Brand Finance Forum 2006

1
Brand Finance Forum 2006 Prof. Atul
Tandan COMMUNICATING THE TRUE VALUE OF
INTANGIBLE ASSETS TO INVESTORS 18 August 2006
2
Flow of Presentation

• Understanding Brand Communications
• Explaining Business Value
• Identifying Intangibles Brand Iceberg Approach
• Communicating Brand Value
• Selected Examples
• India Brand Value
• MICA Valuation Model

3
COMMUNICATING THE TRUE VALUE OF INTANGIBLE ASSETS
TO INVESTORS
4
Understanding Brand Communications
5
Defining Brand Communications

• Encompasses all forms of
• communication, actions and
• activities that influence and
• impact the relationship between the
• customer and the brand.
• Source Measuring brand communication ROI. By Don
  E. Schultz Jeffery S. Walter

6
How Consumers See Marketing Communication
Source Strategic brand communication campaign.
By Don E. Schultz and Beth E. Barnes
7
Rationale for Better Communication

• Maximize reach
• Enable an emotional sell
• Visual and verbal communications
• Achieve parity with competition
• Inexpensive ways of demonstrating expertise
  through care for the community
• Community involvement
• Community education
• Community relations
• Fulfill corporate mission
• Non-traditional ways of achieving maximum
  exposure
• Direct mail
• Newsletter
• Websites
• Information Kiosks

Source Brand asset management. By Scott M. Davis
8
Determining Factors of Brand Communications

• Internal Factors
• Current measurement systems
• Return on marketing expenditure
• Appropriation of the brand communication budget
• Limited resources
• Moving away from 80-20 criteria of communications
• Increasing role of communication managers
• Value of brands and branding
• From making it as and when required to ever
  required
• Return on investment for specific brand
  communication elements/tactics
• Source Measuring brand communication ROI. By Don
  E. Schultz Jeffery S. Walter

9
Determining Factors of Brand Communications

• External Factors
• Information management technology
• Technology enabled relationship marketing and
  communications
• Database marketing and communications
• Real time gross settlement (RTGS) mechanism
• Global presence
• Cross cultural communications
• Consumers
• Market turbulence
• Media explosion
• Source Measuring brand communication ROI. By Don
  E. Schultz Jeffery S. Walter

10
Explaining Business Value
11
Business Value Chain
Source The Brand Finance Report. Australia May,
2005. http//www.brandfinance.com/Uploads/pdfs/Br
andFinanceReportMay2005.pdf
12
Invisible Business Some Research Findings

• Brand Finance analysis of top 25 stock markets
  31.6 trillion (99 of global market value)
• 62 of global market value is intangible - 19.5
  trillion
• Technology is the most intangible sector (91)
• The technology sector in the USA is 98
  intangible

Source Brand Finance, 2005
13
Invisible Business by sector
Sectors Value Technology 1,480bn
91 Consumer (non-cyc) 4,210bn
86 Communication 2,850bn 75 Energy
1,835bn 72 Industrial 2,080bn
59 Financial 3,600bn 50 Basic
materials 939bn 49 Consumer
(cyclical) 687bn 37
Source Brand Finance, 2005
14
Asset split across selected economies
15
Invisible Business by country
Value of intangibles, and of enterprise
value India 251bn 76 Switzerland
643bn 74 France 1,213bn 73 Australia 461bn
72 USA 9,201bn 71 Canada
795bn 68 UK 2,010bn 66 Spain
506bn 60 Italy 507bn 59 South
Africa 217bn 60 Brazil 158bn 47 Singapore
92bn 45 Global 19,500bn 62
Source Brand Finance, 2005
16
Asset split in India
17
Asset split in India
18
Value Addition through Intangible Assets (Brand)

• Enable a product to achieve a higher price at
  given sales volume
• Strong brands increase volumes
• Stable demand through loyal customers
• Barriers to Entry
• Aid the purchase decision through quality
  assurance
• Satisfy aspirational and self expression
  requirements

19
Value Addition through Intangible Assets (Brand)

• Transfer the equities associated with a brand to
  new product categories
• Lower sales conversion costs
• Favourable supplier relationship
• Lower staff acquisition and retention cost
• Lower cost of capital
• Economies of scale and scope
• Not limited by the industry type or size If
  leveraged will be a great leveler

