Taking a Global View on Brand Post Popularity: Six Social Media Brand Post Practices for Global Markets Net Present Value (NPV) / MBA Resources

Introduction to Net Present Value (NPV) - What is Net Present Value (NPV) ? How it impacts financial decisions regarding project management?

NPV solution for Taking a Global View on Brand Post Popularity: Six Social Media Brand Post Practices for Global Markets case study

At Oak Spring University, we provide corporate level professional Net Present Value (NPV) case study solution. Taking a Global View on Brand Post Popularity: Six Social Media Brand Post Practices for Global Markets case study is a Harvard Business School (HBR) case study written by Hsin-Chen Lin, Hepsi Swarna, Patrick F. Bruning. The Taking a Global View on Brand Post Popularity: Six Social Media Brand Post Practices for Global Markets (referred as “Cultures Posts” from here on) case study provides evaluation & decision scenario in field of Sales & Marketing. It also touches upon business topics such as - Value proposition, Social platforms, Strategy.

The net present value (NPV) of an investment proposal is the present value of the proposal’s net cash flows less the proposal’s initial cash outflow. If a project’s NPV is greater than or equal to zero, the project should be accepted.

NPV = Present Value of Future Cash Flows LESS Project’s Initial Investment

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Case Description of Taking a Global View on Brand Post Popularity: Six Social Media Brand Post Practices for Global Markets Case Study

Brand post popularity positively relates to consumers' purchase intentions, actual sales, and stock prices. Research suggests that social media posts should be vivid, practical, interesting, personalized, and interactive. However, cross-cultural research also suggests that practices might not be equally effective across different regional markets. While vividness and practicality could be consistently important across cultures, characteristics of interest, personalization, and interactivity might need to be adapted to the cultural conditions of specific target markets. We consider how individualism/collectivism, long-term orientation, uncertainty avoidance, power distance, and high-context/low-context cultures could influence brand post effectiveness. We provide suggestions for how to manage social media brand post popularity from a cross-cultural perspective to inform both domestic and global social media marketing campaigns. Suggested practices include: (1) making brand posts engaging; (2) targeting the 'I' in individualistic cultures and the 'we' in collectivist cultures; (3) focusing on consumers' identity in less long-term oriented cultures and on functional information in more long-term oriented cultures; (4) ensuring that posts help reduce uncertainty; (5) planning for one-way communication in higher power distance countries and two-way communication in lower power distance countries; and (6) making messages less direct in higher context cultures and more direct in lower context cultures.

Case Authors : Hsin-Chen Lin, Hepsi Swarna, Patrick F. Bruning

Topic : Sales & Marketing

Related Areas : Social platforms, Strategy

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Calculating Net Present Value (NPV) at 6% for Taking a Global View on Brand Post Popularity: Six Social Media Brand Post Practices for Global Markets Case Study

Years	Cash Flow	Net Cash Flow	Cumulative     Cash Flow	Discount Rate @ 6 %	Discounted Cash Flows
Year 0	(10018309)	-10018309	-	-
Year 1	3452117	-6566192	3452117	0.9434	3256714
Year 2	3975656	-2590536	7427773	0.89	3538320
Year 3	3946095	1355559	11373868	0.8396	3313217
Year 4	3227480	4583039	14601348	0.7921	2556466
TOTAL			14601348		12664718

The Net Present Value at 6% discount rate is 2646409

In isolation the NPV number doesn't mean much but put in right context then it is one of the best method to evaluate project returns. In this article we will cover -

Different methods of capital budgeting

What is NPV & Formula of NPV,
How it is calculated,
How to use NPV number for project evaluation, and
Scenario Planning given risks and management priorities.

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Capital Budgeting Approaches

Methods of Capital Budgeting

There are four types of capital budgeting techniques that are widely used in the corporate world –

1. Profitability Index
2. Internal Rate of Return
3. Net Present Value
4. Payback Period

Apart from the Payback period method which is an additive method, rest of the methods are based on Discounted Cash Flow technique. Even though cash flow can be calculated based on the nature of the project, for the simplicity of the article we are assuming that all the expected cash flows are realized at the end of the year.

Discounted Cash Flow approaches provide a more objective basis for evaluating and selecting investment projects. They take into consideration both –

1. Timing of the expected cash flows – stockholders of Cultures Posts have higher preference for cash returns over 4-5 years rather than 10-15 years given the nature of the volatility in the industry.
2. Magnitude of both incoming and outgoing cash flows – Projects can be capital intensive, time intensive, or both. Cultures Posts shareholders have preference for diversified projects investment rather than prospective high income from a single capital intensive project.

