This would improve the customer satisfaction by providing lingerie to match the needs of the customer in line with the Victoria’s secrets brand perception in the future.

Strategic level

2.Promotion- Digital marketing strategy

Brand awareness

The Promotional campaign reach could be optimized and targeted to market segments specifically to increase the conversion rates for the business. For example location based marketing for the customers can be sent push messages timely when there near a VS store and drive traffic to the Store.

Strategic level

3. Changing slogans Brand perception

The brand perception would be valuable when making high level decisions. Victoria secrets named the slogan “perfect body” which was heavily criticized in the media for discrimination of certain customer segments. The slogan was changed to “Body for everybody”. If the knowledge of the brand perception was readily available Victoria secrets would have the media criticisms (Prakash)

Strategic level

4.Partnering with Brand ambassadors

Brand Image.

Knowledge about the brand value elements would provide valuable insights when selecting brand ambassadors to keep in line with the brand perception and ultimately brand value.

TABLE 9 BRAND VALUE AND BRAND ELEMENTS DRIVING FUTURE DECISIONS


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3.1.1 Marketing brand metrics driving future decisions in Victoria secrets The future metrics should drive the decision making proactively in the business. The following metrics have been taken based

on:

The Leading indicators affecting the brand value, which allows the Management of Victoria’s secret to be proactive in

responding to the market changes.

The lagging KPIs with importance to the overall strategic objectives in the future linked to brand value

The table below illustrates Metrics that is linked to brand value could be used to make proactive decision making.

Metrics for future Determinant of brand value affected

Justification of the selection of the Metric

Revenue growth and return on investment

Brand Performance

The board is more interested in profit and delivering shareholder value, So revenue growth and return of investment would be in line with the corporate objectives of the business. In addition it’s a Key driver of the brand value,

Customer life time value

Brand Retention

This allows Victoria secrets to have an idea of the future total value of the engagement throughout the customer relationship with Victoria’s Secret.

Customer Retention and customer Loyalty

Brand Loyalty This provides an indication of the future stream of revenue that is attributable to Victoria’s secret from the number of customers

Customer Satisfaction product complaints and Number of returns

Brand Presence and brand Performance

This is an indication of the future probability of the customer purchasing. This repeat customer gauging criteria would have lagged effect on Victoria’s secret volume of purchases and total revenue.

Number of willingness of the customer

Brand presence

This is a leading indicator of new customers in future and the lagging indicator being increased Market share. The understanding of this metric could be used to gauge the brand presence for the company in valuing the overall brand.

Decision simplicity Index

Brand Retention

This is a leading indicator for the brand retention and number of repeat purchases and conversion rates. Lagged affect would be shown in the customer retention and then to brand retention. Decision simplicity metric gauges for its consumers to gather and understand (or navigate) information about a brand, how much they can trust the information they find, and how readily they can weigh their options

Replacement Rate Revenue growth /customer segment

This provides the information about the mix of customers and the migration to different tiers in consumer spending within the given time interval. The brand value element of revenue growth is the lagging indicator affected and this allows to make more proactive decisions.

TABLE 10 METRICS & PROACTIVE DECISION MAKING

Leading indicators proceeds a certain outcome and is early indication of any impact on the lagging indicators which follows

the outcome of an event. Leading indicators allow you to predict and benchmark real-time KPIs, and demonstrate the value

of expected brand value.

This would facilitate proactive decision making with more data based decisions to be taken.


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3.2 Primary and secondary research methods that assist to validate overall brand value.

“Marketing research is the systematic design, collection, analysis and reporting of data and findings relevant to a specific

marketing situation facing the company.” (Keller, Aperia and Georgson)

Primary research is first hand data gathering techniques collected by market research firms through surveys, interviews and

other research methods.

Secondary research also known as desk research is the collection of data which have been already collected this could be

annual reports of companies, census data, government bodies surveys , articles ,journals and many more secondary research.

These methods provide data, but principally there is issues in the traditional data collection methods of questionnaires,

interviews or even observations.

