Brand Investment and the Art of Public Relations!

A brand as an asset entails investment of resources. As a private property, it can result in scarcity rent to the owner. It is this return on investment that prompts private capital to spend on brand building, advertising and Public Relations (PR).

Scarcity is an issue only because of utility. Sellers, whether of goods or services, are able to sell more when buyers are aware of the sellers and have confidence in them. Brand is one of the primary means by which sellers make themselves known as trustable entities. Since credibility and reliability are the keywords here, asset creation here is basically about investing in building a reputation and protecting it. Investments in brand building are foregone and non-recoverable if sellers renege on delivering. No wonder, buyers generally believe that a branded product is more reliable than one which is not. In fact, to extend the argument further, a ‘bigger’ brand is more likely to be trusted than a ‘smaller’ brand, since higher the perceived sunk costs in brand development, higher the incentive for the seller to ensure that the product does not disappoint the buyer!

(As an aside, I would like to point out that perceived high sunk costs needn’t be real. If you need advice on brand building and management that maximizes your return on investment, you can get in touch with professional brand consultants like AimHigh Consulting.)

So branding gets the seller to tap into a growing loyal customer base. But, what does the buyer get?

The economic cost of buying something is not just the price one pays for the product. Among other things, it also includes the cost of finding what exactly one wants and ensuring that the product is worth the money it costs. Search costs also include the opportunity cost of time spent looking for such information. This significant size of the costs associated with information causes buyers to seek sub-optimal information regarding products and can result in inefficiency. However, brands minimize search costs because, although they don’t say much about the product sold, they communicate relevant information about the sellers to the buyers.

Since resources are limited and have alternate uses, minimizing search costs improves efficiency and effectively puts more resources in the hands of the buyers. This additional purchasing power with the buyers can be tapped either by charging a brand premium on price or by selling more. Thus, a strong brand can earn you a return beyond the scarcity rent, due to the additional consumer surplus it generates!

If search costs can be minimized across the economy, it certainly will be growth inducing. But what about the costs of brand building? Will there be a decline in producer surplus, along side the increase in consumer surplus? Even if there will be, as long as the increase in consumer surplus is more than the decrease in producer surplus, overall welfare should improve.

Yet, for an individual seller who is not sure of tapping the entire additional consumer surplus generated by branding, the cost of branding should be a very serious concern. Of course, it is also important to remember that a producer can normally have a greater control and influence on his surplus than that of the consumer. Therefore, to the extent that consumer surplus can be positively improved, and the cost of branding can be controlled, brand building and management should offer tremendous possibilities in the market place.

While the cost of brand building was always an issue, it wasn’t always as much of an issue as it is now. The reason for this is the emergence of information intermediaries, especially third party retail web-sites and multi-brand stores, which provide easy price comparisons between products. The availability of information in a single place, say, on Amazon website or in a posh mall round the corner, about the existence and reliability of various brands can influence customers to try out lesser brands, especially if there is a ready price advantage. This essentially means that the ability of sellers to charge a brand premium is coming down.

There are even scholarly works today which argue that reduction in search costs due to availability of cheaper comparable information has reduced the significance of brands. To the extent this is true it highlights the need to manage branding costs better. However, none of them say that branding has become irrelevant. Other things remaining the same, buyers, even on Amazon website, pay a premium for branded articles. Increased availability of information has just ensured that the markets have become more competitive.

In the light of this emerging scenario, any brand building exercise will have to look beyond mere advertizing. Splashing millions of rupees only on advertizing without considering complementarities surely does not maximize the return on investment.

In this context, Public Relations (PR) is one area where most companies under-spend.

A PR exercise involves identifying the target audience, which needs to be communicated to. Audiences are broadly of two types: Active and Passive. Active audiences are already aware of the product and are interested in it. Passive audiences need to be persuaded by appealing to their self-interest. To begin with, a PR professional is, therefore, an audience expert.

PR professionals also have more direct access to the media and have much better media literacy than the average Joe. Therefore, they are able to judge how best to use the media to convey what the seller wants. They are basically communication generalists who know that the communication process is selective and that people consume media products for a reason. PR significantly contributes to ‘framing’ or the shaping of views through selective choice of facts, themes, imagery and words used in the media, which determines how a product, a person, or a development is discussed. The pattern of media coverage of a particular topic helps to determine what the public perceives as important. This agenda setting is done by the media, but again PR professionals have a huge influence on it.

Before a product can be sold to a passive audience, awareness and interest need to be generated. PR professionals motivate the audience to become aware and generate interest using various tactics that improve the design, style and delivery of message. They simplify the message and relate it to what the audience already knows. Given their expertise, they structure the message for optimal processing, ensure timely repetition and create an environment where the message is most likely to be heard. By persuading the passive audience, by shifting customer loyalties in your favor, and by increasing the size of the active audience, PR effectively complements advertizing and sales efforts.