20
Invisibles Business Implications
Corporate governance
Requires a step change in business mindset and
management capabilities for intangible asset
creation
New set of Investment priorities and return on
investment measures
Source Brand Finance, 2005
21
Identifying Intangibles Brand Iceberg
22
Brand Iceberg
What you can see
Symbol
Brand Name
Presentation
Advertising
Pricing
Key assets and competencies
High Quality
What you cant see
Efficient Production
Strong RD
High Service Levels
Low cost operation
Effective selling
Strong supply chain
Source Davidson, H. (1977) Even more offensive
marketing
http//www.cim.co.uk/medistore/Brand_eGuides/eGuid
e4.pdf
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Brand Iceberg
Name
Advertising
Logo
Brand Equities
Brand experience externally
Environment
Products services
Brand Values
Brand experience internally
Management - control structures
Internal Communications
Business Process
Investor Relations
Customer Relations
Training
Quality
Staff Motivation
Knowledge Management
Recruitment Policies
HR Policies Processes
Technology
Source http//www.brandchannel.com/images/papers/
bankonthebrand.pdf
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Brand Iceberg
PRESONALITY
CHARACTER
CORPORATE STRATEGY
CULTURALISATION
Amitabh Bachhan
Ferrari, Benetton, Louis Vutton
Kellogs, Body Shop
TATA, Reliance
BRAND POWER
25
Brand Values/Invisibles/Intangibles
Source http//hbswk.hbs.edu/archive/3388.html
26
Brand Valuation Infosys

• Brand Related Profits 410 mln
• Brand Earnings 270 mln
• Brand Multiple 18.51
• Brand Value 5 bln
• Market Capitalisation 17.8 bln
• Brand Value as a of 28
• market capitalisation
• Source Company Annual Report 2005-06

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Communicating Brand Value
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Whom to Communicate ???? Who are your
Investors????

• Customers
• Shareholders (Promoters)
• Service Providers
• Traders
• Suppliers
• Distributors
• Advertisers
• Employees
• Community
• NGO
• Civil society
• Regulator

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Communicating to Investors Channels
Advertising -Television .Broadcast . Local
cable -Local Radio -Print -Outdoor
Public Relations -Media relations .Press
releases .Community relations -Experience
marketing .Community involvement
.Community education .Experts on the road
Direct Marketing - Direct mail -
Consumer newsletter - Website - Mall
information center (kiosk)
Source Brand asset management. By Scott M. Davis
30
Customers Communication Insights

• Focus Shifts
• From saturated urban to semi-urban, country side
• Emergence of affluent kids and earning young.
• Burst in women purchasing power and greater role
  in purchasing decision.
• Functional to convenience goods, unbranded to
  branded.
• Need-based buying to lifestyle consumption

31
Customers Communication Insights

• Diverse and heterogeneous
• Inherent duality
• Appreciate Value for Money
• Open to newer ideas yet rooted in traditional
  values.
• Burgeoning SEC A B

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What Will the Market Be Like?

• Tech savvy consumer
• Customer managed relationship
• Survival of strong brands
• Increased MA
• Emergence of niche specialized players
• Global players in all sectors. Consumer enjoys
  the best
• Reducing influence of traditional
• media emerging non-traditional
• media.

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Jet Airways
34
ICICI Hum Hai Na
We are always there for you (A popular catch
phrase is used from a Hindi movie title)
35
ICICI Hum Hai Na
We are always there for you (A popular catch
phrase is used from a Hindi movie title)
36
ICICI Sindoor
Emotional bond for life Depicted through an
Indian ritual called Sindoor
37
Hutch
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HSBC
39
HSBC
40
State Bank of India
Get rid off your financial problems after
retirement by Joining the SBI life long
pensions. Ad was released around Valentines Day
41
Max New York Life Insurance Radio Commercial
MAX NEW YORK LIFE INSURANCE RADIO COMMERCIAL
42
Hutch Hot Pink
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(No Transcript)
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Reliance
45
Reliance Mobile
In spite of the people being physically far away,
Reliance mobile makes the communication possible
46
Tata
Long lasting, corrosion free pipes
47
Lifebuoy
Using fear appeal to promote personal hygiene
48
Fair Lovely
49
Chevrolet
50
Bajaj
Bajaj tries to depict modern face of India With
core traditional values intact
51
Maruti
52
Shell
It is better to resort to shell oil for
protection than succumbing to Superstitious or
blind beliefs
53
Shell
Shell Strength of character comes from physical
strength
54
Fevicol
55
Shareholders Opportunities Galore

