Interbrand’s Sri Lanka partner, MND Chief Executive Officer Michel Nugawela shares key insights. Following are excerpts:
Q: What is Interbrand and its Best Brands List?
A: Interbrand is the world’s largest and most influential brand consultancy and the first to recognise the significance of a brand as a business asset. Interbrand introduced the brand valuation concept to the world and has played a leading role in the development of the standard itself. It was also the first company to have its methodology certified as compliant with the requirements of ISO 10668 for monetary brand valuation.
Today, Interbrand maintains its leadership role in the field of value-based brand management and combines rigorous strategy, analytics, and world-class design to assist the Best Global Brands like Samsung, McDonalds, P&G, AT&T, Barclays, BMW, Fedex and Intel to create and manage brand value across all touchpoints and market dynamics.
Interbrand Best Global Brands is the most prestigious brand ranking table globally and the definitive guide to the world’s 100 most valuable brands. Now in its 18th year, Best Global Brands is based on a combination of attributes that contribute to a brand’s cumulative value: the financial performance of the branded products and services, the role the brand plays in influencing customer choice, and the strength the brand has to secure earnings for the company.
The Best Brands list is Interbrand’s compilation of brand tables that valuate the world’s top country brands. Starting this year, we’re delighted to showcase Sri Lanka’s most valuable brands to the world as Best Sri Lankan Brands takes its rightful place among Best Japan, Best China, Best Korea, Best Swiss, Best German, Best Spanish, Best Canadian, Best Brazilian and Best Indian Brands.
Q: How different is Interbrand’s Best Brand List versus other similar lists?
A: It has no equal, in Sri Lanka or globally. The brand valuations are conducted in entirety by Interbrand globally, and overlooked by Mike Rocha, Global Director, Brand Valuation, in Interbrand London. Best Sri Lankan Brands is a global process, undertaken by a global team, using the same proprietary methodology as Best Global Brands.
The qualifying criteria are: first, a brand’s country of origin must be Sri Lankan. The Best Sri Lankan Brands table recognises the most valuable Sri Lankan brands, not those of other country origins. Second, to maintain reputational integrity and avoid conflicts of interest, Interbrand does not levy or accept payments to list brands in its table. This is – categorically – not a practice Interbrand accepts. Third, there must be substantial publicly available financial information, either printed and circulated or published online to ensure transparency and comparability, and in turn enhance the usefulness of the valuations to wider stakeholder groups.
Interbrand’s brand valuation methodology is recognised to be the most robust in the world. It is based on a unique combination of attributes that contribute to a brand’s cumulative value: An analysis of the financial performance of the branded products and services, the role the brand plays in influencing customer choice or Role of Brand, and the strength the brand has to command a premium price or secure earnings for the company or Brand Strength. Each brand’s financial performance, role, and strength are valuated through an Economic Value Added methodology.
The financial performance measures the overall financial return to investors, or its economic profit. This is the after-tax operating profit of the brand minus a charge for the capital used to generate the brand’s revenues and margins. The brand valuation methodology allows for a fair return on this capital before determining that the brand itself is creating value for its owner. Interbrand also forecasts the brand’s revenue and economic profit for the next five years which forms the foundation of the brand valuation model. Beyond the five years, a terminal value is also created for the brand.
Role of Brand quantifies as a percentage the portion of the purchase decision that is attributable to the brand, relative to other factors like price, convenience, or product features. Role of Brand is multiplied by the economic profit to determine the brand earnings that contribute to the valuation total.
Brand Strength measures the ability of the brand to create loyalty and keep generating demand and profit in the future. It is scored on a 0-100 scale based on an evaluation across 10 key factors – Clarity, Commitment, Governance, Responsiveness, Authe-nticity, Relevance, Differentiation, Consist-ency, Presence, and Engagement – that make a strong brand. Four of these factors are internally driven, and reflect the fact that great brands start from within. The remaining six factors are more visible externally, acknowledging the fact that great brands change their world. Performance on these factors is judged relative to other brands in the industry and relative to other globally benchmarked brands. The strength of the brand is inversely related to the level of risk associated with the brand’s financial forecasts.
A proprietary formula is used to connect the Brand Strength Score to a brand-specific discount rate. The brand-specific discount rate is used to discount brand earnings back to a present value, reflecting the likelihood that the brand will be able to withstand challenges and deliver the expected earnings into the future. This is equal to brand value.
