Brand Valuation by Royalty Relief Method

Top-10 Most Valuable Brands

BrandFinance released it Global Brand Value report in February 2018. Some of the highlights from the reports are –

• At US$150.8 billion in Brand Value, Amazon is the world’s most valuable brand ahead of Apple and Google in the report
• Apple’s diversification challenges are taking a toll on its Brand Value
• Technology brands rule the roost with all Top-5 brands in Brand Value table are from technology sectors
• The growth of Chinese brands has been phenomenal. Since 2008, China’s share of global brand value has increased from 3% to 15%, growing to US$911.5 billion in 2018

This posts’s focus is to de-mystify the approach adopted by BrandFinance to come to the Brand Value figures of the brands in question.

The approach, also known as ‘Relief from Royalty’ is based on a notion.

Imagine that a brand holding company (For example, Nestle) owns the brand (Maggi) and decides to license the brand to a different operating company (ABC Food Products). This means that Nestle decides, not to sell the brand Maggi itself but to license ABC Food Products to sell the brand. So, ABC Food products will be able to use all the elements related to brand Maggi and generate revenue out of the sale of Maggi.

Now, obviously in return Nestle would expect a revenue stream from ABC Food Products. This revenue stream would be called as ‘Royalty’ which ABC Food Products will pay to Nestle for using brand Maggi for its own profits. This Royalty value is notional, as the value of brand is more conceptual than actual cash-flow at that time (since the revenue will only start coming in future and that too cannot be accurately estimated).

This notional price paid by ABC Food Products (called, the operating company) to Nestle (called, the brand company) is expressed as ‘Royalty Rate’.

Since the revenue made by ABC Food Products by selling brand Maggi is going to be realized only in future, the estimated revenue stream for future must be calculated and should eventually be expressed in its present value form. This is because the value of the brand (Maggi) is to be estimated at present. To find the present value of revenue stream/cash-flow in future, the Net Present Value (NPV) method is used after estimating the future revenue stream or cash flow.

The Net Present Value (NPV), thus found based on all forecasted royalties, represents the value of the brand to the business.

Step by Step Process given by BrandFinance for calculation under Royalty Relief method.

• Obtain Brand specific Financial data
• Annual Revenue, Annual Profits and Profitability (Ex. For Maggi)

• Estimate the demand of the product category and individual Brands including your own Brand as well as the competitor Brands
• Demand Estimation for Instant Noodles, and individual demand estimation for Maggi, Sunfeast Yippi, Top-Ramen and Patanjali noodles
• Estimate the future cash-flow or revenue stream for the brand based on the financial data and category and brand demand
• Future Revenue and profits estimation for the brand
• Let’s say this comes to $ 20 bn (Absolute value, without considering the year of realization).                 

•  Establish the notional Royalty Rate for each brand
• Royalty Rate = (Brand Strength Index) x (Royalty Range)
• Brand Strength Index – A score on a scale of 1-100 based on:
• Marketing Investment – Investment towards brand building in terms of advertising etc.
• Stakeholder Equity – Brand Perception among various stakeholders including the Brand owners, marketing managers, company employees, channel partners and most importantly the customers
• Business Performance – Financial measures representing the status of the brand in terms of price strength, sales volume and trade leverage
• Hypothetically, let’s say this comes to 80.
• Royalty Range – A range of percentage value for a given industry/segment (For Ex. Instant noodles segment) which represents what is importance of a brand for a customer in that industry
• Premium and Luxury (luxury watches, expensive jewelry etc) segments have a high brand importance for customers and hence have a higher Royalty Range
• Commoditised or low-risk segments (steel, staple food products etc.) have lower brand importance due to minimum differentiation and hence lower Royalty Range
• Hypothetically, let’s say this comes to 20%.
• Hence, Royalty Rate = 80 x 20% = 16% (This is Royalty Rate that represents that this percentage of sales for the Brand comes due to its Brand Name)
• Calculate the notional future royalty income stream for each brand.
• Based on the Royalty Rate Calculated, arrive at a revenue portion which is realized due to the brand value 
• Based on Future Cashflow and Royalty Rate, this comes to  $ 3.2 bn (Check table below)

