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Businesses have to be viewed as an ecosystem of interlinked assets creating or destroying value. To compete on the global stage Indian boards and CEOs have to see this larger picture.

David Haigh, CEO, Brand Finance

David Haigh, CEO, Brand Finance Plc, speaks to Catalyst.

What is your experience regarding brand management by companies in Asia and specifically in India relative to their management in developed countries?

The development of good quality marketing metrics and internal structures to manage the value implication of marketing and consumer insight are critical for sustaining growth in Asian and Indian companies. Many blue chip companies such as Diageo, BAT and Shell have realised that brand assets need to be monitored regularly for value and have created a `marketing finance' function which manages their brands and allows these values to be reported directly to the board. With Indian companies increasingly driving value through intangibles such as brands, they must stay at the forefront of the branding race.

Typically, managements in India have indicated that market constraints such as the required investment for marketing infrastructure limit their ability to invest in brands. Are they right to wait till the volumes in the market build up before investing more in brands or should they take the plunge and invest in brands upfront? What has been the experience of companies that followed different approaches?

This is an often-repeated argument and a complaint even in the developed markets. There are many great brands out there which have been built up without considerable investments in advertising and communication. Brands like Body Shop, Virgin and Krispy Kreme have almost no advertising budgets. They have been nurtured and developed on a strong foundation of innovation that has addressed specific consumer needs, thereby creating sustainable brand differentiation. Incidentally, these actions do not require huge investments. Advertising and communication come into play only after the brand has reached critical mass.

World over, would you say the value of brands has been declining as the ability of companies to demand a premium for their brands has come down? Have brand revenues also become more volatile? Are the trends different for developed and emerging markets?

There are a number of studies, including those conducted by Brand Finance, which show that brands have been increasing in value at a very fast rate around the world. For example, Samsung's brand value has grown at almost 30 per cent year on year and its market capitalisation is higher than its peers like Sony! It has managed to earn a significant premium by focusing on innovative products in almost every category it operates in.

Recent empirical studies published by Harvard University have demonstrated that brand assets have been able to deliver higher than expected returns to their owners at a lower than market risk. Undoubtedly, brands create a security of future earnings for their owners.

The valuation of a brand also captures the potential for future growth. In this respect, what does Brand Finance's valuation of brands across countries show as the potential for various Asian countries? Specifically, how does India stack up relative to China?

Both Chinese and Indian brands are growing at a fast pace and there is a buoyancy in value that is being driven by the state of the economy that these brands operate in. The challenge for both of them will be to sustain these growth rates in the future and recognise that intangibles play a key role in enabling the same.

Are service brands more susceptible to abrupt changes in value than product brands? For instance, TCS, Infosys and Bajaj Auto have an A rating. Are the ratings of TCS or Infosys more susceptible to downward revisions than, say, the rating of Bajaj Auto? What has been your experience in developed markets?

Given the fundamental differences in the way a service business works compared to a product, it does put these businesses at a slightly higher risk. However, if the human relationships, which are in every sense the brand, are managed well it also endows these businesses with the permission to stretch and grow their businesses much easily than a traditional product brand. In fact, TCS' brand value has significantly increased over the last few years.

Your company uses the relief from royalty method to value brands. What steps are taken to isolate the value that can be assigned to other intangibles?

The Royalty Relief approach is one of economic use methods that Brand Finance uses for brand valuation. It is particularly suited as a method to carry out valuations from an external standpoint where we have limited access to company information. In fact, Brand Finance also applies its proprietary Brand Value Added (BVA) methodology to get an intrinsic appreciation of the intangibles affecting business value. This is usually carried out using trade-off research methods and helps in allocation of revenues to various intangibles being used in the business such as software and patents.

Can the value that is assignable to other intangibles be isolated at all? Does not the value stem from the interaction of all forces - capital, brands, knowhow and skills?

Businesses do have to be viewed as an ecosystem of assets, each one interacting with the other and creating or destroying value. With brands increasingly accounting for large amounts of business value it is critical for businesses to appreciate the broader picture of the linkages, the degree of leverage and return on investment possible for each. It is clear from the findings that Indian companies other than a few exceptions have relegated brands to the periphery of business strategy. To compete on the global stage Indian boards and CEOs have to see this larger picture.

Brand Finance is said to have valued brands for the purpose of resolving disputes in courts and before tax authorities. Can you recount a couple of interesting examples?

Brand Finance is the expert witness for the Internal Revenue Service (IRS) and the Inland Revenue in UK. We recently acted for the IRS in a high-profile tax dispute, which involved Nestle's Carnation brands. Given the nature of the sensitive nature of these cases it is not easy to talk about many of them.

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