Last year, buyers paid 72% of the takeover consideration (on average) for the intangibles in businesses. You might recall that Procter and Gamble Co. paid almost half of the $57 billion (Rs2.72 trillion) for Gillette Co.’s brands alone.
Whatever business you are in, your good name plays a significant role in your chances of success.
Look at the kind of value delivered by brands. Coke, Microsoft, Intel, Disney, IBM, GE and Toyota are all names valued in excess of $20 billion. Some constitute at least half the value of the businesses that own them.
What is it that makes names so valuable? In a world, where choosing a car is difficult enough, will you keep saying “fuel-efficient, easy to park in Mumbai, wife can drive it too, high manufacturing standards, light on maintenance and good service backup all at Rs4 lakh” or will you just say i10?
Smart CEOs ensure that they own certain characteristics that are valuable to their customers. Easier said than done because it requires a significant commitment from the brand owner. Not merely in terms of advertising budgets as many may believe, but ensuring that the entire organization reflects these characteristics consistently. This can be quite a task.
Can you put a meaningful value to brands?
Brand valuation is not more than two decades old. It is only over this period that brands began asserting their independent role as wealth creators.
Today, at least two methods are used to assign a fair value to brands. Whichever you use, the essential idea is to separate the financial impact of owning your brand on your business forecasts. In plain English, if you only owned your brand and no other asset, what would your company be worth?
What does this mean for Indian firms?
As industry attempts to integrate into a global marketplace, brands will play an increasing role in the success or even survival of our businesses (why was Jet Airways valued higher than any airline in the US?). Today, Samsung (Samsung Electronics Co.) is more valuable than Sony Corp. because of a carefully scripted business strategy built around the Samsung brand name.
Given this scenario, the day is not very far away when companies will be acquired primarily for their names. If India is to claim its rightful place in the Fortune 500 list, this is something we may want to think about.
Ramesh Jude Thomas is president and chief knowledge officer, Equitor Management Consulting Pvt. Ltd.
As told to Anushree Chandran.
anushree.m@livemint.com