                                         

Estimated Future Cash-flows in $ bn with and without Royalty Rates

• Discount this future Royalty stream to arrive at a Net Present Value (NPV)
• NPV is calculated based on the discounted rate (assumed 6%). In this case, the NPV is calculated $ 2.38 bn

• This is adjudged as the Brand Value of the brand, in our example, for  Maggi.
• Brand Value of Maggi comes to $ 2.38 bn (Based on hypothetical figures taken for Future Sales, Royalty Range and Brand Strength Index, for understanding purpose only)

Clearly, Royalty Relief technique is not only one of the easier techniques for Brand Valuation, it is also a good estimate of brand value since it takes into consideration, the brand’s strength, its financial performance, competitor standing and also its future revenue estimates. Brand strength also brings in the factors like how much the company is spending on the brand building efforts, what is the equity or engagement of the stakeholders with the brand and the actual business performance.

While, this approach does not take into consideration the influence of competitor brands in the future sales and the effectiveness of the marketing spends for brand building, which may have an adverse effect on the calculation of Brand Value, Royalty Relief is still, a simple to understand as well as implement method, to calculate Brand Value for any given brand.

Cheers,

Blockchain & Its Application in Marketing - Part 3

This is the third and the last post in the series of three posts on Blockchain Technology and its application in the field of Marketing. While in the first post, we discussed the concept of Blockchain in a very simplistic way along with examples, the second post elaborated the concept of Blockchain while also listing the areas in Marketing where Blockchain can be implemented.

This post takes that application scope further and looks at the application of Blockchain to areas which indirectly affect Marketing. As mentioned earlier, these are not the applications for the year 2100, hence may not be fairly imaginative. The idea is to see what can be done tomorrow!
If you have not gone through the earlier two posts yet, please take time and read them before you come back to this post.

First post: Blockchain & Its Application in Marketing - Part 1. Read time is 10mins.
Blockchain & Its Application in Marketing - Part 1

First post: Blockchain & Its Application in Marketing - Part 2. Read time is 15 mins.
Blockchain & Its Application in Marketing - Part 2

So in this post we straight away jump into the applications of Blockchain in areas that influence Marketing in some way or other.

