Applying Aristotle's Philosophy to Branding!

"More than hard assets, branding has more to do with the soft assets of an entity (generally a product or a service)". This statement looks very obvious today. But this was not always this obvious.

Branding as a subject has evolved over the years and with time marketers have realised that more than the product attributes or functional benefits, a brand connects more with the consumers on the dimensions of Brand Value. This was conspicuously noted when there was a hue and cry in the USA over the replacement of their favourite Coke by New Coke. The issue was not just about a drink that now tasted differently, it was about the value system that the brand loyalists believed in!

But in the early days of branding, it was the hard assets that were given much more significance. And this approach traces its roots to the Aristotle way of thinking. The entire western way of thinking traces its roots to Aristotle.

Aristotle said that every entity has Four Causes: Material, Efficient, Formal and Final. Applying this to branding, Aristotle's Four Causes of Branding would be:

1. Material Cause: What is the brand physically?

2. Efficient Cause: Who makes the product/service?

3. Formal Cause: What makes it identifiable to the world?

4. Final Cause: Which is the ulimate reason for its being?

Applying this to the brand Diet Coke (as per the book 'The Philosophy of Branding' by Thom Braun)"

1. Material Cause: Carbonated Drink

2. Efficient Cause: Coca Cola

3. Formal Cause: Characteristic Pack Design

4. Final Cause: Cool Refreshment with no Sugar

As one can see from this, it is only the hard assets that are stressed upon. And imagine, it was this approach that marketers would have initially started with! Thankg God we have come a long way since then!

PRIYAGOLD Valuation by Brand Finance... But How is this Valuation Done??

Recently, the valuation of Surya Foods’ flagship brand PRIYAGOLD was done at Rs.1200 crores. This gave the Noida-based food company reason to cheer before the company floats an IPO later this year.

The valuation was done by Brand Finance. Now the important question is, how is this Brand Valuation actually done!! I am trying to explain this in through this post…

It is nearly twenty years since RHM, a UK-based food manufacturing company, placed the value of its brand portfolio on the balance sheet as part of its defense against a hostile takeover bid. While it was not the first instance of brand values being capitalized on the balance sheet, the context and subsequent result caused many accountants to fall off their stools in horror.

Since then, Brand Valuation has gained increasingly more importance over the years.

Brand Finance is an independent consultancy, headquartered in London, which focuses on the management and valuation of brands and branded businesses. Since 1996, Brand Finance has performed hundreds of brand valuations with an aggregate value of over $150 billion.

Brand Finance calculates brand values using the ‘Royalty Relief’ approach. This approach is recognized by technical authorities worldwide. The methodology used to value a brand is briefly explained in the text below.

The future revenues of the brand over a five-year explicit period are estimated taking market growth, competitive forces, historic sales and analysts’ projections, growth assumptions into consideration. A Royalty Rate is applied to the future revenues to determine the Royalties that would be payable for the use of the brand by a third party. The determined royalties are then discounted and the NPV calculated gives the Brand Value.

The Discount Rate is determined using the Brand Beta Analysis (proprietary of Brand Finance) that uses a Brand Rating corresponding to the brand. The Brand rating is similar to a credit rating and delivers insight into the underlying strength of the brand and illustrates how valuations require a robust analysis of a brand’s performance in order to determine its value.

According to Brand Finance, the top ten brands in the world by value are listed below in decreasing order of their brand value:

1. Coca-Cola
2. Microsoft
3. Citi
4. Wal-Mart
5. IBM
6. HSBC
7. GE
8. Bank of America
9. Hewlett-Packard
10. Marlboro

Where to have a PoD for your Brand!

Whenever we talk about positioning a brand, the first two concepts that come to our mind are Points-of-Parity (PoPs) and Points-of-Difference (PoDs). In order to have a distinct differentiated offering, having PoDs at the right level in the Brand Hierarchy is important.

A marketer can differentaite his brand vis-à-vis the competitors at three levels:

1. Brand Attributes/Features
2. Brand Benefits
3. Brand Value

It is essential to have the PoDs sustainable. Special attributes or features that a brand claims can be easily copied by the competitors more often than not. It is tougher, but still possible for competitors to match the benefits that a brand offers. But once a brand has created a distinct value in the minds of the consumers, the competitors cannot follow that route.

Colgate Motion is the battery-operated toothbrush that Colgate has launched. If it focuses on its special bristles or the ergonomically designed handle, Oral-B can come out with its toothbrush with the same features anytime. If Colgate Motion tries to differentiate on the benefit of giving “Superior Cleaning”, Oral-B can match that in some time too. But if Colgate Motion differentiates itself on the Brand Value level as a product that is highly-recommended by dentists, no competitor will be able to replace the trust and respect that the brand will enjoy because of the value it will derive from dentist-endorsements. The trust, once developed in the values a brand stands for, is very difficult to break or replace.

Therefore, whenever you want to find PoDs for your brands or products, look for them at the Brand Value level.