The resources invested vs the timeliness to make decision and the quality of the data. Whether the data is bias when

collected through by these means have to be evaluated.

Identifying the problems to be

Timeliness of the data gathered

Quality of the data

Sample used in the data is small to correlate trends.

The quality, size of the sample and increased timeliness of data is the requirement

Social listening is technology based data gathering system through listening to conversations throughout the world. This is

efficient and the data sources are all around the world.

Companies like Radian 6, Spiral heat collects data by listening to conversation themes which is used to identify trends

In trying to validate the overall brand value of the company. The individual elements which have to be validated to provide a

confident brand value overall.

It is recommended that unless the data sources are 100% accurate. A triangulation approach to be taken in validating the

overall brand value of the company of the company. This could be done by cross checking the brand element with a number

of metrics to see the consistency of the metrics.

The table below depicts the brand value element attempted to be gauged and the possible data collection methods. Whether

it’s primary or secondary along with the possible data sources to gather data to validate the element which could be traced

to the overall brand

# Brand vale element Method of research Data Sources Primary

/Secondary research

external or internal

1. Brand awareness Online communities Social media ,offline in store Primary external

2. Brand awareness Social media analytics Company Social media accounts

Primary internal

3. Brand awareness Research gamification App store data and cloud game data

Primary external

4. Brand perception index Panel respondents Respondent panel from market research firms

Primary external

5. Brand perception index Quizzes personalized data gathering

Online –social media Primary external

6. Customer satisfaction Cameras for the collection of video data

Instore cameras Secondary internal


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7. Customer Satisfaction Online review analysis Online review of company FAQs and telephone logs of customer complaints

Primary internal

8. Customer satisfaction Biometric research Consumers visiting store Primary external

9. Functional performance Internal data collection

Complaint handling records Secondary internal

10. Functional performance Interviews with customers

Customers at stores /Shoppers at Mall

Primary external

11. Functional performance Focus groups Market research firms or specialist groups

Primary External

12. Market share Data collection methods=surveys ,questionnaires

Specialist market research company

Primary External

13. Market share Financial interpretation

Government census reports on market share

Secondary external

14. Net Promoter Score Panel respondents Market research firms providing panels

Primary external

15. Net Promoter Score Social listening Social media platforms ,chat rooms ,webinars

Primary external

16. Revenue growth % Financial forecasting Past company financials Secondary internal

17. Revenue growth % Industry equity analyst predictions

Stock market analyst reports of expected performance

Secondary external

18. Brand recall Text analysis Online web data and social media

Secondary external

19. Brand loyalty Behavioral economics model

Online data and video data from store

Primary external

20. Brand loyalty Mobile survey Consumers with mobile phones (using company mobile app) Victoria secrets app

Primary external

TABLE 11 RESEARCH METHODS AND DATA SOURCES

Biometrics is an emerging research field of neuro marketing market research. This form of marketing relies on various

biometric technologies and applications to help understand a participant’s cognitive and emotional responses toward certain

stimuli. The stimuli can be anything ranging from TV ads to online advertisements.

Mobile Ethnography is a scientific research strategy often used in social science. It is often employed for gathering empirical

data on human societies and cultures through mobile technology

The above primary and secondary research methods can be used to efficiently provide the data to validating the brand

elements and then the overall brand value.


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3.3. Benefits and Challenges of using a metrics approach to value brand.

“Not everything that can be counted counts, and not everything that counts can be counted” albert Einstein

Benefits

Firstly it provides a value to work with (whether it is right or wrong is debatable)

The Metrics approach provide a theory (analogy behind which the brand is being valued). Which can be justifiable.

Some data used is universally accepted by the accounting bodies, hence the confidence on the numbers would provide a

logic in calculating brand value using the financial metrics.

The calculated figure would be accepted hence it is based on facts and figures (this is true for the part which uses a

financial model to calculate the brand value)

However the attempt to quantify qualitative factors provides some direction at least where the relative brand elements

are headed, it’s not definite but direction would also be valuable

Challenges

Analytics-Seeing the trends and cross links between the metrics to understand the rationale behind is challenging

The trends and cross linking from one metric to another metrics and seeing what really drove the change is challenging to

identify

For example brand retention and loyalty is an element of brand value which is widely accepted according to Aaker’s brand

equity model. Metrics used to measure would be the number of repeat purchases or the willingness to refer the brand.