Ideally, a holistic communication strategy, spanning advertisement to PR to corporate communication, needs to be in place for any organization trying to maximize its value. Starting from brand positioning to strategic communication management, brand building exercise needs to be a carefully thought out process if the exercise is to be relevant for the changing times. However, not only the planning part, but also the execution of such an exercise is too crucial to be left to non-specialists within the organization. That is where even corporates which understand the importance of brand communication sometimes make a mistake. The fact is that, even cost-wise, specialist firms are able to ensure better value for money due to their expertise as well as due to lower average costs arising from economies of scale.

A brand is a unique asset with high potential returns. Build it carefully, for it doesn’t give you much of a second chance!

The Signal is Green!

World Environment Day 2008 is here! Oil prices are going through the roof and that could be terrible news for you as a consumer. But, for an environmentally concerned citizen, it could perhaps be good news as well, especially since more and more cleaner energy alternatives may now become economically viable.

But, as another summer season gets over, what needs to worry you more as a producer or a consumer is something else! It is becoming increasingly clear that power shortage in India is not likely to disappear any soon. While the demand for electricity has kept on growing, the capacity expansion has fallen short of targets both in the Ninth and Tenth plans by about half. According to the government, India will miss the target of adding 78,577MW of power generation capacity by 2012 and the best case scenario will see only an addition of around 35,000MW.

The expected loss in Industrial Production during April-July 2008 only due to power shortages is 35%, according to ASSOCHAM. The all-India deficit in power supply in terms of peak availability and of total energy availability during 2007-08 was 14.8 per cent and 8.4 per cent, respectively, implying that the GDP was less by around 3,50,000 crores only due to power shortage. Given the related job loss and lost income opportunities, one can clearly identify the shortfall in power generation as an important constraint that prevents faster poverty reduction and our meeting the Millennium Development Goals (MDGs).

While initiatives for addition to capacity to meet the growing demand for power need to be accelerated, considerations of sustainable development and the need for efficient resource usage make it imperative also to focus on demand-side management. The Energy Conservation Act, 2001, empowers the Government to take concerted steps to improve energy efficiency and conservation in the Indian economy. Among other things, the Act provides for notifying energy intensive industries, establishments and commercial buildings as ‘designated consumers’ and to prescribe energy consumption standards for them. The Act also provides for Energy Conservation Building Codes (ECBC) for efficient use of energy and its conservation in commercial buildings.

In this context, the setting up of the CII Green Business Centre at Hyderabad in 2000 was a major pioneering step in India. CII-GBC formed the Indian Green Building Council (IGBC) to promote the concept of Green Buildings in India. Of course, the concept of green building is not just about improving energy efficiency. It is also about improving the efficiency of use of material and water resources as well. It is ultimately an attempt to reduce the environmental impacts of both the construction and use of buildings, which also reduces the cost of operations and improves public health, by reducing conflict with nature.

The Leadership in Energy and Environmental Design (LEED-INDIA) Green Building Rating System promoted by the IGBC is slowly catching the attention of corporate clients. IGBC’s vision is to usher in a green building revolution in the country and to facilitate the emergence of India as one of the world leaders in green buildings by 2010.

One company which has taken the vision of a green building revolution to non-corporate customers is Biodiversity Conservation (India) Limited (BCIL). BCIL has built nearly two million square feet of residential homes in gated communities, offering green solutions to individuals and families without compromising on urban comfort and convenience. BCIL eco-homes use half the energy of regular residences of comparable size. Given that energy costs can only rise in the years ahead, the potential savings for the consumer is clear and tangible.

Naturally, the business is growing, and how! Whether in Madison Square or down town Bangalore, the best advertisement for any product is in the form of a proud customer. Word of mouth publicity has accelerated the demand for this customer driven business and BCIL has grown to an 80 crore company in a decade or so. Of course, awards and recognitions for BCIL and its Managing Director, Mr Chandrashekar Hariharan, from national and international bodies like TERI and ADB have also helped.

World Business Council for Sustainable Development (WBCSD) says that buildings are responsible for at least 40% of energy use in most countries. With construction booming, especially in countries such as China and India, these figures are only likely to rise. The report of the companies involved in WBSCD’s Energy Efficiency in Buildings (EEB) project calls on governments to provide better urban planning, more effective building codes to enforce minimum required technical standards, and information and communication framework to overcome the lack of know-how. Additionally, policy improvements including tax and market incentives could encourage the use of energy efficient building equipment and materials and occupant consumption.