Area	Application
Supply Chain	Inventory Management  What? – Inventory issues like duplication, dead stock, inventory ghosting and incorrect stock update have resulted in lost sales as well as unwanted inventory carrying costs, which inadvertently affect the top-line as well as bottom0line for any company. How? – Blockchain technology, with its consensus based updates as well as decentralized systems ensure that no change can be made in isolation and hence any incorrect manual update is not possible. This would mean that all the involved computers on the system will show the same inventory and there will be no miscommunication at any point regarding the storage, ordering and stock of any product. Also, the transaction trail will ensure that none of the inventory goes unaccounted for. Asset –Traceability in Value Chain What? – Despite all the innovations and development in the field of asset traceability, it is still very difficult to exactly pinpoint the initial source of the product. Issues like in-transit damage or incorrect delivery as well as a precise understanding of the actual location and state of the asset is difficult. For example, where did the diamond that you are going to buy in a ring, actually come from (previous post) and where is a specific diamond you are supposed to receive right now. How? – Each unit of the asset is assigned a traceable ID or identifier and a block (additional piece of information) is added to it as it passes through each step. Also, the Blockchain technology, with its consensus based mechanism as well as decentralized system ensure that no change can be made in isolation and hence any incorrect manual update is not possible. This would mean that all the involved computers on the system will show the same inventory and there will be no miscommunication at any point regarding the storage, ordering and stock of any product. Also, the transaction trail will ensure that none of the inventory goes unaccounted for.                          Blockchain for Asset Management - IBM
Legal	Artist collaboration and Right-Incentivisation What? – Purchase or license rights from content creators (musicians, videographers, photographers) to use their work in campaigns has not been an easy process. It is generally the artists that loses the battle due to difficulty in proving ownership of their work once it is uploaded in the public domain.  How? – Just like a piece of data or a financial transaction that can be tagged with an identified, piece of art like music can also be stored securely. Unlike a centralized system where the powerful parties can manually play and manipulate the system, with the help of Blockchain, the decentralized ledger helps in the record being present on multiple systems and can only be updated through consensus mechanism. This helps artists to be able to claim their work without interference from the industry biggies.  Employee Background Check What? – Background checks of employees is an ongoing process in any organization for all the new employees as well as for the existing ones in case of special circumstances. A lot of money is spent on the process but the information hence retrieved is seldom accurate and as desired. Also, the companies have to go through external agencies and consultancies to be able to manage this essentially internal function.  How? – Blockchain is known to preserve the history of information through identifiers and create a trail for the information by adding ‘blocks’ to make it traceable. Hence, records that are stored and managed using Blockchain technology are easily retrievable and as accurate as it gets. Hence, Blockchain technology will help in making it easy to retrieve correct records and that too in a much simpler way which will be quicker as well as cheaper. The best part will still be the control organizations can have on the process by internalizing it.
Contracts	Smart Contracts What? – Programs that manage and execute an agreement automatically based on certain pre-set conditions and constraints  How? – Blockchain technology brings in security into the traditional contracts and also reduces the cost to verify and execute contracts since its algorithm based which and it aids in automatic execution without any middleman to execute it
Data Security	Identity Protection What? – Identity protection while being a legal and common issue across countries. It does have its implication on Marketing. The fear of data leak makes people aversive towards sharing information and also restricts them to be more open and engaging. That is dangerous for any brand.  How? – If personal data of consumers could be collected, stored and managed in a more secured way that would not only help in enriching the customer profile information, but will also help customers to be more forthcoming. Blockchain technology has a way out. Its distributed ledger makes it extremely difficult for fraudsters to manipulate or steal personal data without leaving an obvious digital trail. The digital trail makes it easy for the network to identify an erroneous record or an attempt to manipulate data. It can them be easily corrected. Hence the record created on the blockchain concept is as good as immutable, securing the data effectively.

Like any new technology or invention, Blockchain has its own challenges which need to be addressed for it to be viable, relevant and scalable. Blockchain is a revolutionary technology which has the ability to transform how businesses are done. However, before jumping in to the fan-fare, top leadership at any organization needs to understand the scope and strength of this technology and be able to map its objectives clearly against the adoption of Blockchain.

In any case, we are set to transact, but not notice may be, with lot of businesses in future which will be using Blockchain as the fundamental concept for much of their operations. Behold!

Cheers,

Blockchain & Its Application in Marketing - Part 1

This is the first post in the series of two posts on Blockchain Technology. This post is intended to create an understanding about the Blockchain technology  and it will be followed by the second post which will talk about various applications of Blockchain in Marketing.

A distributed ledger, a peer to peer network and a decentralized network system. Blockchain has been called all of that, and rightly so. There have been numerous posts and articles written about blockchain and what it can possibly do in future in various fields. These articles however, have still left many in binds about the fundamental and the prospects of the technology.

In this post, we walk through this new technology elixir in a ridiculously simple way to understand its founding. This may hurt sentiments of some experts, but I believe, like the fundamental of Blockchain itself, the democratization of its concept should also be transparent and decentralized.

So what are some of the problems that the Blockchain technology has potential to solve? Let’s briefly look at those first. Mind you, Blockchain is a technology that at its core create, process, store and manage data efficiently (too simplistic). Hence, it will be fair to assume, that its application will help in problems related to data. So here are some of these problems –

•                Lack of data security, For eg. loss, theft and change in data
•                Lack in data transparency, For eg. invisibility of data and how its stored
•                Difficult real-time tracking of data For eg. real-time asset location and movement
•                Inability to locate the accurate and precise value chain movement of product
•                Data ownership and control over data by limited parties in a centralized manner

Systems like ERP, CRM, SalesForce and others have in some way tried to help but none were able to solve all of the above problems at a time.

