Mumbai: The Tata group’s intense activities in 2007 have seen it rising 45 places to No. 57 in Brand Finance Top 500 Global Brands, a widely respected ranking of brands by brand value published by the UK-based Brand Finance Plc. No other Indian brand figures in the top 100; Reliance Industries comes in at No. 151 and IndianOil at No. 215.
The study, which valued the Tata brand at $11.8 billion (Rs47,082 crore), is based on brand value at the end of 2007.
In 2007, one Tata company, Tata Steel Ltd, acquired UK steel maker Corus Group Plc. for $11.3 billion in January. By the end of the year, it was clear that Tata Motors Ltd, another group company, was the front-runner to acquire the Jaguar and Land Rover brands from Ford Motor Co. The deal was eventually announced on 26 March.
Brand stand: Tata group’s Ratan Tata. The Nano, and the Jaguar and Land Rover acquisition, could help Tata break into the top 50 in 2008. (Ramesh Pathania / Mint)
The end of the year also saw interest building up around Tata Motors’ small car Nano, which was unveiled on 10 January.
Unni Krishnan, managing director, Brand Finance India, said the Jaguar and Land Rover acquisition and the Tata Nano launch could help Tata break into the Top 50 in 2008. He added that the Corus acquisition helped boost Tata’s brand value because it brought to the group more products and capacity, a wider geographical reach, and the heritage value of British Steel.
Corus was formed in 1999 through the merger of British Steel and Dutch firm Koninklijke Hoogovens.
BREAKING INTO THE BIG LEAGUE (Graphic)
According to the Brand Finance study, the Tata brand is rated AA+ (indicating “robust strength”) in terms of brand strength, a measure that reflects its current value and future prospects. About 80% of Tata’s brand value actually stems from the three engines of steel, motors and consulting, and the thrust of the action is in these areas, signalling a positive future for the brand, Krishnan added.
“In recent times, have we done something dramatically different. Yes. The company has been restructuring, and been active in global mergers and acquisitions,” said R. Gopalakrishnan, executive director, Tata Sons Ltd, the group’s holding firm that owns the Tata brand.
He added that this is consistent with the Tata gene which has always been entrepreneurial—from getting into software 40 years ago to starting the Taj chain (of luxury hotels) even earlier.
Krishnan of Brand Finance said the Tata brand’s ascent was based on two significant changes in the group itself. “With Corus, and a string of truly blue-chip brand acquisitions, the centre of gravity of the Tata group has shifted out of India—about 60% of its revenues would be out of India now. We are seeing the transformation of what was once perceived to be a rather fuddy-duddy B2B (business to business) brand into a sophisticated global conglomerate and B2C (business to consumer) brand with much more consumer-facing businesses,” he explained.
Tata’s move up the brand rankings is significant because, despite its presence in services such as software, it is largely a traditional manufacturing group. And apart from General Electric (GE), no other traditional manufacturing brand features in the Top 10, which is dominated by US brands: Coca-Cola at No. 1, Microsoft at No. 2, Google at No. 3 (up from 15 in 2007), Wal-Mart at No. 4, IBM at No. 5, GE at No. 6 (7 in 2007), HSBC down a spot from last year to No. 7, Hewlett-Packard up a spot to No. 8, Nokia at No. 9 (up from 17), and Citi down from No. 3 last year to No. 10.
Brand Finance’s brand valuation methodology is based on fair market value, which the firm that calls itself an independent brand valuation consultancy, defines as the estimated amount for which an asset should change hands on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing where both parties have acted knowledgeably, prudently and without compulsion.
Various brand performance factors are considered to arrive at a brand’s value, said Krishnan: M&A activity, new product launches, R&D efforts, sales growth, market share growth, distribution, and consumer awareness and behaviour.
Another consultant said that the Tata brand is testament to the link between a brand’s value and its core values. Ramesh Thomas, president and chief knowledge officer, Equitor Management Consulting, said the Tata brand is built on a “bedrock of values” such as integrity, human values, compassion, laid out by its founding fathers at least a century ago.
“It (Tata) is not so much a business brand as a governance brand...,” Thomas said.
Brand Finance’s Krishnan said there are four factors driving the value of the Tata brand: mergers that contribute to revenues; media coverage; a change in perception that it is no longer largely a steel and auto firm but a multi-dimensional conglomerate; and a transformation in the brand into one that has more “connect” with consumers.
In terms of brand strength, the world’s strongest brands are Coca-Cola, Microsoft, Google, Gillette, Nike, Apple at AAA+ (iconic) rating, followed by HSBC, McDonald’s, BMW, American Express at AAA, or “very strong” rating.
The study also shows that some of the world’s highest-profile brands display highest proportion of brand value to overall enterprise value: Nike (72%), Dell (45%), Budweiser (36%), McDonald’s (32%), American Express (31%), Coca-Cola (31%), L’Oreal (30%), Tesco (27%), Disney (26%), Hewlett-Packard (26%). In the case of Tata, this is 20%.
The Brand Finance analysis of shifts in brand value by category highlights challenges for marketing managers. Coca-Cola’s brand value rose from $43.1 billion in 2006 to $45.4 billion in 2007. And its enterprise value rose from $110 billion to $147 billion. Rival Pepsi’s brand value rose from $23.9 billion in 2006 to $24.8 billion in 2007. Still, its brand value to enterprise value is about 20%, in contrast to Coca-Cola’s 30%.
The reasons for this, according to Brand Finance, is that Pepsi is a follower brand, and while it has been striving to enhance its brand attributes, Coca-Cola’s leadership is proving hard to overtake.
The banking sector worldwide has been wracked by the subprime crisis and the ensuing credit crunch and the sector has been rerated.
HSBC has still done well in this milieu. Its positioning as “the world’s local bank” has helped it tap growing demand from developing markets, according to Brand Finance. Its brand value climbed from $33.5 billion in 2006 to $35.4 billion in 2007.
In contrast, Citi’s brand value slid from $35.1 billion in 2006 to $27.8 billion in 2007, reflecting its impact from the subprime crisis.
Brand valuation is vital for due diligence in merger and acquisition deals, where it is more than common for buyers to overpay.
According to Brand Finance, quite a few contested takeover bids end up with the acquirer paying a huge premium, borrowing lots of money and, eventually, making a significant goodwill write-downs. As examples of this, Brand Finance cites Mannesmann’s acquisition by Vodafone in 2000 for $175 billion and Time Warner’s acquisition by AOL for $124 billion in 2001. Both resulted in multi-billion-dollar goodwill write-offs.