• Current growth in Real GDP around 8 and expected
  to grow by 9 by 2007, double digit by 2010
• Industry growth of 12
• Service sector constitutes nearly 54 of GDP
• Rate of Investment is 30 of GDP
• Rate of Savings is 30 of GDP
• Affordable lending rate
• Relatively stable exchange rate
• Relatively stable stock market offering high
  return to most Foreign Institutional Investors in
  the long-run
• Foreign exchange reserve in excess of 160
  billion

56
Shareholders Opportunities Galore

• Low growth of 5 in consumer price index offers
  wide range of choice for purchasing
• Per capita income
• Currently PPP 3300
• Growing at nearly 6 p.a.
• Current middle class of around 600 million
• Working population of around 4000 million
• Instability - lowest as compared to most Asian
  economies
• Total FDI of around 45 billion US Dollar
• Total FII of around 10 billion US Dollar

57
NDTV Profit Business Leadership Awards
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Kotak Mutual Fund A quick response to NDTV Award
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TATA- Corporate
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Tata IPO
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ICICI Fast Forward India
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(No Transcript)
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HSBC - IPO
64
Reliance - IPO
65
Suzlon - IPO
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Suzlon
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GMR - IPO
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(No Transcript)
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(No Transcript)
70
(No Transcript)
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(No Transcript)
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(No Transcript)
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(No Transcript)
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Aditya Birla Group
75
Press
76
Service Providers Believe in the Best

• Integrated supply chain activities
• Efficient and affordable delivery mechanism
• Assured quality
• Technology enabled relationships
• Customer Relationship Management (CRM)
• Emphasis on marketing communication activities
• Sustainable high return on investment
• Healthy profit margin

77
LT
Pride in father being associated with a company
(LT) actively engaged in building national
infrastructure
78
GAIL Multiple Activities
79
Newsletter DHL Express (India) Ltd. and DB
India
80
Godrej Group
81
Employees Ignore at your peril

• Trust is essential
• Inculcating a sense of belongingness
• Owning of responsibilities
• Gradually improving standard of life
• Parity in compensation
• Regards for organisations values and ethics
• Healthy employees employer relationships

82
The House Magazine of the Thermax Group
83
Community Sense of ownership

• CSR activities
• Pride and loyalty
• Innovative ways of offering community services
• Development via participation
• Instituting reward mechanism
• Protecting various interest groups
• Consumers
• Shareholders
• NGO
• Safety
• Environment

84
Lifebuoy Hygiene
Confidence which lifebuoy offers regarding
personal hygiene enables parents to let their
kids get involved in cleaning operation of the
street
85
Lifebuoy Lifeline Express
Corporate social responsibility of lifebuoy By
creating a mobile dispensary in a train
86
CSR Report 2005-06
87
ITC
88
GAILs CSR Health, Safety and Environment
89
Ranbaxy Laboratories Ltd.
90
Regulator The All Pervasive

• Political patronage
• Befriending industry associations
• Reducing moral hazards
• Building up consensus approach
• Safeguarding
• IPRs
• Trademarks
• Licensing and protection
• Independent evaluator and implementer

91
Indian Steel Alliance
92
India Brand Value
93
India 3rd largest economy by 2050. BRIC GDP
greater than GDP of combined G6 Countries. -
Goldman Sachs Report
Emerging Brand India
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World Economy - 2050(figs. in US bln)
95
India Land of Opportunities
Fourth largest Economy (PPP) - A safe place to
do business
Largest democracy political stability
consensus on reforms
Largest reservoir of skilled/semi-skilled manpower
Liberal transparent investment policies
Highest returns on investment India 19.33,
China 14.25, Thailand 13.3
Long-term sustainable Competitive advantage -
High growth rate economy
96
Global Business Leaders - Bullish On Indias
Potential
India As Per Global Entrepreneurs
We are expanding our presence in India to take
advantage of the ample RD talent available
India is a developed country as far as
intellectual capital is concerned
India is handling the most sophisticated
projects in the world..I am impressed with the
quality of work
India can be a major part of Dells operations
and we are looking to capitalize on Indias human
capital
97
India As Per Global Media

• Over 125 Fortune 500 firms now have RD in India.
• Newsweek. March 6, 2006.
• It is Indias time We are rebalancing the
  World, Says Ambani Newsweek. July 17, 2006.
• Ghaziabad, India is amongst the Worlds 10
  hottest cities. Newsweek. July 10, 2006.
• George Bush India is a rich and exotic prize.
  Its booming high-tech service sector and tens of
  millions of affluent consumers have already
  convinced many of the worlds business people
  The Economist. February 25 March 3 2006.
• Can India fly? A 14 page special report on Indian
  business.
• The Economist. June 3 9 2006.
• Special report Indias new dawn bringing with
  confidence, the nation strides toward a gleaming
  future.
• Time. June 19, 2006.

