Would you rather brand or innovate?

Last month my dear friend and former boss Tom Blackett sent me a revealing annual report from an organization call the WIPO

WIPO is the UN body for Intellectual Property and has been around since 1967. The body recognises the vital role that intellectual property plays at the heart of business and entrepreneurship.

Till recently, intellectual property was largely construed to mean innovation and patents. And a body like WIPO tracks the number of patents registered as a means of assessing growth in innovation. They generate maps depicting the innovation rich parts of the world. This year the focus of the report has switched dramatically,certainly reflecting the times we live in. 

WIPO has been tracking the growth of trademark registration. It is now patently evident that these are no longer merely legal placeholders but strategic assets that power shareholder value . Every good brand is based on a proprietary notion and if there is no protection of that idea (as represented by the trademark) then the copying of ideas would be rampant. This would discourage entrepreneurs from starting new businesses thereby slowing down growth in economies. Those of you who have seen counterfeits of your brands in the market would know exactly how annoying and discouraging this is. 

Trademark registration has soared across the world. As consciousness grew of brands as contributors to economic value (and hence market capitalization), this was not surprising trend.

The World Intellectual Property Report 2013 titled ‘Brands – Reputation and Image in the Global Marketplace’ states that in the US for the first time, investment in brands has surpassed investment in R&D and design. This is a dramatic change in the orientation of what constitutes long term value. A defining moment in the history of the  world's largest economy.

Obviously businesses have recognised that enterprise value does not necessarily come as much from technological innovation (product differentiation) as how their beneficiaries engage with the final outcome.

I would argue that even ‘tech’ companies like Google and Intel use R&D as a means of furthering their brand idea – ‘better search’ and ‘faster chip speed’ perhaps?

Would you tell me what you think?

The Return of the King

Two weeks ago I woke up to a cryptic text from a senior journalist friend of mine: “HE’s BACK…AND HOW!”

Not the most illuminating as communications goes, you would agree, but I knew him well enough to understand his excitement. Mr. Murthy (for whom he has very high regards) had returned to the saddle of the iconic IT firm which he had co-founded. And his return seemed to have bolstered its sagging performance.

It might be premature to attribute INFOSYS’s turnaround to Mr. Murthy's second innings, but it would surprise anyone if that were indeed the primary reason for the turnaround. Because he seems to be in very good company globally.

Howard Schultz, Michael Dell and the redoubtable Mr. Jobs are some of the better known names to have arrested and reversed the southbound fortunes of the firms they founded. If we look hard enough we would probably locate many less celebrated founder revivals.

So why is it that the promoters are able to come back under strange new circumstances, roll back the years and deliver a performance that their highly skilled, well-paid successors were not able to approach, leave alone replicate?

Spare a thought too for those CEOs with wonderful track records who came a cropper after taking the helm at some wonderful, successful companies only to see them flounder despite their best efforts? Remember Disney?

What did these returning kings do differently then?  They just reclaimed their soul. Every successful founder leaves behind a unique legacy. Very often inarticulately.

The troubles of these iconic firms usually begins when new leadership attempts to raise the bar on performance without considering the role and influence of its founding legacy.

Analysts worry about whether Apple will continue to disrupt without Jobs. Can TATA be ethical and fair without a TATA?

While the term ‘soul of the business' may sound esoteric, it is the defining element of strong and durable brands. Customers consider, rebuy and advocate businesses that have a soul that resonates with their own beliefs. And for customers to hold on to that resonance, it needs the organization to bring the soul to work each day. Day after day.

When Howard Schultz returned to Starbucks, he took the tough decision of shutting all the 7100 stores in the US for a half a day as baristas were retrained in the art of making great coffee. It is only now that the analysts and investors get interested. The sheer consistency of performance that comes from single mindedness even in the face of adversity.

Customers weren’t just buying a great cup of coffee, they were buying the passion and commitment of Starbucks employees towards them. Retraining employees was about reclaiming that expertise so as to be able to embody distinct values into a perfect espresso.

Sometimes it takes an outsider like Alan Mullaly to re kindle what the insiders have forgotten about a FORD. Is it surprising really that he was short-listed to run Blackberry?