Hence, it should be understood that anywhere and everywhere, the problems cited above are present, Blockchain technology will find its application. Period. So now, think of all those places where how the data is created, stored, shared and managed, causes problems or create loopholes and darkspots. Yes, Blockchain can be applied to all these areas to solve those problems.

How does Blockchain do this?

So imagine this scenario. You want to buy a diamond ring for your loved one. You are also concerned that the diamond you buy is not from a conflict zone which helps in funding local conflicts or wars or is extracted through violence in the area. You wonder, if there is a way to find out that the particular diamond is ‘guilt’ free? Broken supply chain tracking and data opaqueness makes it difficult for anyone to confirm the source and the journey of a diamond from the mine to the jeweler. The keywords again are real time data, data accuracy and opaqueness.

A small platform pilot, Tracer, created on blockchain technology for De Beers involving a handful of miners and manufacturers was able to precisely do that. The platform helped in creating a secure and indelible trail of selected diamonds(high valued 100 diamonds to be precise) from the mine cutter, to polisher and finally to the jeweler, hence creating a strong asset-traceability. (Source:Reuters)

Now imagine this scenario. A financial transaction is initiated by you that is recorded in your account detail. The account detail is stored with the bank with which you have the account. The ownership of the data and any authority over it remains with the bank at all the times. Essentially making the bank the owner of the data. In case of an incident of data manipulation, since the data is centralized at one place (bank’s server in this case) with a single owner (bank in this case) and there is no transparency over how and where the data is stored, a data fraud or manipulation will be difficult to detect and reverse. This exposes the customer and the data to manipulative practices which are difficult to pin point and even more difficult to correct.

With Blockchain technology, the ledger (the book that records transactions) is distributed. Which means the book is not owned and controlled by one party but multiple parties or systems. Due to this arrangement, an isolated manipulative change in the data on one system will not be accepted. This is because the entry with this fraudulent transaction on one system will not match with entries on other systems. Any legitimate change on the other hand, can be implemented only on consensus  mechanism. It means that if  a change needs to be implemented, it can only be done through consensus between all the parties on the network and not by a single controlling party (like a bank or a data hacker in the above case)

This means that with Blockchain technology as foundation, fraudulent practices can be reduced to minimum, thanks to its distributed–ledger, consensus based updating mechanism and decentralization. Clearly, Blockchain technology can be implemented at multiple places where data security, transparency and ownership is complicated but important for functioning.

So based on what we know about Blockchain technology now, a definition can be put together for the same –

A decentralized distributed ledger sitting upon a network of computers which are updated for every transaction that happens in the system through consensus mechanism. This creates an indelible trail of transactions which makes the system transparent, shared, secured and watertight.

Of course, like any new technology or invention, Blockchain has its own challenges which need to be addressed for it to be viable, relevant and scalable. We will look at these challenges in the next post when we discuss what could be the potential uses of Blockchain in Marketing. Not like a laundry list which is abundantly available on internet, but based on Blockchain’s applicability which we know now. For more details on how Blockchain works technically, please watch this video.

Starbucks at it again: When people throw lemons at you, make lemonade!

Leaders aren’t those who never make mistakes. Leaders are those, who make mistakes, accept them and learn from them to make better decisions in future.

Does the recurring issue with Starbucks over sensitive topics like race and sexual orientation reflect a flaw in its corporate culture and leadership? Or the way these issues are handled by the company makes a case for a sensitive, progressive and forward looking organization?

While there can be arguments on both sides, it for sure will be biased towards latter. This for a simple reason that these issues have not kept Starbucks away from standing for what it believes in. Also, it has always responded to controversies with a calculated yet sensitive actions which make it the company people look up to for its values.