Taking No of repeat purchases for this example if we are to go in-depth and see what drove the customer to come back it

would be insightful for the valuation of brand

A simply analogy developed using the decision simplicity index. This metric “gauges of how easy it is for consumers to gather

and understand (or navigate) information about a brand, how much they can trust the information they find, and how readily

they can weigh their options”. (Freeman and Spenner) Easier the consumer journey higher the decision score.

Therefore, here is a solid reason as why the customers return to buy, because it could be the consumer journey is easy.

Humans are lazy and always prefer simplified over difficult. Could this be one of the missing links to justify the No of repeat

purchases?

Metrics approach’s acceptability is questionable if the elements used to value the brand is subjective.

Used to compare brand value under two different models would be misleading.

No Universally acceptable brand valuation model. Different models give different justified outcomes. Therefore

comparison between different valued brands under different models would be meaningless.

The cost benefit analysis of gathering data Vs the real value to the organization in knowing the brand value is difficulty to

assess.

Depends on what the data about the valuation is used for if it is used, the time and resources used for it is very high in terms

of resources.

Credibility of the data sources, Metrics approach all depends on the quality of the data sources

The more credible and accurate the quality of data. The more confidently it could be used in decision making.

Else it would be “garbage in, garbage out”, Poor data would lead to meaningless insights


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3.3.1 Challenges faced in evaluating the brand valuation metrics

The brand value creation process for the brand and deciding the best brand metrics to reflect the brand value accurately.

Choice of brand valuation models to choose from theoretical, commercial or economics based to best reflect the

organization

Subjectivity involved and difficulty to Quantify-

Quantifying the exact value created from this process is very difficult to assess as it is based on the subjective in valuing the

value creation. For simplicity if we take two customers and ask showing a shoe with a company logo and without a company

logo and it is the same in terms of quality (it’s the logo different. It is quiet unlikely both the customers would be willing to

pay the same price.

Here price premium is used as an indicator for Brand loyalty. Is it right? I don’t know. For another it could be brand loyalty.

So Quantification is not possible due to the high degree of subjectivity involved in valuing and it’s very challenging.

Identifying the brand elements that would be used to value the particular organization

Identifying the process of creation value or brand value based, so appropriate metrics could be calculated to measure the

overall brand value

Identifying which metrics to use in determining the brand value for the organization in concern. Different organization would

be creating value at different positions of the product creation to the customer journey.

First identifying the value creation process and drilling down to the ones which are actually due to the brand (company name

or slogan) is difficult to assess. Hence lies the first challenge in identifying which stages or process is involved in creating

value.

Collection of data from different sources and finding credible sources in valuing the brand elements

Using financial models in calculating the brand value

Quantifying the qualitative brand elements and using numeric to represent the brand element value.


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Appendix- Brand Valuation of Victoria secrets

Task 2 Supporting documents

This annexure supports the findings presented in the main report with respect to Valuing Victoria’s Secret brand.

The Supporting Research for the calculation of expected revenues are illustrated below.

Aided in the collation of Expected revenues for Victoria’s secrets for the 5 years taken to perform the historic trend analysis.

Trend analysis

Industry analysis

Economic analysis

Weighted average cost of capital (WACC) calculation – discount rate used on the model.

The revenue growth model

The collation of financial data from the annual reports to be used in the expected revenue calculation for the brand

valuation. (L brands, 2015)

(L brands, 2014)


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(L brands, 2015)

The Economic outlook of US market was used as the economic environment in which Victoria’s secrets operate although

there is international presence the contribution as compared to the US market is very minute. Hence the US economy is used

as the main environment in which Victoria secrets operate.


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The data is used to analyze the external business environment and the impact on the business as a result of the economic

performance in the US. This analysis is done to evaluate the feasibility which we are assuming the revenue growth rate would

be in Victoria’s secret.