Founders instinctively know what the soul of their business is. And they know that when the business is floundering, that it usually has lost its soul. The other people who know this are the customers who notice (consciously or unconsciously) that something is amiss.

When founders come back, they Instinctively or otherwise return to reclaim that founding legacy. They remember the recipe with great ease because they discovered it.

Mr. Murthy's memory seems to be in great shape.

What do you think? 

Flying blind: businesses without dials

Sitting on the boards of entrepreneurial businesses can be very interesting. They are all characterized by high energy ownership and very sincere operating leadership. But many of them do not have or appreciate the notion of management by metrics.

I was recently returning from Mumbai with one of our managing directors after a board meeting. An audacious visionary with an instinctive flair for business, he didn't have the patience for MIS, business analytics and other grunge stuff.

Midway our flight experienced some turbulence. The gentleman (who doesn't do well in bad weather flying) was noticeably disconcerted.

‘How do you think the pilot is flying this plane?’ I asked him. He paled for a second wondering what I meant and then replied ‘He has a set of controls of course, and he looks at them constantly to see where he is going.’

I was quick to pounce on that ‘But, maybe, he doesn’t like grunge stuff. He may have more interesting challenges!’

He grimaced then smiled and said ‘Go on.’

'Think of a pilot taking off at midnight over the Atlantic on course for New York. He doesn't look through his windshield and fly. He doesn't look 12 km below for milestones or road signs to tell him how he is progressing. He doesn't honk at passing aircraft requesting them to give way.'

Our CEO gave me a long look and then turned to nervously gaze out of the intractable aircraft.

'Businesses are exactly like long haul flights' I offered. 'You can't fly them by brute force or instinct. How do you ensure then that you can navigate the business plan to schedule and within fuel capacity?'

Like long haul flights, all good businesses are run on a good instrument panel system. When a plane is in trouble (or even just flying into normal turbulence) the first thing a pilot will look at is his dashboard. What height, how much storm cloud ahead, fuel consumption rate and so on. He can then pinpoint the issue and take action to return to smooth flying and then back to course.

Now the CEO looked genuinely confused 'But I thought you were the brand expert on our board?'

'Brands are nothing if not business assets. And you often pay a ransom to acquire them (the Gillette brand name alone was worth $18 bn when P&G bought the business 8 years ago). In which, case don't they have to be as accountable for business performance as any infra asset. Today, the best businesses measure their intangible performance more closely that their quarterly financials

Is it a coincidence then that the best brands in the world are also the most profitable and liquid? BusinessWeek’s most valuable brand this year has over $ 100 bn in cash reserves!'

In the case of my co-passenger's business, we found that holding the price at a mere 2.5% over the current average, the intrinsic value of the business changes by a whopping 23%! The business itself will suddenly be worth a lot more. But we all know that you cannot hold an elevated price without a very resilient brand.

Here's the thing: Unless we're capturing all the relevant metrics on a customized dashboard, we can never figure out what needs to be managed. If we can't, we will have to "guess" and "gas" your way through every quarter.

Tell me about an interesting business you know of that runs on good dials. 

Non-profits as Valuable brands

I was meeting Reena after many years. She had been a banker in the Western Hemisphere for a couple of decades. After dinner, she revealed that she too was now in the business of Transformation - Transforming the future of the girl child through education.

I was immediately excited about how the EQUiTOR Foundation could help. But the look of skepticism on her face was telling: "What can a professional Brand Valuation firm to do to help poor girls get a good education?”

This narrow definition of the brands as real assets is unfortunately the norm in India.

But the blame for this blinkered view must rest squarely on the shoulders of people like me. While we spend a lot of time talking about our commercially successful cases, the EQUiTOR Foundation has never exposed people to the transformational role that brands can play in the growth and stability of non-profits.

The twin problems that most non-profits face are common and endemic:

·         Predictable inflows

·         Stable skill base.

And it does not really matter what size they are.

From our experience we can state with complete confidence that no Non-Profit needs to ever be short of funds or skills.