There have been multiple stories about Starbucks being the vanguard of progressive workplace values in this new service world. Its initiatives like health insurance to part-time workers and to hire 25,000 veterans were path breaking ones in the industry. It was also one of the earliest organizations to support the cause of gay marriage in spite of resistance from some of the investors.

Its employee friendly policies came to light again when after the corporate tax cut in the US, Starbucks expanded benefits to its employees in terms of monetary support and family leaves. Its coffee procurement policy and practices across the world have been much lauded for empowering local farmers.

It is surprising then, that such a progressive company, consistently finds itself on the wrong end of controversies on very sensitive topics. While Its failed #RaceTogether campaign in 2015 and the ‘Holiday cups’ controversy in 2017 were more on symbolic aspects, the recent controversy where cops were called on two black men waiting in the café, was more serious in many ways. This because a store manager was involved in supposed racial profiling and then a knee jerk reaction of calling cops on these men. Her actions were said to be prejudiced due to the race of the men in question. Unlike other incidents, where Starbucks found itself in soup due to miscommunication or mis-perception of its proactive initiatives, this time it was in controversy for actions that went against its self-proclaimed ethos and values of equality.

However, like always, Starbucks has come out with utmost humility and accepted its mistake graciously, which in itself is a mark of excellent corporate values. Not just that, they did something which was unheard of till date. In response to the incident which laid bare the unconscious racial bias which some of its employees may carry, all Starbucks owned outlets in the US, 8000 to be precise, were shut and the employees were engaged in a four-hours racial-bias training on 29^th of May 2018. Starbucks created the curriculum and the video for this training, which is now available for everyone.

Starbucks Chairman Howard Schultz in an interview said, "I don't know of another company in the history of American business that's done anything remotely close to this". While this step was seen as being transformational by him, many people doubt the credibility of a four-hours training to be able to change racial bias in people. Virtual Training in itself, is considered a weak tool for achieving behaviour change. While this may be true, but two strong benefits of this response by Starbucks are – 

•          Starbucks’ response has created a template for service recovery for other comapnies across industries to follow. This also becomes now a more of a hygiene response to address such issues in future; and
•      This has again brought to fore the sensitive discussion about racial profiling and bias in businesses which needs a consistent acknowledgement and addressal

Starbucks in particular, after their call for this action, has established itself as a truly progressive company while also accepting that it does have flaws too but it is ready to accept them and work on them to be better. It has also showed that being socially conscious is not about one initiative here and there. It is about imbibing this behavior in your core values and be ready to take the pain that comes with this promise.

Starbucks has done that with utmost brilliance time and again, and it has been able to do this because it doesn’t push its mistakes under the carpet, but accept them publicly and promise itself and its stakeholders to be better in future.

Customers love companies who act like good human beings. That is companies which are kind, moral and ethical in conduct and most importantly, aren’t scared of their flaws and being vulnerable. Customers love companies which are like them, not perfect but committed to be better. That’s why they love Starbucks!

“What Got You Here Won’t Get You There” - Is Patanjali listening?

“Patanjali Clocks Whopping Rs 10,000 Cr Revenue, Becomes 3rd Largest FMCG Player; Will Soon Open ‘Nutritious Restaurants’”

“Patanjali eyes 2-fold rise in revenue to Rs 20,000 cr in FY18; to be biggest swadeshi brand in 2 yrs”

These and similar headlines with unsubtle exuberance were making its headway about an year back. Interestingly, both the headlines are picked up from the news in the month of May in 2017.  Patanjali had a meteoric rise from when it started in 1997 as a small pharmacy to an FMCG force to reckon with. With revenue figures of 10,561 crores Rs in FY 2017, it was rubbing shoulders with the big boys of FMCG in India.

Patanjali's Year on year Revenue in Cr Rs

While the target to close the FY 2018 at 20,000 cr Rs, set by the company for itself, at the start of the year was always ambitious, the result that is going to come out for FY 2018 is expected to be oonly marginal better than last year. So much so, that the company is expected to close the year with revenue a little higher than the FY 2017, reflecting a near flat growth.

