A brand new form of equity

Coke, Hoover, Filofax, Nike - all culture-shaping brands. It's not just down to advertising, writes Roger Trapp

The accounting standard dealing with the treatment of goodwill and other intangible assets, published last week, was the product of a decade of argument and work. That gives a good idea of the difficulties created by brands.

The problem is especially difficult for people like accountants, who are more used to dealing with traditional assets such as plant and buildings. And there is a sense in which the rules set out last week seek to impose a structure and rationality on an area of business that is unsuited to such an approach. Far from being a cold, analytical activity, putting a value on brands can be a highly subjective exercise.

But that does not stop certain organisations having a go at it. Indeed, the Accounting Standards Board's introduction of impairment tests, which companies seeking to demonstrate that their brands have indefinite lives under the new standard will have to go through, is likely to create greater interest in this area. Moreover, having brands on full view in the balance sheet could well focus corporate minds on - so to speak - making the most of their assets.

Some encouragement of this view is to be found in the latest book from Interbrand, the branding consultancy, called Brands: The New Wealth Creators (Macmillan, pounds 45 hardback, pounds l5.99 paperback). Partly a history of brand management, partly a guide to best practice, it also looks at what the future holds for this field, which is increasingly regarded as one of the most important facets of business.

Susannah Hart, an Interbrand director and one of the editors of the book, writes in it that "brands have a strong social influence on a society's sense of purpose, direction and economic growth". Arguing that it is possible to see brands, like politicians and religious leaders, as among the influences that help people find their way through life, she adds: "Moreover, from the Shell human rights issues to the Co-operative Bank's ethical policy, we can see that brand owners are becoming the new messiahs or pariahs of modern society."

And though some brands, notably Coca-Cola, can be seen to transcend fashion, others are very much of certain times. The book includes a table showing how Hoover and Persil are very much of the 1950s, Mary Quant and the Mini belong to the 1960s, Adidas and the Ford Capri to the 1970s, BMW and Filofax to the 1980s, and Virgin and Nike to the 1990s.

But this close identification of brands names with certain periods of history or, come to that, the ability to transcend them, do not happen just by accident. Interbrand believes it is the responsibility of brand owners to begin to ask themselves more wide-ranging and searching questions, such as: "Will it make a contribution to our customers' success?" rather than just: "Will it sell?"

This is why there is so much emphasis now on developing "brand reputation" and "brand integrity". Companies and their marketing advisers want the images being projected of a company or its products to be more than skin- deep; they want them to reflect truly-held values and the like.

But achieving such aims involves careful management. As consultants from Mercer Management Consulting pointed out in a recent paper: "Given its importance in the marketplace, a company's brand should be analysed and managed every bit as rigorously as any other major corporate asset. Unfortunately, that is not generally happening today ... Few have a clear brand strategy or an effective brand management process."

Unsurprisingly, Mercer believes in "brand equity". The Mercer team says: "This is the total value of all qualities and attributes implied by the brand name that impact actual customer choices. It translates into monetary terms a brand's power in convincing a customer to purchase the company's product instead of competing offerings."

And, just as the ASB reckons its treatment of accounting for brands and intangibles puts responsibility for them squarely on the shoulders of executives, so Mercer adds that "improving and maintaining brand equity is a job for management".

The consultants claim that too many executives entrust the task to their advertising agency or a brand expert. "Brands are built from the myriad interactions that customers have with a product or service provider, not just through communications. In fact, in most cases advertising has only a minor impact on the development and maintenance of a brand."

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