So then why are these problems endemic? This is fundamentally because both resources are dependent on tactical, crisis based approaches e.g. “this initiative needs a large amount of funding” or “how quickly can we find people for that activity". So what donors and volunteers are really buying into is a transactional request for support.

One year into the birth of the EQUiTOR Foundation we discovered a metaphor that helped us clarify the brand perspective for non-profits.

We got all of them to move from a ‘Cover Story’ model to a ‘Subscription model’. So, as a donor (of money or talent), I subscribe to the non-profit's raison d’etre rather than to a single initiative or a crisis.

How did this help? Essentially it moved the funding motivation from short term to long term. Publications that enjoy subscription readership are dramatically de-risked at both ends. Similarly, a donor who fundamentally believes in the entity is a far more dependable patron than someone who funds an activity or a crisis.

Now Brand valuation (or any valuation for that matter) is about managing the risk of future earnings. If a brand (commercial or non-profit) does not have an articulate rationale for existence and therefore why customers are loyal to it, then it cannot know the risk of its forecast earnings.

What drives customer commitment in business is the same as what drives donations (and volunteering) for non-profits. We all buy into a brand before we actually buy the brand!

What do you think?

ROCE : Return On Customer Experience

Last month I was invited to speak at the customer service conference of a well-known MNC bank. What did a left brain valuation type like me have to do with Customer Service? I'm the closest thing to a bean counter that the marketing world can get.

So what in the world does brand valuation and customer service has in common?

Plenty actually. Here's the thing: most companies treat customer service as an expense (to be closely monitored), not an investment for a return. So the two key metrics for customer service management in many companies is the number of service calls that are completed and the cost per call. Fewer calls and shorter calls is better than more and longer calls.

From a cost management perspective both make perfect sense. But here’s the issue: managing it as a cost actually kills businesses but very slowly. Three months ago, India's leading telecom company told me ( a high value customer by Indian ARPU standards) that they could fix the connectivity problem on my phone only if there were enough subscribers on their network in our office!!! No marks for guessing what happens next.

So why should I treat it as an investment?

There are three essential pillars for demand generation: Consideration, repeat purchase and advocacy. There's isn't a fourth. There is enough evidence available now of a direct correlation between advocacy and business risk.( Read the book called Net Promoter Score). A very high percentage of the Apple business is made up of repeat purchase and references from the fervent faithful. And their evangelization.

Both of these metrics have a direct bearing on demand risk and customer acquisition cost (and very often even liquidity). One protects the bottom line and the other enhances it. Outside of "club" industries like energy, and mining, most intrinsically valuable businesses will enjoy very high repeat purchase and advocacy.

Now guess where repeat purchase and advocacy are generated. No marks for guessing. You got it...in the heart of a well-treated customer. Not necessarily always a satisfied one but one with an enduring memory of being treated well. Singapore Airlines has an articulate philosophy on this. "We don't strive for perfect service. We manage our imperfections better than most"

So most valuable businesses are not necessarily the best recognized businesses, but the most reputed ones.

What's the difference? One has very high visibility. The other enjoys very high regard. And regard cannot be bought. You need to earn it. From your customer. It may not be polite to make comparisons here, but I'm certain you don't need my help to think of some good examples of both.

Which one would you put your money into?

Thinking twice about price - Schumpeter

WHEN bosses promise to make their companies more profitable they usually say they will do so by increasing sales or cutting costs. But a third road to profits is rarely mentioned: putting prices up. Managers often fail to ask how they might do better at plucking the goose to obtain the most feathers with the least hissing. The spiel from the management consultants who advise companies on pricing—whether specialists like Simon- Kucher or giant generalists like PWC—is that it is now more vital than ever to be smart at it.

In today’s austere age many businesses cannot depend on rising sales volumes to lift their profits. As for cutting costs, most have already pared them to the bone. Prices are all that is left. And a business can do a lot with clever pricing, to boost its share of the limited spending power that is out there.