Where did the company misfire? What led to the sudden speed-braking of the supercharged company? Well, the answer lies in what made it an overnight success. The company got too focused on sales targets and in the process became myopic.

This was exacerbated by the compulsive expansion, which strayed the company from serving the consumers with the best. Let’s look at some more specific reasons that have been attributed to the bad year of the company.

• Product and Price Issues
• Quality: There has been an increasing clamor around the quality of Patanjali products. It is not uncommon to read negative reviews about some of the Patanjali products on internet. This has significantly affected the loyalty towards the products and repeat purchase.
• Not so much value for money: While Patanjali started with the economic value for money products, there has been a shift towards premiumization. Quite a few Patanjali products have now been moved towards the premium segment and the prices are pretty similar to he other competitors in the market.

• Channel and Supply Issues
• Channel Conflict: As Patanjali, in its mission towards making the product available to customer everywhere, started selling out products to various channel partners, a conflict has risen between them on margin, supply and pricing.
• Supply Issues: With the expanded demand for the product, the logistical push has not happened and the very frugal distribution model has not come under the fire. Issues like intermittent supply, preferential supplies and holding up of orders for having minimum supply volume in the area has led to retail vying for fast running items. This has not only irked the retailers, but also the modern trade set pus which have very high real estate cost.

• CAPEX and Acquisition
• The falling profit margin, as per the company has also been because of the heavy investing that the company claims has been making in the food processing and production capabilities
• Patanjali has emerged as the highest bidder for the Ruchi Soya, which is famous for selling Nutrela soya chunks. This added expense is also going to hit the operational capabilities of the company.

• Macro Issues
• Lingering effects of the demonetization has also been blamed for the flat growth this year, though the issue along with the GST challenges is a generic phenomenon that affected the whole industry and not just Patanjali.
• While touted as a great help in long term to the economy, in the short terms this has been a major issue in the country owing to lack of awareness to handle the new systems and dependency on each supplier for the filing to right GST.

• Related and Unrelated Diversification
• A very critical reason for the flat growth of the company has been its overly enthusiastic demeanor towards expansion in the new categories. It currently sells 1,000 products spanning home care, personal care and packaged foods, and will soon launch apparel. Some of the other recently launched as well as planned diversifications that the company has are as below –
• Media and broadcasting through three broadcasting channels for southern part of India
• Solar power by acquiring Advance Navigation and Solar Technologies
• Patanjali has already launched a Sim with BSNL as a co-branded product
• Patanjali launched a communication app akin to WhatsApp, Kimho
• Besides, the company is also planning to foray into dairy products
• The company has already chalked about plans to enter into apparel, clothing and garments segment this year

• Changing Competitive Scenario
• Unlike the initial years when Patanjali caught the other FMCG giants off-guard with no herbal or Ayurvedic offerings in their stable, situation has changed a lot now. All the FMCG companies are having brands in this space and hence it is not any more Patanjali’s exclusive territory. For example, HUL, the country’s largest FMCG firms bought Indulekha, the Ayurveda hair-care brand in 2015 and relaunched Ayush in 2016.

Patanjali hit the nail right when it built its USP on ayurvedic offerings at a time when people had started looking for natural and herbal options for the personal care products. Unpreparedness of the other companies in his space and a strong brand ambassador in Baba Ramdev catapulted the company to top-5 FMCG companies in the country in terms of revenue.

However, they cannot rest on their past laurels and as Marshall Goldsmith said in his book “What Got You Here Won’t Get You There”, the first step to change is wanting to change. Patanjali need to take a deep hard look at their business model and ensure that they adopt strategies that are apt for a company their size. In the timeless book on Marketing by Al Ries and Jack Trout, Marketing Warfare, authors suggest that a company needs to adopt strategies based on what they are – leader, challenger, flanker or Guerrilla, depending upon the size, market share and available resources. Patanjali has to accept the fact they are no more a Guerrilla in the market but a credible Challenger, and hence their marketing strategies need an overhaul before they get trapped in their own web.