(Tradingeconomics.com, 2015)


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30



31

Step 1: Supporting calculation figures.

Calculation of the expected revenue.


32

In calculating the Notional royalty rate.

Two methods are used for further assurance of the rate being used as recommended by Brand Finance.

The Income approach to royalty valuation

25% rule

(Pages.stern.nyu.edu,

2015)


33

In the valuation of the trademarks and intangible assets. An approximate figure is used to determine by calculating the

intangible assets value in comparison to the sales of the segment. In this case it’s Victoria’s Secret. The calculated figure is

3.42%

25% Rule

According to this rule of thumb a licensee should pay a royalty rate equivalent to about 25 per cent of the expected profits

for the product that incorporates the subject IP. The rule has been widely used as a starting point in royalty rate

determination for several decades, despite, or because of, its simplicity and the intuitive logic that royalties are aligned with

profitability. Criticism of the rule focuses on the lack of clarity regarding the appropriate profit level indicator, the

contribution of other IP within the operating business, and disputes regarding the empirical evidence.

Goldshneider, et al. (2002) conclude that the “the Rule is a valuable tool (rough as it is), particularly when more complete

data on incremental IP benefits are unavailable. The Rulecontinues to have a fair degree of both ‘positive’ and ‘normative’

strength”.A more recent study conducted by Kemmere and Lu9 found that average royalty rates“rendered indirect support

to the 25% rule. However, such a conclusion should be takenwith caution, because no linear relationship was found between

the reported royalty rates and operating margins.”

A more important finding of this study is that statistical analysis shows a linear relationship between reported royalty rates

and profitability measures, and that this suggests that the licensing market is efficient and that “cost structure and

profitability across industries have been factored into royalty rate negotiations”.

A detailed review of the 25% Rule is beyond the scope of this chapter; the most pertinent point is that it should not be relied

upon in isolation, although it can provide a starting point for an analysis where there is a scarcity of supporting information.

The industry Royalty rates gathered shows that the

average royalty rate is 6.8 for apparel overall.

(Entrepreneur, 2014)

A study of 2,279 licenses in fifteen industries6

suggests that the median royalty in most industries

is close to 5%

(Brand finance, 2015)


34

Brand Survey done through survey monkey.

This survey was done in order to understand the customer better in terms of brand valuation. The data with regard to the

following elements were captured in the survey.

Quality of Brand Management

Brand Presence

Familiarity

Functional performance

Emotional Connection

Brand Preference


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Brand survey Questions analyzed.


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44


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Beta Analysis

Brand element Brand Rating Justification

Revenue Growth 9/10 The revenue growth of Victoria secrets is almost double that of the industry standards. The Financial strength of the Victoria secrets can be concluded to be strong compared to the Industry. The growth rate is 6% and the industry revenue growth in the numbers of 5.5% for apparel.

Market share 10/10 Victoria’s secret is the market leader in the industry and enjoys an oligopolistic position in the market. In terms of market share Victoria’s Secret is in a strong position which reflects strong brand position.

Profitability 10/10 In terms of Profitability Victoria’s Secret performs as double as the peers. The Operating margin taken to evaluate the Profitability is 15% compared to the 7% of the industry peers. Hence Victoria secrets is Extremely profitable.

WACC Calculation.

The weighted average cost of capital for Victoria secrets is calculated using the following formula.

The sub elements in the calculation of Victoria’s Secret follows:

Cost of Equity

Cost of Debt

Value of Equity

Value of debt.

The weighted average cost of equity is calculated

using Capital asset pricing model. (CAPM).

Cost of Equity is


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(Pages.stern.nyu.edu, 2015)

(Bloomberg.com, 2015)


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The value of debt in the company is calculated from the below L brands 2014 annual report.

The Federal tax rates effective for L brands

(L brands, 2015)

(L brands, 2015)


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The Beta Value for the Apparel sector.

(NASDAQ.com, 2015)


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Calculation of Overall brand Value.

The calculation of the overall brand value is depicted below in the excel calculation.

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