Makers of high-tech products such as smartphones can opt to add whizzy new features and push up prices. In the case of luxury goods, their exclusivity is a large part of their appeal, and this in turn is a function of their price, so firms usually have scope for limiting supply and charging more: Ferrari, a sports-car maker, and Mulberry, a purveyor of posh bags, have both recently signalled that they plan to do just that. But raising prices by making products better or more exclusive is a strategic decision, open to only a few types of business. For all sorts of mundane goods and services there is much that can be done tactically, the consultants say, to charge more for the same thing.

First, firms should simply take pricing more seriously: have a clear policy and make everyone stick to it. Obvious? At a recent conference organised by Simon-Kucher, the 100 or so delegates were asked to put their hands up if their company had a written pricing policy. Just two did so. Setting prices, promotions and discounts is often left to junior people and local sales offices. Even where a policy is set from the top, the salespeople may ignore it because they are still being rewarded for maximising sales and keeping customers. Neil Hampson, a pricing expert at PWC, says he sometimes starts his client meetings by asking: “When was the last time you congratulated a salesman for walking away from a client?” Most have never done so.

Second, companies need to remember that, as the late Peter Drucker, a management guru,  once put it, customers do not buy products, they buy the benefits that these products and their suppliers offer to them. So, businesses that fail to identify what benefits they are offering each type of customer are likely to be undercharging some of them. Equipmentmakers who sell to other businesses can be especially prone to a “cost-plus” mentality, in which they charge the same margin to everyone instead of identifying those that are less price-sensitive and finding ways to earn more from them. Oil companies, for example, can suffer huge costs in lost drilling time if a pump goes down, so pump-makers could charge them a premium for guaranteed same-day dispatch of spares.

Airlines have learned to “unbundle” their product, charging separately for baggage and meals and increasing their overall takings. But industrial suppliers may still charge the same to customers who never call their technical helpline as to those who ring it daily. Makers of everything from aircraft engines to lorry tyres have gone further in selling benefits rather than products, by offering “power by the hour” contracts in which customers only pay when they use their goods. The suppliers earn more overall, while their customers preserve scarce capital.

A third route to charging more is to manage customers’ expectations better. In the early 2000s executives at General Motors were told to wear badges with “29” on their lapels, as part of a disastrous plan to get back to a 29% market share in America. This merely reinforced car-buyers’ assumption that GM would offer them whatever discounts it took to shift its metal off the forecourts, putting the firm on the road to bankruptcy. (Last year its market share fell to 17.5%, its lowest since the 1920s.) Once customers know that a firm’s price list is a work of fiction and that it will resort to discounts as soon as sales dip, it will be a

long haul to get them used to paying full price, let alone accepting increases. Simon-Kucher’s consultants praise DHL, a logistics firm, which spent years drilling into its customers that whatever the economic conditions there will be a rate rise each year.

You've been framed

Fourth, there are lots of simple presentational tricks that almost everyone is wise to but which still, miraculously, work. Restaurants add some overpriced wines lower down the menu to make the ones at the top seem reasonable. Makers of ice cream offer “33% extra free” rather than “25% off” the cost of the regular size, even though these are arithmetically the same thing. Buyers at big industrial firms are just as susceptible to such “framing” when reviewing a list of widget prices.

The pricing experts make it sound so easy. But there are of course limits to how far firms can go in tailoring their prices to the customer without appearing sneaky. Last year Orbitz, an online travel agency, was criticised for offering a costlier selection of hotels to people browsing its site on an Apple Mac because it assumed they were richer than PC users. Although a firm’s customers may not notice the odd price rise slipped in here and there, they will eventually notice if their overall bill starts to swell: Tesco, Britain’s biggest grocer, is now having to offer expensive discounts to win back a damaged reputation for value.

And sticking to a pricing strategy takes guts. The irony, confides a senior management consultant, is that firms like his have such a taboo against letting go of a client that they are the worst at taking their own advice to be fearless in asking for more, and walking away if

they do not get it. 

Importance of founder-led firms seeing resurgence - Chris Zook

Chris Zook, author of management books and cohead of the Global Strategy practice at Bain and Co., has made a name for himself advising CEOs on developing a systematic and scientific approach to growth. He was in India recently to meet some founder- or promoter-run firms, because, according to Zook, “around
the world we are seeing resurgence in the importance of founder-led companies” and founders returning to save their companies, he said in an interview.

