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.