The Hindu Business Line : Putting brand value on balance sheets

At a Brand Finance conference held in Mumbai last week, Nabankur Gupta, who is on the board of directors of Raymond, made a case for putting brand value on balance sheets. Brands, more than any other asset, have governed the fortunes of an organisation, and Indian companies need to get cracking and give them the importance they deserve, he said. Excerpts from his keynote address at the forum:

While a brand in its simplest form is a noun, it represents many more intangible aspects of a product or service. It has both an identity and a personality. There is no other element within the business process which is so akin to human behaviour.

Other tangible assets of an organisation such as plants and machinery, stocks and debtors, even technology and design, are quite simple to value and audit. Hence they have remained over the decades the fundamentals of books of accounts and valuations of corporations. New global accounting standards (IFRS) are now demanding incorporation of brand values in the balance sheets of companies. Brand values today play a significant part in determining valuations of corporations in the capital market and in deals of mergers and acquisitions. Discussions on brands need to appear on the agenda of board meetings.

Brands are today very powerful strategic tools. Many short-term tactical ploys could harm the very strategic value of a brand. That is why the mortality rate of brands is very high. How many brands can we recall that have been in existence for over 50 years? The death of a brand is a slow and lingering process and can very often destroy completely all the wealth of an organisation.

Business & brand strategy alignment

The financial impact of a brand-oriented business strategy helps make the case for a more integrated approach to strategic brand management. Building a brand-based business strategy requires several key changes. The CEO must embrace brands as strategic assets that need to be nurtured and built over time. Other members of the senior management team must support that message.

The best formula to integrate business strategy with brand strategy is to constitute a senior-level executive brand council (ECB). These typically bring together the heads of business units and functional areas to act as a team to tackle the tough brand building issues that arise — acquisition of brands, launch of a new product category, brand licensing agreements and so on. Many companies have ECBs that meet on a monthly or quarterly basis to make key strategic decisions for their organisations. A second change lies in realising that brand building is a holistic effort. Companies must understand every way in which their brand touches the various stakeholders, and how to manage it most effectively and efficiently across each touchpoint.

Why does India and India Inc lag behind in the business of branding?

Brand Finance publishes a list of the most valuable brands. How is it that the fastest growing free market democracy has not produced a single global brand to rank in the top 100? One factor which has contributed to this exclusion is the positioning of the India Sovereign brand. At one level India is being associated with global economic power and growth; on another, it is projected as a low-cost provider of goods and services. It is associated largely with quantitative and not qualitative deliverables. India must be cautious on this front as it runs the risk, like China, of falling prey to the trap of ‘cheaper’ and ‘cheapest’. The IT companies are beginning to take stock of the situation and are focusing on branding as a strategic tool.

It goes back to the history and DNA of corporate India. Except for the last one-and-a-half decades, we have lived in an environment of shortages, Licence Raj, distribution based on rationing, inconsistent quality, service as a lip service and everything else that makes it a brilliant environment for a pompous sellers’ market. We looked at business as a commodity process where efficient trading in raw material, good processes of conversion to products economically and distribution of goods/services to an ever starved market were the highlights of growth and performance. Government policies abetted this process brilliantly. But much has happened since:

World-class technology both for products and services is available and is being abundantly put to use.

Research, though still to be world-class, is catching up in most sectors.

Huge investments are being made in start-ups, expansions and upgrades.

Every business process is being audited and valued by top management teams.

Except for one major deficiency: No one has much time to understand brands as in most cases they have no value attached to them and are not open to scrutiny in financial or business terms. They continue to remain the domain of the brand manager or marketing head at best. The reason for this is purely because the value of the brand is a grey area with no financial determinants.

While attempting strategic initiatives, issues connecting brands and branding are dealt with more subjectively and in a cursory manner. I have seen deals of divestments or acquisitions where one of the parties perhaps did not get the best terms as the value associated with the brand and its strategic leveraging power was not fully understood.

I am aware that some corporates over the last couple of years have undertaken brand valuation exercises. In all cases that I know being associated with them, the valuations have far exceeded the tangible values of assets of the organisations. I would venture to guess that today many would have their market caps far below the brand valuations. However, it may be interesting to study at this juncture of an economic downturn if corporations with brands which had recorded high valuations have performed better in not only the top and bottom line but preserved their market caps much better. My belief is that it is so when seen in the context of some FMCG and other consumer product companies with strong brands.

Internal Branding

We have to first start thinking that employees are the most crucial customers of an organisation. Are they 100 per cent supportive of the brand’s mission? Are they living the brand? A good serviced brand is corporate culture working at its best, where the company values are aligned with the desired brand values and the employees who choose to work for the company share these values.

To achieve this, marketing must work closely with human resources to ensure there is only one set of common values, rather than one set of company values and a separate set of brand values. Not only must these values be reinforced consistently, they should also lie at the heart of all recruitment and rewards systems.

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