Facebook's Sandy: The hero it deserves?

Facebook might be having a midlife crisis. More precariously, it is at a time when the number of young users are finding solace on much younger platforms like Instagram, Snapchat and Pinterest. Facebook is trying hard to woo the younger lot which made it the biggest country in terms of Facebook users in the world last year. With about 250 million users and counting, it has maintained a comfortable margin against the second biggest country in terms Facebook users, the US.

Number of Facebook users in countries (in millions)

The phenomenon is not restricted to any particular country or continent, this is spread across the globe, more so in western countries. Guardian quoted in one of its report that teens and young adults are ditching Facebook, while its popularity grew among people over 55 years. It went on to state that in 2018, 2.2 million 12- to 17-year-olds and 4.5 million 18- to 24-year-olds will regularly use Facebook in the UK, 700,000 fewer than in 2017, as younger users defect to services such as Snapchat.

Some of the reasons that has led to this phenomenon is, Facebook is facing competition from Pinterest and Instagram which have novelty and exclusivity factors attached to it as yet. This is an obvious advantage to the younger audience. Secondly, with lot of people in their 40s and 50s joining Facebook, a lot of young people are finding their parents and relatives on the network and are trying to avoid activities that make them cognate to these people. Thirdly, advertising has so far been non-intrusive in case of other platforms like Snapchat, Instagram and Pinterest unlike Facebook. This makes these platforms friendlier. Fourthly, Platforms like Instagram and Pinterest are more visual and attractive, especially to the younger audience. With falling data costs, it is cheaper and easier to access picture and video content, hence upping the usage of these platforms against Facebook. Finally, Facebook due to its multiple functionality is considered as a generic social solutions without a serious attempt to solver one networking problem. Other platforms have considerably simpler usage features and functionalities, making them practical and relevant to the younger audience.

It is strange then, that out of the series of advertisements that Facebook came up with in a recent campaign, the first one had a protagonist, who ostensibly calls himself Sandy and boasts his flamboyant yet family-oriented lifestyle. Sandy is in his fifties. Is it a self-goal or a bigger strategy by Facebook? At a time when Facebook needs to strengthen its credentials as a young social network, for functional as well as demographic reasons (two-third of India population is below 35 years of age), is promoting itself as a preferred social networking medium of people in fifties a good strategy?

I am Sandy!

Facebook, however, has supplemented this ad with other ads too that are having younger protagonists, it is still baffling that why would Facebook want to woo a segment of older population at the cost of a swelling younger audience. The segment which has made Facebook what it is in India, the biggest social network in the country and the country with the largest number of Facebook users in the world? Time will tell. 

Will Ayush be able to challenge the Patanjali juggernaut?

It was in 2001 that Hindustan Unilever (HUL) launched Ayush, the Ayurveda based portfolio of wellness products. The brand was later shut down as it didn’t find much traction with the audience. The brand was ostensibly targeted at the premium customers who would embrace it for its ayurvedic core values. HUL representatives claimed that the products were ‘ahead of time’.

The Rise of Patanjali

The year 2006 welcomed another kid on the CPG (Consumer Packaged Goods) platform that touted itself as the ayurvedic alternative for all the ‘unhealthy’ and ‘westernised’ products. Clubbed with the ‘nationalist’ sentiment the brand struck a chord with a mass audience, majorly due to its brand ambassador, Yoga-guru Baba Ramdev. To add, right pricing for the right audience hit the sweet spot of the Indian consumers and the cash registers stated ringing for the brand. Patanjali soon became a household name and crossed a revenue mark of 10,000 crores in the last financial year displacing major bigwigs of the FMCG (Fast Moving Consumer Goods) industry.