98
India As Per Global Media
99
Selected High Business Potential Sectors

• Infrastructure
• Telecommunications
• Energy
• Civil Aviation
• Utilities
• Financial Services
• Retail
• E-Business and Out Sourcing
• Infotainment and Edutainment
• Hospitality and Well-being

100
Indian Companies in Fortune Global 500
Source Fortune. 24th July, 2006
101
India Brand Value

• Tangibles (Measurables)
• GDP at current
• market price 750bln
• Parallel Economy 300bln
• Forex Reserves 170bln
• Market Capitalisation 560bln
• in the Stock Markets
• Accumulated FDIs 40bln
• Accumulated FIIs 20bln
• Total (Measurables) 1840bln

102
India Brand Value

• Intangibles
• Well functioning Institutions
• Financial
• Social
• Legal
• Education
• Vibrant parliamentary democracy
• Rapidly improving infrastructure
• Confluence of local vis-à-vis global culture
• Young nation
• Well connected Diaspora
• Entrepreneurial capabilities
• Increasing role in global geo-politics

103
India Brand Value

• Intangibles Somewhat Quantifiable Measures
• Global Orientation Medium
• Quality Reputation Medium
• Productivity through Infra. Medium
• Leverage Human Capital Medium
• Globalize PSUs Medium
• Investment in Design and Research Low
• Get access to low cost of capital High
• Organize global supply chain High
• Create Brand Equity Medium
• May be contributing to Indias brand value to
  the extent of 60 of its total measurable. This
  amount is around 1104 bln

104
India Brand Value

• Total Tangibles (Measurable) 1840bln
• Total Intangibles (Approx.) 1104bln
• Total Value 2944bln
• (2.9 Trillion)
• Expected Brand India 2010 6 Trillion
• (Linear Projection)
• China 12 Trillion
• Brazil 4 Trillion
• Russia 3 Trillion

105
MICA Valuation Model
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MICA Valuation Model
MICA Valuation Model
107
MICA Valuation Model

• Considers both quantitative and qualitative
  variables
• Very much at the formulation stage will be
  experimented in next 2-3 months
• In-depth analysis of literature is completed
• Not much literature is available in public domain
  on exact quantification of a brand
• Currently some local but established
  brands/company are under study
• More of an Econometric Model

108
MICA Valuation Model

• Stage I
• Qualitative variables are verified after an
  in-depth analysis of views from industry experts
• Weighted average method of zeroing down to
  qualitative variables
• Dummy variable method of regression analysis of
  the identified qualitative variables
• Impact/elasticity assessment of the relevant
  factor on the brand/company
• Functional Form
• Yi a ß1D1i ß2D2i ß3D3i ui

109
MICA Valuation Model

• Stage II
• Identifying the required quantitative variables
  including financial, marketing and overall
  company related information
• Using simple regression for the relevance of each
  variables
• Zeroing down on relevant variables
• Follow an simultaneous equation model
• Estimating the precision of the obtained model
• Arriving at a brand/company value purely from
  quantitative variables
• Functional Form
• Yi a1 a2D2i a3D3i ß Xi ui
• Stage III
• Pooling the results from Stage I and comparing
  with Stage II
• Using industry intuitions appropriating the brand
  value
• Arriving at a consolidated Brand Value

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MICA Valuation Model

• The Consolidated MICA Valuation Model
• Yi a1 a2Dt ß1Dt ß2 (DtXt) ut
• Y Brand Value
• Dt Respective non tangibles proxied for some
  tangibles
• Xt Quantified tangibles as reported/available he
• a1, a2, ß1, and ß2 - respective
  coefficients/elasticities of the variables
  determining brand value.
• ut The error factors arising out of the
  above regression.
• The model is at experimental stage.

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Celebrating India
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Prof. Atul Tandan Director, MICA pat_at_mica.ac.in
Brand Finance Forum 2006 www.brandfina
nce.com 10th Anniversary Event
Thank You