Standing Ovations Lead to Encores At first glance bands and brands may seem worlds apart, but after close consideration it’s clear that they differ by little more than a letter. Both strive to create fans, going beyond what it takes to capture customer attention and delving into the realm of loyalty. Brands that maintain top shelf positioning in consumer’s minds and win market share and wallet share connect with people at a much deeper level than their competitors.

So next time the Rolling Stones, KISS, Elton John, Aerosmith, Madonna, Neil Diamond, or any other legendary band invades your town, go to the concert. Experience firsthand the emotions you and the thousands of people around you feel, and think about how to capture some of that in your brand, whether that brand is a product or yourself. These bands prove that forging emotional connections with fans and fortifying them over time leads to long term revenue streams. That requires getting under their skin, into their souls, and connecting to something even fans have a difficult time describing.

But they feel it; they know it’s there.

It’s what happens when girlfriends get together and dance around to “Holiday” by Madonna. Or when guys get together and play air guitar to AC/DC’s “You Shook Me All Night Long.” The emotions are different, the intensity the same. The combination of emotion and intensity creates within people a devotion to the music they love and the bands that create it. It’s what keeps classic rockers performing night after night, city after city. It’s what keeps people buying new releases of old favorites. It’s what brings audiences to their feet, screaming for another encore when the band has already played three.

As with many successful brands, Cadillac gave in to the temptations of laziness and status quo mentality. The Cadillac brand fell from its lofty position to playing second fiddle to Mercedes, Lexus, Jaguar, and even Lincoln. For years, Cadillac survived, but it failed to represent changes in the market and failed to evolve. By 2000, Cadillac’s market share had fallen from nearly 80 percent in the 1950s to about 10 percent. However, while market share plummeted, the average age of its new customers soared to 66 by 2001, nearly 10 years older than those of competitors such as Lexus, BMW, and Audi.

Cadillac still had fans, but unfortunately, the number of future purchases they would make was no doubt limited.

The company recognized that without change, a slow death was likely. The challenge became how to change the product and positioning enough to attract new, younger consumers without alienating loyal, older ones. The Rolling Stones turned to their affinity for technology to update their relevance and connection to the baby boomer market. Cadillac did something similar with its rebranding efforts by reengineering the car itself to reflect better the changing attitudes and lifestyles of its desired customers.

Cadillac introduced the CTS, a sleeker, entry level luxury sedan designed to appeal to baby boomers in their late forties and fifties

• Yes, we acknowledge that many fans do not accept that Elvis has yet gone to his

final resting place and that some even report he has been spotted locally only recently.

currently driving a BMW or a Lexus. Its introduction resembled the release of a new Rolling Stones album, combining the best of the old with new features likely to entice target customers, such as cupholders and a standard Bose 200 watt, seven speaker system with CD player. The right mix of design and function resulted in an edgier look-influenced by stealth fighters and Bang & Olufsen electronics products-and higher performance, with a 220 horsepower Twin Cam V6 engine that lets it do 0 to 60 in 6.9 seconds with a five speed manual transmission. Although some 60 year olds might still prefer the more traditional Cadillac style, their choice wasn’t removed from the line, just updated a bit as well.

The baby boomer population explosion moves through markets like a pig that’s been swallowed by a python, inviting marketers to satisfy the needs, wants, and fantasies of 76 million people. Add to that the fact that many of them are still the primary purchasers, or at least primary payers, for a lot of children and grandchildren, and you begin to understand the need to connect with them. They not only affect the economy; they are the economy, representing the greatest share of the workforce, the greatest share of income, and the greatest share of voting power and political influence.

For public corporations, it’s not just profits that are important, but growth in revenues and profits. According to U.S. Census projections, the number of boomers age 45 to 54 is projected to increase 14 percent between 2001 and 2010, while the number of 55 to 64 year olds will grow by a whopping 44 percent. During the same decade, the number of consumers in the 25 to 34 and 35 to 44 year old groups are projected to decline. Public corporations faced with analysts who determine their P/E ratios by forecasting their growth potential can point to the baby boomer market for opportunities if they have the right mix of brands, services, and prices. The problem is that competitive firms have figured this out as well-hence the race to find something to connect with this vital market. Brands that evoke emotion (from nostalgia to sheer exuberance) may hold the key to customer loyalty in this market, assuming they deliver in the areas of quality, functionality, design, and value. Using classic rock in commercials aimed at boomers makes sense, as does using musical acts from the 1970s and 1980s to entertain at corporate events.

Are You in the Hall of Fame? Marketers should ask themselves, “If there were a Hall of Fame for brands, would we be in it?” And if so, “Would our customers swoon with the same excitement and fervor as the fans of the music legends inducted into the Rock and Roll Hall of Fame?” Perhaps you are nodding in affirmation, or maybe you’re hanging your head in shame.

Or, perhaps, you’re wondering, “Does it really matter?” Especially in today’s competitive environment, where best of breed retailers and manufacturers have slashed operating expenses with leaner inventories and efficient logistics systems, branding is about seizing the increased profits that accompany greater share-from market share and closet share to share of wallet, time, and attention. Ultimately, it can also be viewed as share of heart, signifying the emotional connection between brand and fan that permits a premium price.

Today, gaining share depends on more than just having a superior product. Contrary to popular belief, it also depends on more than marketing and advertising budgets that support short lived promotions or ad blitzes. Increasingly, it is the firm’s brand and its fans that helps the organization through tough times, carrying it into higher profitability during good times.