Q: What factors encouraged/influenced Interbrand to launch a Sri Lanka List?
A: Interbrand’s purpose in this market is to support Sri Lankan businesses to emulate the hallmarks and grow to the stature of the Best Global Brands. Our ongoing engagements with HNB and DIMO, as well as the work we are soon to begin with the government, present excellent opportunities for us to demonstrate how long-term management and a robust value-based methodology can grow businesses and categories.
Sri Lankan businesses now widely accept the strategic role the brand has on the overall value, perception, and performance of a company. Sri Lankan businesses are also searching for new ways to grow. Interbrand has played a leading role – if not the leading role – in instilling confidence among business leaders through its robust value-based methodology which has proven to grow the businesses of the Best Global Brands. Interbrand has also partnered and produced strategies for the largest Asian brands like Toyota, which ranks #7 on the Best Global Brands table. Interbrand also created the first Korean Top 100 brand, Samsung, by introducing the brand value concept to the conglomerate and propelling it to the 7th most valuable brand ranking on the Best Global Brands table, worth over $ 56 billion in 2017.
The brand-value methodology brings together market, brand, competitor, and financial data into a single framework that provides a rich and insightful analysis of how the brand contributes to business growth today, together with a roadmap of activities to ensure that it continues delivering even further growth tomorrow. The key diagnostic tool is Brand Strength, which offers a robust, evidence-based and data-driven methodology to manage and govern the brand across multiple touchpoints and markets.
Brand Strength measures performance and analyses the reasons behind the brand’s strengths and weaknesses, both internally – where it looks at growing in vision, ambition, potential, attitude, perspective, processes and standards – and externally – where it looks at reaching new customers with new products and services through new channels in new markets.
By introducing a common set of metrics across the organisation, Brand Strength enables different functions to view the brand through the same lens, begin a constructive dialogue about performance on the ten Brand Strength factors, and allow responsibility to be allocated to functions across the business, building engagement and a sense of responsibility for the brand.
Brand Strength provides global and local managers with an actionable tool to make informed marketing decisions and empowers management with insights to implement brand strategy. Since it is always relative to the competition in that specific market, Brand Strength allows local managers their individual market-level insights to tailor specific tactics while providing the corporate office with a high-level dashboard detailing the relative strengths and weaknesses in the brand at a more strategic level.
Q: Why do you think branding is essential for success of companies and countries?
A: The Best Global Brands all recognise that the brand is a strategic, living business asset that can provide long-term competitive advantage and increasingly contribute to shareholder value as global competition becomes fiercer and technology continues to level the playing field.
Strong brands influence customer choice and create loyalty; they attract, retain, and motivate talent; and they lower the cost of financing. The influence of brands on current and prospective customers is a particularly significant driver of economic value. Brands help share perceptions and purchase behaviour, and make products and services less substitutable by expressing their proposition consistently across all touchpoints. In this way, they create demand and allow their owners to enjoy higher returns. They also create continuity of demand into the future, making expected returns more likely, or less risky.
Interbrand’s brand valuation methodology has been specifically designed to take all these value-creation levers into account. Role of Brand analysis is about understanding purchase behaviour: the brand’s influence on the generation of demand through choice. Brand Strength, which measures the ability of the brand to create continuity of demand into the future through loyalty and, therefore, to reduce risk, considers both internal and external factors. Finally, these inputs are combined with a financial model of the business to measure the brand’s ability to create economic value for its owner.
Using the same value-based methodology, Interbrand has also developed some of the most successful nation brands such as New Zealand, Australia, Korea, Spain, and Singapore.
For example, the Ministry of Foreign Affairs in the Netherlands partnered Interbrand to evaluate the existing Holland Branding policy and help define the Holland brand proposition to drive clarity, internally and externally, as to what Holland stood for. The goals were to drive choice for the Netherlands among economic decision makers for both exports and investments, and guide the Holland brand management team in the best use of their allocated Euro 2.5 million budget.
Interbrand used Brand Strength to assess the Holland brand. Analysis showed a clear opportunity to improve on internal Brand Strength which would especially benefit the embassy network that delivered the brand abroad. The “Pioneers in International Business” proposition gave an overarching, unique Holland flavour to everything delivered by the ministries to stimulate trade and investment. Building clear foundations for the Holland brand and agreeing on its definition was the first step in the creation of a recognisable and valuable brand to economic decision makers.