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What does Blue Ocean Strategy have to do with brand value?

In a recent HBR blog, Niraj Dawar, a colleague who used to be at INSEAD, wrote about the why a valuable brand is so important for successful innovation.  He says, every product and feature innovation is a potential story whose impact on the marketplace is a function of the brand that carries it". Innovation is not just about R&D efforts or new product and feature development. Without brands that consumers trust, the story of any innovation is incomplete. In other words, brands are just as critical to innovation success as are new product ideas. Strong brands do three things: They reduce the customers risk of trying new products , they position the innovation and give it meaning, and finally, brands provide credibility to upgrades.

Apple, now the most valuable company, is also the most valuable brand in the world.  When Steve Jobs and Jonathan Ive launched the eMac range, they changed their conversation around computers from power and other technical specs to "great looking" and "easy to use". These drivers have epitomized Apple products since then: first with the iPod, then the iPhone and iPad. In Early 2000 before the iPod took Apple out of just computers, the share price was $6 and by 2007 when Jobs  announced that henceforth they were Apple Inc., the share price went up to $97+. Currently it trades around $ 550. Apple owns the mindspace around Design and usability, so all competitors be it in computers, smartphones or tablets, have been reduced to attributes like the speed of chip, size of screen and number of megapixels of the camera.

Brands, though intangible, are obviously enormously valuable business assets.Over the last few years,  there has been increasing interest in brand value. One reason is that India is considering adopting the International Financial Reporting Standards (IFRS), which demands that companies recognise their intangible assets; even outside of this impending compliance, companies are realizing that this value, though intangible, can help them in attracting investors, raise money and monetize it in an M&A. However, for the vast majority of running companies, brand building is essentially Advertising and Sales promotion expenditures to help support product sales. Then there are some like Tata Sons that have a program to build and protect the brand. Companies in the group pay a royalty fee as recognition of the role that it plays in creating value for individual firms.Very few though, like Apple,  use brand drivers to both build Brand Value and growth by moving these drivers into new spaces.

The transformational exercise at TITAN watches was a good example of how firms can use their brands as powerful force multipliers; both for raising the bar on existing performance as well as occupying new space.

TITAN was incubated with TIDCO ( the Tamil Nadu development Corporation )based on the strength of the TATA pedigree. This gave them a great start under visionary leadership and achieved dominant market share in the watch market. However by 2003, in an increasingly stagnant market, the share price had fallen to Rs 40, with a D/E ratio of 7:1, because of indifferent growth in volumes and value. This is why the company decided to review the business in its entirety.

TITAN engaged EQUITOR, the niche brand advisory, that had brought INTERBRAND to India. An intrinsic valuation of the business established that two thirds of the value of the business was resident in the brand TITAN alone. They discovered, however, that the drivers of this brand value extended far beyond making a good watch. They were essentially around crafting functionality into personal expressions of style as the senior management had articulated in a two-day definition workshop.

Two important consequences emerged from that workshop: not only did the firm review completely as to how they ran their existing businesses, but found new opportunities that could leverage their brand drivers. One of them was Prescription Eyewear, where all the elements of their brand drivers were relevant. The share price climbed to Rs 309 within the year and climbed to 2100 over the next 3 years. Their five year plan provided a 3X multiple on the topline and 5.5 X on the bottom line. They achieved 97% of the revision over the plan period.

This idea of identifying new market spaces is in essence what we try to do in a Blue Ocean exercise. I have run many Value Innovation/Blue Ocean workshops over the last 12 years. These workshops were run all over the world, and for many well-known brands: AXA, Danone, Pfizer and Starwood among others. The ideas, tools and frameworks of Blue Ocean strategy invariably resulted in innovative projects that generated outstanding new thinking. However, I now feel that that anchoring the process with the brand drivers would actually help organizations choose and then implement the disruptive business ideas thrown up in these workshops.