Becoming Part of the Fabric of America When evaluating the cultural adoption of a brand, the brands that last, marketers should ask, “If we were painting a picture of American life, would our brand be a part of it?” For example, a portrait of a typical American shopping scene would likely include a Wal Mart greeter, while a holiday shopping scene would feature bustling shoppers toting Bloomingdale’s iconic big brown bags in New York or visiting Marshall Field’s at Christmas in Chicago. An outdoor cookout scene would likely include a Weber grill, bottles of Heinz ketchup, Oscar Mayer hot dogs and French’s mustard (who, during the Iraq War, quickly explained that,”Our name may be French, but we’re not yellow”). Successful brands, like legendary bands, try to hear the “background music” that accompanies these scenes to determine whether they are part of the soundtrack of consumers’ lifestyles.

Per Share Price Price/ Sept. 30, Book Price/ Book Div. vs.

1971 Earned Dividend Value Earnings Value Yield Alabama Gas ?2 1.50 1.10 17.80 10
87% 7.1% +34% Allegheny Power ?2 2.15 1.32 16.88 10 134 6.0 Am. Tel. & Tel. 43 4.05 2.60 45.47 11 95 6.0 Am. Water Works 14 1.46 .60 16.80 10 84 4.3 Atlantic City Elec. ?2 1.85 1.36 14.81 11 138 6.6 Baltimore Gas & Elec. ?4 2.85 1.82 23.03 11 132 6.0 Brooklyn Union Gas ?2 2.00 1.12 20.91 12 112 7.3 Carolina Pwr. & Lt. ?2 1.65 1.46 20.49 14 110 6.5 Cen. Hudson G. & E. ?4 2.00 1.48 20.29 11 110 6.5 Cen. Ill. Lt. ?4 2.50 1.56 22.16 10 114 6.5 Cen. Maine Pwr. ?4 1.48 1.20 16.35 12 113 6.8 Cincinnati Gas & Elec. ?4 2.20 1.56 16.13 11 145 6.7 Consumers Power ?2 2.80 2.00 32.59 11 90 6.8 Dayton Pwr. & Lt. 23 2.25 1.66 16.79 10 137 7.2 Delmarva Pwr. & Lt. ?2 1.55 1.12 14.04 11 117 6.7 Average ?2 2.15 1.50 21.00 11
112% 6.5% +71%For the defensive investor the central appeal of the public utility stocks at this time should be their availability at a moderate price in relation to article value. This means that he can ignore stockmarket considerations, if he wishes, and consider himself primarily as a part owner of well established and well earning businesses. The market quotations are always there for him to take advantage of when times are propitious-either for purchases at unusually attractive low levels, or for sales when their prices seem definitely too high.

It is time to return to our first question. What then were the true earnings of ALCOA in 1970? The accurate answer would be: The $5.01 per share, after “dilution,” less that part of the 82 cents of “special charges” that may properly be attributed to occurrences in 1970. But we do not know what that portion is, and hence we cannot properly state the true earnings for the year. The management and the auditors should have given us their best judgment on this point, but they did not do so. And furthermore, the management and the auditors should have provided for deduction of the balance of these charges from the ordinary earnings of a suitable number of Things to Consider About Per Share Earnings

• The company to which Graham refers so coyly appears to be American

Machine & Foundry (or AMF Corp.), one of the most jumbled conglomerates of the late 1960s. It was a predecessor of today’s AMF Bowling Worldwide, which operates bowling alleys and manufactures bowling equipment.future years-say, not more than five. This evidently they will not do either, since they have already conveniently disposed of the entire sum as a 1970 special charge.

The more seriously investors take the per share earnings figures as published, the more necessary it is for them to be on their guard against accounting factors of one kind and another that may impair the true comparability of the numbers. We have mentioned three sorts of these factors: the use of special charges, which may never be reflected in the per share earnings, the reduction in the normal income tax deduction by reason of past losses, and the dilution factor implicit in the existence of substantial amounts of convertible securities or warrants.

Commentary on Chapter 11

Stock splits are discussed further in the commentary on Chapter 13.CHAPTER

Things to Consider About Per Share Earnings

This chapter will begin with two pieces of advice to the investor that cannot avoid being contradictory in their implications. The first is: Don’t take a single year’s earnings seriously. The second is: If you do pay attention to short term earnings, look out for booby traps in the per share figures. If our first warning were followed strictly the second would be unnecessary. But it is too much to expect that most shareholders can relate all their common stock decisions to the long term record and the long term prospects. The quarterly figures, and especially the annual figures, receive major attention in financial circles, and this emphasis can hardly fail to have its impact on the investor’s thinking. He may well need some education in this area, for it abounds in misleading possibilities.

As this chapter is being written the earnings report of Aluminum Company of America (ALCOA) for 1970 appears in the Wall Street Journal. The first figures shown are Share earningsa $5.20 $5. The little a at the outset is explained in a footnote to refer to “primary earnings,” before special charges. There is much more footnote material; in fact it occupies twice as much space as do the basic figures themselves.

The implicit or expected growth rate of 5.1% for the DJIA comSecurity Analysis for the Lay Investor 295TABLE 11 4 Annual Earnings Multipliers Based on Expected Growth Rates,

Based on a Simplified Formula

Expected growth rate 0.0% 2.5% 5.0% 7.2% 10.0% 14.3% 20.0% Growth in 10 years 0.0 28.0% 63.0% 100.0% 159.0% 280.0% 319.0% Multiplier of current earnings 8.5 13.5 18.5 22.9 28.5 37.1 48. TABLE 11 5 Implicit or Expected Growth Rates, December 1963 and December

Projecteda Earned Actual Annual Projecteda

P/E Ratio, Growth Rate, Per Share Growth, P/E Ratio, Growth Rate, Issue 1963 1963 1963 1969 1963