This whole trend of promoters returning to save companies in India. We have the recent example of N.R. Narayana Murthy returning to save Infosys Ltd. How significant is that?

I think we have seen more cases of founders coming back in the last five to seven years than I can ever remember seeing before. The Howard Schultz story at Starbucks is amazing in the sense that how fast the turnaround  appened in terms of performance. When you delve into it, (among) the things that he brought back was the culture of the barista, the person who makes the coffee, redesigning the equipment.

I am not sure it is a pattern: the founder having retired and then having to come back and rescue the business, but there are a lot of examples (of this) that we are seeing now. In a way, it may be a sign of failure (of the founder) to set up succession perfectly. What is interesting for me is how many times they (founders) actually help the case.
Another trend is going back to the founding mentality, without the founder coming back—(such as) the  rejuvenation of Lego or Burberry. I think it’s a very interesting thing to observe how businesses that lost the founding mentality, sometimes rediscover themselves by going back to the founding principles.

So, it doesn’t always take the founder?

We are talking about 5% of a phenomenon that feels like it happens more often by virtue of the story of Howard Schultz or Steve Jobs. In those cases, the founders had to reinstitute some of the beliefs and practices that have got lost along the way. Usually, these have to do with being more in touch with the customers. What Howard Schultz did to Starbucks was to refocus. First thing he did was that he shut all the stores…800 stores for an entire day, which is quite expensive, if you calculate the amount of money. He retrained the staff, redesigned the equipment, stopped cheese smelting in the stores to magnify the coffee experience...

Jobs wanted to get closer to what the customer would need in the future. I think he was amazing.

The impact of most of the founders coming back is to drive the company much closer to the customers, which is fundamentally a good thing for the business—but it doesn’t always take the founder to do that. There are a number of iconic companies, owned by families, where an outsider CEO came in and turned the things around by bringing back the founder’s original principles. So, I think that sometimes the founding mentality is lost and it takes a founder to bring it back, and sometimes it can be done by a CEO.

We also have a counter-phenomenon in India. Of promoters who continue to cast a long shadow on the business, who control every aspect, is that a good thing?

I think it is great. I think it’s the life force of the great companies. I remember a piece of a research, that I saw years ago, that we had done. It looked at great teams, business teams, development teams and some other teams and then poor-performing teams. For poor-performing teams, 80% of the comments were internally focused while 70-80% of the comments in the best performing teams were externally focused - on frontline behavior and the customers.

Every business begins with one founder, one product and one customer and over time there are natural forces which take the business away from the closeness of the frontline, away from treating businesses like your own, away from the real intensity of the customer and all the things that the founder does. I think you used the word control; I would use the term externally-focused and obsessed with the details of the business, which is incredibly important. I think these details really make the business. Ideally, what you would like to do is to transmit that to the next generation.

When you start to lose attention (to) those details and start becoming internally focused, then I think you are on the path to extinction.

Businesses, if they don’t fight against this, can turn into bureaucracies, lose the voice of the customers and make themselves very vulnerable to (competition from) founder mentality types of companies. You have seen that happening in Sony versus Apple, or Michelin versus Hankook.

Finally, a question on the current economic situation. You meet a lot of CEOs. Are they still cautious about the future? When do they see things improving?

There are huge amounts of cash that have built up. Companies, private equity and sovereign wealth funds—they are not sure of where to invest. Still, things are beginning to improve. We are seeing a return of the US economy. But Europe is still troubled except for a couple of economies and the developing world has slowed down. India is down from 8% (growth) to 5%. From the point of view of multinationals outside, that is still very attractive growth. I think when I look at the mix of work that we are doing at Bain and Co., during the more difficult recessionary period, the focus (of companies) was towards cost reduction but now they are shifting more towards growth projects.

It is more about the future.

The emerging-brand battle - Schumpeter

THE past 20 years have seen a massive redistribution of economic power to the emerging world. But so far there has been no comparable redistribution of brand power. Fortune magazine’s 2012 list of the largest 500 companies by sales revenue included 73 Chinese firms, more than from any other country except the United
States, with 132. Yet Interbrand’s 2012 list of the 100 “best global brands” included not one Chinese firm.

