Interbrand’s Entry will give Credibility to Brand Building
Interviewer: Boby Kurian, The Hindu Group
Source: Business Line, 2001
Interbrand, arguably the world's best branding consultancy firm entered India in 2001, through an exclusive tie-up with the Bangalore-based Equitor Consulting. Started in 1974 by a former Dunlop executive, John Murphy, Interbrand has created and managed several valuable brands such as BMW, AT&T, American Express, Allied Domecq, Bacardi Martini, British Airways and British Telecom. This London-based agency, which has over 50 offices worldwide, is now part of the transnational Omnicom group. It continues to inspire and express ideas into brands, which gives it value beyond consumer expectations.
Brands play a crucial role in either creating or destroying wealth in competitive environments and, perhaps, in commercial parlance, stands for the spirit of free world. Boby Kurian spoke to Ramesh Jude Thomas, Chief Executive Officer of Equitor Consulting, to find about Interbrand's role in the Indian corporate world.
Excerpts from the interview:
What is Interbrand's philosophy of brand building?
We believe that there must be a relationship between building a brand and enhancing shareholder value. It can't be less serious than this. We have researched stock markets for close to two decades now and there is conclusive evidence to prove it. For Interbrand, building a brand should mean creating a tangible, measurable value at the shareholders' end. Brand building should help in wealth generation in an increasingly competitive world where there is tremendous possibility of wealth being destroyed. The durability of the business is the reason why a company or an owner invests in brand building. The brand value must ensure security of demand even as the world around turns highly competitive.
Why did Interbrand choose to enter India? How will its presence affect domestic brands?
The question was tossed at me before they (Interbrand) decided to tie up with us. Interbrand prides itself as being a brand value management consultancy ensuring security of demand through consumer stickiness and loyalties. With the Indian market turning competitive, we are witnessing a lot of wealth being destroyed. A Business Today ranking of top 500 companies on EVA (economic value added) showed that approximately Rs.51,000 crore of wealth vanished in the last financial year. Nine out of twelve leading companies turned less valuable in the course of the year. We see an opportunity to pitch our case wherever there is destruction of wealth. Most of the venerable Indian companies are struggling with this crisis (It is estimated that the Tata group burnt Rs.4,500 crore of wealth in one year).
What are the drawbacks of brand building as it exists in India now? What difference can Interbrand usher in?
Most Indian companies approach brand building from the profit and loss perspective. It was fine as long as the market remained closed and options were not available to consumer. But with competition on the rise, brand building must be linked to the balance sheet to find how much value it has brought or destroyed. The brand managers here go up to the CFO (Chief Financial Officer) and ask resources for brand building investments. Much of this so-called investment is splashed on advertisement, marketing and distribution. This is only 20 per cent of brand building, which is just the `tip of the iceberg'.
The bulk of the brand building work is internal. Interbrand starts building a brand by putting in place sound management practices, which flow from clarity, conviction and commitment in terms of vision and what is to be achieved. We then see that these initiatives translate into value and measure its impact at the shareholder level. We call it the science of branding.
In short, brand building comprises three areas -create, manage and value. For us, most of the opportunity here is in creating and managing brand strategies. Brand valuation mainly comes into play at the time of M&As.
Many Indian corporates have been talking about valuation, essentially to put a figure on their brand, and use it as collateral to raise institutional funds. Your comments.
Brand valuation first struck in a big way when Infosys talked about it some years ago. But the inclination of financial institutions such as ICICI to consider something as intangible as brand value as collateral to advance funds is definitely a watershed. But beyond this, the main utility of brand valuation is in the fact that it helps a company channel its resources in the right direction. It also helps a company to understand where the value for the brand is and allocate its resources accordingly. For instance, in case of a consumer durable brand, there is no rule that 60 per cent of the resources must be spent on CTVs because that segment contributes 60 per cent of the topline. The valuation may reveal that it is some other business which brings maximum value to the brand.
What has been the response to your alliance with Interbrand?
The enquiries that we have received in the last three months are unbelievable. It is more than the business we did in the past four years. Equitor's business here has been growing at about 100 per cent every year and we have worked with over 50 clients till now. At present, Interbrand has an exclusive arrangement with Equitor in India and they are likely to pick up equity soon.
Brand consulting firms have mushroomed in India in the last few years. How big is this business and who will compete with Interbrand here?
The challenge will emerge from different quarters, namely big agencies which are looking at specialization, individual experts such as Shunu Sen, who have vast experience in brand building, and management consulting firms such as McKinsey and Accenture. Globally, Interbrand competes with these management consulting entities. There is no authentic data available on the size of brand building and consulting business in India. It could range between Rs.75 crore and Rs.250 crore annually.
We see more players foraying into this business. There will be a shakeout as the industry needs to get rid of quacks. We believe the entry of global players (like Interbrand) will bring credibility to this industry.