Of course, buying efficient equipment or building green homes is only one aspect of consumer behavior related to energy. The other significant aspect is using energy efficiently. In most Western countries, despite the price premium for energy-efficient equipment, during the 1990s most consumers switched over to more energy-efficient appliances. This eventually made the consumers wealthier. Yet, when the monetary savings from efficient use of energy is spent on more gadgets and equipment, this may not lead to much of a reduction in overall energy demand.

The growth of green business houses in India needn’t surprise us. Globally, green business has already become big business. The reasons are plenty: For one, it is now widely accepted that environmental problems, especially the ones related to energy, are not going to get any better. Then, of course, the consumers are increasingly aware and want economic costs and environmental risks to be minimized. The technology factor cannot be ignored either. Clean technology has emerged to meet the demand for greener products without compromising on quality or value for money. And all these mean that there is money, and fame, to be made for companies like BCIL that go the green way.

Political (In)significance of Karnataka 2008!

“How Congress is losing more than polls”, “BJP now a front runner in Lok Sabha polls”, “2009 will be the year of change”, “Congress loss raises questions about central leadership” etc have been the top headlines this morning. After reading these headlines, one might imagine that the Congress lost Andhra Pradesh, and not Karnataka, to the BJP. Of course, you would not be surprised by these headlines, if you know Indian ‘news’ media, as well as the average Joe knows!

Let me start with a few random facts: Out of a total of 224 seats, the BJP won 110, the Congress 80, and the JD(S) 28. Others, consisting 4 Congress rebels, 1 BJP Rebel and 1 JD(S) Rebel, have won 6. While the BJP’s vote share has increased from 28.3% four years earlier to 33.9% now, the Congress even now is ahead in vote share with 34.6%. The BSP has marginally improved its vote share by around 1% to nearly 2.7%, but has only managed to come second in two seats. Bangalore had only 16 seats last time, whereas this time, post de-limitation, the number has risen to 28. The BJP has won 17 of these seats. The BJP was the single largest party in the legislative assembly last time with 79 seats and is the single largest party this time too with 110 seats. So that is an increase of 31 seats! (The BJP contested 26 seats more this time.) The Congress was the second largest party last time with 65 seats and is the second largest party this time around too with 80 seats. So that is an increase of 15 seats as well! These gains in seats for both the National parties have come at the expense of the prominent regional party. (Even now, a Congress-JD(S) Coalition with Congress and JD(S) rebels would have absolute majority in the legislative assembly!)

Before I proceed any further, let me clarify that I am not trying to belittle the BJP’s success. They have worked extremely hard for this result and all credit should go to Mr. Jaitley, Mr. Yeddyurappa and the party cadre for their efforts. In fact, compare this: Mr. Advani, Mr. Modi, Mrs. Sushma Swaraj, Mr Rajnath Singh and Mr Venkaiah Naidu addressed almost 200 public meetings in the state, whereas Dr Manmohan Singh addressed one, Mrs Sonia Gandhi addressed six and Mr Rahul Gandhi addressed two. The fact that four of the Congress rebels have won, as against only one each of BJP and JD(S) rebels also shows that candidate selection was more of a problem for the Congress than the BJP and JD(S). So kudos to the BJP team!

However, the media projection of this result as a major turn-around in fortunes for both the Congress-led coalition as well as the BJP-led alliance is baseless and imaginary. Why do I say so? Simple reason! The Congress today holds only 8 out of the 28 Lok Sabha seats from Karnataka, whereas the BJP holds 18 of them. And you know what, if all the assembly segments in Karnataka voted in the coming Lok Sabha elections exactly as they voted this time, the BJP would win only 10 of the 28 seats, whereas the Congress will win 14 of them. That has to do with the Congress having its votes spread wide across the state. Turn-around in fortune? For whom, is the real question!

As for the apparent failure of the Congress central leadership, consider this: Mr. Rahul Gandhi had started his Karnataka tour with a stay in the tribal dominated Chamarajnagar district and incidentally, all four seats in the Chamarajanagar region have gone to the Congress this year. Last time around, the tally was zero! Among the other districts he toured, Mysore has brought 7 out of 11 seats and Gulbarga 7 out of 13 seats to the Congress kitty. These are areas where the Congress has gained at the expense of JD(S). In Mangalore, which was one of the few areas where Mr. Gandhi addressed election meetings, Congress wrested two seats from the BJP, taking its tally to 4 out of 8. In fact, at least part of the credit for Congress not losing much of its vote share to the BSP must be given to him. The BSP was expected to hurt the Congress party the way it did in Punjab and Gujarat, but this time around, in Karnataka, the Congress has held on to its ground.