However, in “Brand Breakout”, a new book, two academics, Nirmalya Kumar and Jan-Benedict Steenkamp, argue that developing-country firms are swiftly learning the art of branding. A few emerging-market brands have already gone global: it is hard to watch a football match in Europe without having “Emirates” burned onto your retina. More are on the way: Haier of China (white goods), Concha y Toro of Chile (wine), and Natura of Brazil (beauty products).

Westerners feeling besieged by the rise of the developing world comfort themselves with the thought that they still hold the high ground of premium-priced branded goods. But they should be in no doubt that emerging-market contenders are mounting their warhorses and readying their battering-rams.

The authors argue that emerging-market companies are advancing along eight paths to brand success. All are strewn with obstacles but each offers a possible route to the global heights. The most obvious is the path previously trodden by Japanese firms such as Toyota and Sony, and then South Koreans such as Samsung and Hyundai: first, establish a beachhead in the West by selling a good-enough product cheaply; then relentlessly raise your price and quality. Pearl River of China has become the world’s biggest piano-maker and now rivals Yamaha (itself once an emerging-market challenger) on quality. Haier, having become the world’s biggest white-goods maker, is now out-innovating Western rivals with ideas like a TV powered wirelessly, with no trailing cables. (Its European slogan is “Haier and higher”.)

A second path is to focus on business customers first and then woo consumers. Mahindra & Mahindra of India went from making tractors to producing cars. Huawei, a giant maker of telecoms equipment, is now a rising producer of mobile phones. Another Chinese firm, Galanz, began as a contract manufacturer for Western firms but now sells microwave ovens under its own name.

A third path is to follow diasporas. Reliance MediaWorks of India has launched the BIG Cinemas chain in America, to show Bollywood blockbusters. Jollibee, a fast-food chain from the Philippines, has opened outlets in places, from Qatar to California, with Filipino communities. But breaking into the mainstream can prove hard, as Jollibee’s limited success shows. Perhaps more fruitful is a sort of “reverse diaspora” strategy used by Mandarin Oriental hotels (China) and Corona beer (Mexico): Western businesspeople returning from trips to Asia, and American students returning from spring break in Cancún, have sought out Mandarins and Coronas back home.

A fourth path is to buy Western brands off the shelf, as Tata Motors of India did with Jaguar Land Rover (JLR), and more recently Bright Food of China did with Weetabix. Bright can now use its huge distribution system back home to get Weetabix cereals on China’s breakfast tables while using Weetabix’s distribution system in the West to sell Bright products such as Maling canned meat. However, five years on from Tata’s takeover, JLR’s glamour, and its success in selling to the emerging world’s new rich, have done nothing to lift sales of Tata’s own cars.

The next three paths set out by Messrs Kumar and Steenkamp are ways for emerging-market firms to escape their home country’s reputation for poor quality, or lack of a positive reputation. One is to latch on to some aspect of the national culture that sounds nice: Havaianas, a Brazilian flip-flops maker, taps into the local beach life. Another is to tie the brand’s image to the country’s natural beauty, as Concha y Toro does with Chile’s wine country. A third, more passive strategy is to rely on government efforts to change the country’s image, as with the “Incredible India” campaign and Taiwan’s “innovalue” slogan.

The final path to global brand greatness is to be a pampered national champion. So far this has produced some notable failures—Chinese and Malaysian car makers come to mind—and just one spectacular success: Emirates. In 2000-12 the Dubai airline enjoyed a compound annual growth in sales of 23.1%. The airline’s growth has in turn helped Dubai become a logistics center for business and, against all odds, a popular tourist destination. Never give up, no matter what

AIMA World Marketing Congress

(Right click and open in a new tab to see the image in its original size)

From the recently concluded edition of the World Marketing Congress at New Delhi. Equitor continues to be the Knowledge Partner for the AIMA-RK Swamy High Performance Brand of the Year award.

Congratulations to NIIT, Zee and Apollo Tyres!