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Formula and Steps to Calculate Net Present Value (NPV) of Taking a Global View on Brand Post Popularity: Six Social Media Brand Post Practices for Global Markets

NPV = Net Cash In Flowt1 / (1+r)t1 + Net Cash In Flowt2 / (1+r)t2 + … Net Cash In Flowtn / (1+r)tn
Less Net Cash Out Flowt0 / (1+r)t0

Where t = time period, in this case year 1, year 2 and so on.
r = discount rate or return that could be earned using other safe proposition such as fixed deposit or treasury bond rate. Net Cash In Flow – What the firm will get each year.
Net Cash Out Flow – What the firm needs to invest initially in the project.

Step 1 – Understand the nature of the project and calculate cash flow for each year.
Step 2 – Discount those cash flow based on the discount rate.
Step 3 – Add all the discounted cash flow.
Step 4 – Selection of the project

Why Sales & Marketing Managers need to know Financial Tools such as Net Present Value (NPV)?

In our daily workplace we often come across people and colleagues who are just focused on their core competency and targets they have to deliver. For example marketing managers at Cultures Posts often design programs whose objective is to drive brand awareness and customer reach. But how that 30 point increase in brand awareness or 10 point increase in customer touch points will result into shareholders’ value is not specified.

To overcome such scenarios managers at Cultures Posts needs to not only know the financial aspect of project management but also needs to have tools to integrate them into part of the project development and monitoring plan.

Calculating Net Present Value (NPV) at 15%

After working through various assumptions we reached a conclusion that risk is far higher than 6%. In a reasonably stable industry with weak competition - 15% discount rate can be a good benchmark.

Years	Cash Flow	Net Cash Flow	Cumulative     Cash Flow	Discount Rate @ 15 %	Discounted Cash Flows
Year 0	(10018309)	-10018309	-	-
Year 1	3452117	-6566192	3452117	0.8696	3001841
Year 2	3975656	-2590536	7427773	0.7561	3006167
Year 3	3946095	1355559	11373868	0.6575	2594622
Year 4	3227480	4583039	14601348	0.5718	1845322
TOTAL					10447952

The Net NPV after 4 years is 429643

(10447952 - 10018309 )

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Calculating Net Present Value (NPV) at 20%

If the risk component is high in the industry then we should go for a higher hurdle rate / discount rate of 20%.

Years	Cash Flow	Net Cash Flow	Cumulative     Cash Flow	Discount Rate @ 20 %	Discounted Cash Flows
Year 0	(10018309)	-10018309	-	-
Year 1	3452117	-6566192	3452117	0.8333	2876764
Year 2	3975656	-2590536	7427773	0.6944	2760872
Year 3	3946095	1355559	11373868	0.5787	2283620
Year 4	3227480	4583039	14601348	0.4823	1556462
TOTAL					9477718

The Net NPV after 4 years is -540591

At 20% discount rate the NPV is negative (9477718 - 10018309 ) so ideally we can't select the project if macro and micro factors don't allow financial managers of Cultures Posts to discount cash flow at lower discount rates such as 15%.

Acceptance Criteria of a Project based on NPV

Simplest Approach – If the investment project of Cultures Posts has a NPV value higher than Zero then finance managers at Cultures Posts can ACCEPT the project, otherwise they can reject the project. This means that project will deliver higher returns over the period of time than any alternate investment strategy.

In theory if the required rate of return or discount rate is chosen correctly by finance managers at Cultures Posts, then the stock price of the Cultures Posts should change by same amount of the NPV. In real world we know that share price also reflects various other factors that can be related to both macro and micro environment.

In the same vein – accepting the project with zero NPV should result in stagnant share price. Finance managers use discount rates as a measure of risk components in the project execution process.

Sensitivity Analysis

Project selection is often a far more complex decision than just choosing it based on the NPV number. Finance managers at Cultures Posts should conduct a sensitivity analysis to better understand not only the inherent risk of the projects but also how those risks can be either factored in or mitigated during the project execution. Sensitivity analysis helps in –

What can impact the cash flow of the project.

What are the uncertainties surrounding the project Initial Cash Outlay (ICO’s). ICO’s often have several different components such as land, machinery, building, and other equipment.

Understanding of risks involved in the project.

What are the key aspects of the projects that need to be monitored, refined, and retuned for continuous delivery of projected cash flows.

What will be a multi year spillover effect of various taxation regulations.

Some of the assumptions while using the Discounted Cash Flow Methods –

Projects are assumed to be Mutually Exclusive – This is seldom the came in modern day giant organizations where projects are often inter-related and rejecting a project solely based on NPV can result in sunk cost from a related project.

Independent projects have independent cash flows – As explained in the marketing project – though the project may look independent but in reality it is not as the brand awareness project can be closely associated with the spending on sales promotions and product specific advertising.

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Negotiation Strategy of Taking a Global View on Brand Post Popularity: Six Social Media Brand Post Practices for Global Markets

References & Further Readings

Hsin-Chen Lin, Hepsi Swarna, Patrick F. Bruning (2018), "Taking a Global View on Brand Post Popularity: Six Social Media Brand Post Practices for Global Markets Harvard Business Review Case Study. Published by HBR Publications.