• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

Boby Kurian

"Brands are similar to a mansion or a beautiful car which need maintenance. They can lose value if not managed well."

Jan Lindemann, Global Managing Director for Brand Valuation, Interbrand

Brand value is slowly gripping boardroom meetings in India. Corporate behemoths are acknowledging brand strength to generate and secure customer demand that translates into shareholder value. Tata did it many years ago. Infosys created news by ascribing a value to its brand. Recently, the leading domestic watch maker, Titan, set in motion a brand valuation exercise. Another consumer durables brand, BPL, talked about it some months ago.

The trend here is now unmistakable. In the West, brand valuation became critical for strategic management a long time ago. And why not? "Brands are one of a company's important assets," says Jan Lindemann, Global Managing Director for Brand Valuation, Interbrand, arguably the leading brand consultancy firm which has undertaken many a famous valuation across the globe. Brand value accounts for 38 per cent of the global stock market valuation. "Brands have created shareholder value since the creation of stock markets," says Lindemann.

He says leading global brands can be created anywhere, and cites one of his recent favourites - Samsung. In fact, the latest Interbrand-Businessweek listing of the most valuable global brands shows that the top two winners in 2002 were from outside US - Samsung from South Korea followed by Nivea from Germany. "Brands are among the most stable assets. They can increase value in difficult market conditions. But brands can lose brand value if not managed well," adds Lindemann.

Last year, as India Inc turned hot on brand value, Interbrand set up a local presence through an alliance with Equitor Consulting. Catalyst spoke to Jan Lindemann on brand valuation at Bangalore where he addressed a select group of corporate heavyweights. Excerpts:

What's the significance of brand value, especially in emerging markets like India?

Brand is the most stable asset for a business. It usually doesn't disappear overnight unlike other supposedly stable assets (consider real estate price in Japan, which is now only 10 per cent of what it was in the '80s). Of course, there are exceptional situations like in the case of Andersen where it vanished in a week. Brand value becomes important when competitive forces come into play. It perhaps has no relevance in a monopoly situation.

If branding is about ensuring security of demand for any business, then how do you value a brand?

Brands can be valued like other business assets. It is based on a reward and risk calculation. We do a financial analysis (taking into account EV, NPV, ROI, net sales, marketing expenses, operating profit and capital employed) to find out rewards and follow it up with a market analysis (covering market size, share, sales volumes, awareness, preference, loyalty and share of voice) to discover the brand's ability to factor in the risk elements. We then apply discounting on future earnings over a period of time at a particular level. The higher the brand strength, the lower the discount and lower the strength, higher the discount.

Brand activism in the West has seen some backlash. Naomi Klein's book No Logo advocated a consumer response to certain brand practices. Has it had an impact on the creation of brand value?

No Logo is a misunderstood work. What it said was that consumers are a mass democracy and brands must practise certain responsibilities to keep them buying. Efforts like that made brands talk to the activists and listen to protest movements in many parts of the world. There was progress in labour conditions in sweatshops across developing countries. I am not saying it improved everywhere. But brands have become more careful about local sentiments (recall how Coke reacted when the Belgium crisis threatened to blow into a major scandal).

However, these movements have not impacted or derailed businesses of major brands in a big way. (For instance, the latest Interbrand-Business Week survey shows that many prominent brands - Coke, McDonald's, Nike - that came under fire improved their value in 2002.)

So brand value is going to be the key...

Branding provides connection with the consumer which is crucial in any competitive market. Manufacturing is seen more as a delivery platform. What is the difference between a BMW and a Japanese or Korean car? It is no more engineering. It is about the connection they make with the consumer. It is about perception. This perhaps explains why companies are now more focused on branding than ever before (leaving out manufacturing from the scheme of things).

But this will not mean that manufacturing is no more important. The quality of the product is crucial in any brand experience. There may be rare occasional slips but when concerns on product quality persist on a regular basis, it will lead to erosion in brand value over a period of time (as in the case of Ford which has been facing product quality issues. Ford's brand value dipped almost $10 billion, by 32 percentage points, in 2002).

Many leading Indian information technology brands like Infosys have talked about their brand value. How do you create brand value in service sectors like IT or consulting?

In IT or consulting, the brands are in direct touch with the customers (clients) given the business-to-business environment. Here brand value creation has a lot to do with relationship building and trust. HR practices become crucial. For instance, when you select SAP for a solution, you don't know what to expect at the end of the day. Maybe you have to spend a couple of years investing in manpower, hardware and software. But you are buying into a trust, a relationship. These brands should have the systems to attract the right people and to make them what they are.

How significant is brand value in the market capitalisation of IT or consulting brands? How does it compare with consumer brands?

Brand value accounts for 40 per cent of IBM's market capitalisation. This is comparable with other brands in IT and consulting. In some cases, brand value may account for 45 per cent of the market capitalisation of these firms. This is significant even though it is not as high as in the case of McDonald's (71 per cent) or Coca-Cola (51 per cent). In the case of McDonald's, it is understandable as the business model depends on the brand franchisee route.

In India, we hear of brand valuation mainly during M&As or joint venture formations. Is it the same globally?

It plays an important role in M&As and at the time of joint ventures. But increasingly, companies are looking at brand value for strategic management purposes, and now the bulk of our business comes from there. It is used for enhancing the shareholder value. It helps in adding to the bottomline and facilitating transfer pricing, licensing and even litigation proceedings.

Leading companies are using brand valuation to manage brands. The case of brands is similar to that of a mansion or a beautiful car which needs maintenance. Brands can lose value if not managed well.

In the Asian context, which brand do you pick as an instance of successful brand value creation?

It is an easy choice. Samsung. In the last seven-eight years, Samsung has moved away from being an OEM manufacturer for other companies.

It created a new image for the brand, moved into higher end products and invested in cutting-edge designs. Samsung was the clear winner in brand value creation in 2002. Its brand value moved up 30 percentage points to touch $8.31 billion.

Send this article to Friends by E-Mail

Stories in this Section
An idea is born

Copyright © 2002, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line