The ink has dried on the blockbuster Walmart-Flipkart’s $16 Bn deal. While the effect of this merger on Flipkart is still under debate, a filing by the US-based retail giant has now thrown up new insights.
Walmart’s 10-K filing (a mandatory annual report filed by US public companies) showed that Flipkart’s name, along with all the other trade names under its ownership, accounted for $4.7 Bn of the $16 Bn price tag.
That means for Walmart, close to 30% of Flipkart’s economic value lies in its name along with other brand names it owns!
The valuation seems even more extraordinary because at $4.7 Bn, Flipkart would be the fifth most valued Indian brand name. The company would follow Tata Group, Airtel, Infosys and LIC, which are the top 4 valued Indian brands, according to 2018 report by Brand Finance, a global brand valuation agency.
In India, where companies generally look at the economic value of the company more than the intangibles such as brand value, this is unprecedented.
The Economic Value Of Habits
While Brand Finance defines brand value as the net economic benefit an owner would obtain by licensing the brand on the open market, a broader definition of brand value is derived from a combination of reputation, intent and capability.
To better understand why brand trademark, an asset that largely exists in people’s minds, are so valuable, Inc42 talked to Kartikeya Kompella, a Bengaluru-based branding expert and author of multiple books on the subject. Citing the example of Lifebuoy, which spent crores in the 1990s on advertising to habituate people into washing their hands, Kompella said a big part of determining a brand’s value is about building such habits.
“In India we are creatures of habit. Flipkart and Amazon have driven a huge amount of consumption with discounts and marketing. They have on-boarded people, created accounts and verified addresses and established preferences over a decade. Imagine how much Walmart will have to do to break that habit?” he said.
Essentially, Flipkart has built a loyal user base over the years, introduced them to online shopping, familiarised them with digital payments and created the right market conditions for ecommerce to succeed in India. As a result, a majority of Indians associate online shopping with Flipkart. Now imagine, if Walmart had to replicate Flipkart’s recall or disrupt it. It would have taken the US company many years and a lot of cash – perhaps $4.7 Bn or more.
Just look at how Amazon is burning through billions every year to make a place for itself at the table.
A Lesson For Indian Startups
While it would be any startup’s dream to have their brand valued at $4.7 Bn, Flipkart’s valuation could actually be a steal for Walmart execs who no doubt went over that ‘Make vs Buy” debate many times before the Flipkart deal.
However for Indian startups this deal highlights the need to give serious thought to the concept of building brand value.
Siddharth Mahajan, partner, Athena Legal told Inc42, “$4.7 Bn attributed to Flipkart trade-marks and brands is significant for startups in India. This will reinforce the value of startups investing in trademarks and other intellectual property protection as these are directly related to the overall valuation of the entity. For consumer facing businesses it is imperative that the brands are not only protected, but also legal actions are brought against third parties trying to use the brands in an illegitimate manner.”
Mahajan added, “Hopefully with the numbers attributed to brands and trade names of Flipkart, Indian companies including startups will spend more resources in protecting their IP not only in India but also globally.”
While perceived value and loyalty creation are the major forces that underpin marketing and brand management. In our highly fragmented, digital environment, the smartest firms are the ones who understand these intangibles and work on building their branding into the very heart of their operations
As David Ogilvy (widely regarded as the father of advertising) once said, “Any damn fool can put on a deal, but it takes genius, faith and perseverance to create a brand.”
(Co-written by Bhumika Khatri and Aditya Kondalamahanty)