On the other hand, should the Congress win even two of the three BJP ruled states that are going to polls later this year, the BJP can stop dreaming about returning to power in 2009. The simple reason is that these are states which have contributed to the BJP strength in the Lok Sabha. After a decade of Congress rule in Delhi, it is very unlikely that Sheila Dikshit’s Congress will win Delhi. But, given the level of anti-incumbency, only Congressmen can prevent the Congress party from winning the three BJP ruled states. Even the most optimistic BJP insider expects a drop in tally from these states. That’s only being realistic! But, if that’s so, from where will BJP make up for the loss of strength here? Gujarat? The BJP’s tally can’t go up far beyond its current high numbers! Bihar? JD(U), its ally, has almost decimated the party there. Maharashtra? Post-Pramod Mahajan, the state BJP unit is yet to find its feet. The fact of the matter is that there are no major states left for BJP to improve its tally significantly.

There are several states from where the tally of Congress and its allies can reduce significantly in the Lok Sabha elections next year: Andhra Pradesh, Tamil Nadu, and Bihar, for instance. But, there are also several states where they have scope to increase their tally: Almost all of the Gangetic Plains, including Uttar Pradesh, where an SP-Congress alliance might unify the non-BSP vote. Since the BSP has almost completely eroded the BJP’s base in UP, the only alternative to the BSP would be an SP-Congress combine. The Congress is also likely to do much better in both West Bengal and Kerala, where the Congress’s gains will be at the expense of the Left parties.

In other words, unless dramatic events occur between now and the election date, the UPA’s tally is not likely to be very different from what it is now. On the other hand, the BJP’s tally is likely to be lower although the tally of its allies might go up. In fact, whether it is Maharashtra or Bihar or Tamilnadu, the BJP needs its allies much more than its allies need it. Therefore, in these states, the BJP is even likely to contest in fewer seats than it did last time around. The change in relative strength within NDA also may open up the possibility of some of the current NDA allies joining UNPA to try their luck in forming a coalition with the support of both the BSP and the Left.

Of course, what is likely to be left of UNPA is difficult to be imagined now! If SP allies with the Congress and AIADMK allies with the BJP, it doesn’t make sense for TDP and AGP to stay without allies at the Centre. These are parties which can’t ally with the Congress due to their regional realities. If TDP allies with the BJP at the Centre, it cannot ally with Left parties at the state level and vice versa. Without allies, TDP cannot defeat the Congress in AP in the near future. Chiranjeevi’s political entry will have its own repercussions too. If Chiranjeevi's party and TRS allies with the BJP, the Congress may lose few seats, but that alliance may wipe out the TDP-Left combine in Andhra Pradesh.

The number of seats lost by the Congress and gained by the BJP allies in Andhra Pradesh would be a decisive factor in the next Union elections. But, as of now, the political situation in Andhra Pradesh is far from clear. A BJP-TRS alliance in Telengana might look winnable on paper, but a Reddy-Muslim consolidation could mean Congress holding its ground. Will Chiranjeevi take away more votes from the Congress or from the TDP? If there is a quadrangular fight as expected, will there be much of a dent in the Congress tally? Even the by-election results expected next week will not give us a clear picture.

To answer the question of what the outcomes of Karnataka state elections imply for the National parties, let me make a few observations. One, the Congress has indeed suffered from not projecting - and the BJP has gained from projecting - a Chief Ministerial candidate. But, this will hardly be an issue in the Lok Sabha elections, as the Prime Ministerial candidates of both the alliances are known. And that is where the lesson to be taken from this election is interesting. Mr. Advani is no Vajpayee and if it is a personality contest between Dr Manmohan Singh and Mr. L. K. Advani, the BJP shouldn’t be dreaming of a contest. Two, any party that needs to win the next election should build its grassroots organizational structure. I believe that Mr. Gandhi’s tour helped the Congress party only because it revitalized the party organization at the grassroots in some of those areas he visited. That has paid off! Three, election management has become increasingly important and any party who ignores this lesson, does it at its own peril. Anyone who underestimates the importance of Mr. Jaitley’s role in BJP’s victory is choosing not to read the writing on the wall. Mr. Modi in Gujarat and Mr. Yeddyurappa in Karnataka certainly had their significance, but the one who has made the best use of these resources for the BJP is Mr. Jaitley. You can’t take that away from him.

I am not here to speculate on the stability of the new government to be formed in Karnataka, but any event that causes popular disappointment with the new government’s performance will be good enough to hand over power back to the Congress party on a platter. Depending on your political leaning, you can either feel happy that four years after Mr. S. M. Krishna lost the elections, the Congress has still not recovered fully or feel relieved that the Congress’ party’s vote base and its social coalition have still not been seriously eroded in Karnataka. If the central and state leadership of the Congress party can get their acts together, the party’s tally can only go up in 2009. Will that be good enough for the UPA to retain power at the Centre is an entirely different question!