Baba Ramdev, who already had won millions of followers through his Yoga practice, promoted the products in an unbashed manner. For his followers it was a marriage made in heaven between their favourite Yoga-guru and Ayurvedic products. His follower base that majorly came from tier-2 and below cities stood by Patanjali and helped it rise miraculously. Media channels like Aastha and Sanskar in the played a major role in making Baba Ramdev a houshold name in 2000s. Even he himself acknowledge the fact that media was a big factor in the rise of the brand.

India is a price sensitive market when it comes to CPGs and the right pricing almost always holds the key for the success of a product. Failure to do so can wipe the brand off the shelves of stores and minds of customers in no time. Patanjali got it right here too.

Patanjali hit the jackpot with the trinity of – Brand Ambassador, Brand Resonance and Pricing. A very difficult but extremely rewarding endeavor.

Positive Word-of-Mouth

Patanjali also succeeded in acquiring new customers and retain the old ones by creating a positive perception of the quality of products, which was subconsciously influenced by its reasonable prices. After consumer acquisition, Patanjali products were able to make good of the promise made to them hence eliciting a positive post-purchase behaviour largely driven by the Halo effect and lower financial risk due to cheaper products.

On the other hand when Ayush was launched as a premium brand in 2001, the market wasn’t gungg-ho about Ayurveda based products. Ayush could not offer anything concrete to its audience to trust (HULs house of brand strategy was not very helpful). Subsequently, the audience turned a blind eye to the products. The Brand had to be shut in the aftermath of consistent poor performance.

Brand Ambassador

Among the three aspects highlighted, Brand Ambassador was the key in the phenomenal rise of the Patanjali Brand. Baba Ramdev never shied away from marketing Patanjali brand and while his followers went by every word he said about the products and Patanjali, even those who did not follow Baba Ramdev were able to trust the credibility around the brand. His unapologetic rant against the MNCs also made him the poster-boy of nationalistic sentiment that clicked with the burgeoning middle class of the country. On the other hand, Ayush has brought in film stars Akshay Kumar and Tamanna as brand ambassadors. This was a run-of-mill approach as both the actors have no genuine link with Ayurveda and are seen in many other ads that create more confusion then clarity. The ad showing the actors also chose to claim to be the real Ayurveda based brand which may be perceived as arrogant or even petty. Due to the missing connect with the core offering of the brand, the ambassadors stand no chance against the massive appeal of Baba Ramdev and his Patanjali products.

Brand Resonance

The core offering of the Patanjali brand was no-nonsense Ayurveda based products which didn’t have fancy packaging and touched up images of good looking models. The ads also didn’t look ‘rich’ and were intentionally painted ‘simple’ to demonstrate its values. This strategy personified the brand as honest, simple and trustworthy, hence making people believe in the offering. Ayurveda based products must be able to invoke emotions like  purity and trust due to many factors like – lack of knowledge in people regarding the roots of the products, formulation and application, mushrooming of a huge number of Ayurveda based product companies and finally the perceived physical and health risks involved in using the products. Ayush has maintained its premium packaging and hasn’t been able to come up with a major differentiator vis a vis a host of other products available in the market. In absence of a strong usp, it hasn’t been able to make any specific place for itself in the segment.

Pricing

In terms of pricing, while Ayush has shed the premium tag with its re-launch a quick analysis of the products show that they are still quite expensive than Patanjali. The Ayush products taken into consideration are anything between 33% to 94% expensive than Patanjali products. Clearly, the reference point for Ayurveda based products in customers’s mind is Patanjali and a quick comparison between Patanjali and Ayush products will lead to an easy choice for her, if it is based on price only. With a more than satisfied customer base of Patanjali products, Ayush doesn’t have footing on the quality attribute either while some detractors and a small customer base who map uality on price may give Ayush a shot. But this will be a small base, far from viability for HUL. Hence, the price point becomes even more important which doesn’t seem to be helping Ayush.

In a nut-shell, Ayush’s relaunch by HUL may be more of optimism and an 'easy way out' rather than a of rational ‘Product Development’ growth strategy. Whether Ayush has more punches to pull in future, only time will tell. As of now, it doesn’t seem to be too much of a worry for Patanjali.