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Looking at Brands As Strategic Assets

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Si Nguyen Quoc
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7 views1 page

Looking at Brands As Strategic Assets

Uploaded by

Si Nguyen Quoc
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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With the growth of mass production for mass markets in the 19th century, the direct link between

producer and consumer was broken and intermediaries, such as wholesalers and retail chains, established
themselves. Through their size, their choice of what to stock and what to advise people to buy, these began
to exert their market power over manufacturers.

The manufacturers retaliated by attempting to go over the heads of middlemen by communicating


directly with customers by branding their products with a distinctive name and appropriate marketing
communications.

According to Kapferer (2008), the 1980s marked a turning point in the conception of brands.
Management came to realise that the principal asset of a company was in fact its brand names. Several
articles in both the American and European press dealt with the discovery of ‘brand equity’, or the financial
value of the brand. In fact, the emergence of brands in activities which previously had resisted or were
foreign to such concepts (industry, banking, the service sector, etc.) vouched for the new importance of
brands. This is confirmed by the importance that so many distributors place on the promotion of their own
brands.

For decades the value of a company was measured in terms of its buildings and land, and then its
tangible assets (plant and equipment). It is only recently that we have realised that its real value lies
outside, in the minds of potential customers. In July 1990, the man who bought the Adidas company
summarised his reasons in one sentence: after Coca-Cola and Marlboro, Adidas was the best-known brand
in the world.

The truth contained in what many observers took simply to be a clever remark has become
increasingly apparent since 1985. In a wave of mergers and acquisitions, triggered by attempts to take up
advantageous positions in the future single European market, market transactions pushed prices way above
what could have been expected. For example, Nestlé bought Rowntree for almost three times its stock
market value and 26 times its earnings. The Buitoni group was sold for 35 times its earnings. Until then,
prices had been on a scale of 8 to 10 times the earnings of the bought-out company.

What changed in the course of the 1980s was awareness. Before, in a takeover bid, merger or
acquisition, the buyer acquired a pasta manufacturer, a chocolate manufacturer or a producer of
microwave ovens or abrasives. Now, companies want to buy Buitoni, Rowntree (that is, KitKat, After
Eight), Moulinex or Orange. The strength of a company like Heineken is not solely in knowing how to brew
beer; it is that people all over the world want to drink Heineken. The same logic applies for IBM, Sony,
McDonald’s, Barclays Bank or Dior.

By paying very high prices for companies with brands, buyers are actually purchasing positions in
the minds of potential consumers. Brand awareness, image, trust and reputation, all painstakingly built up
over the years, are the best guarantee of future earnings, thus justifying the prices paid. The value of a
brand lies in its capacity to generate such cash flows.

As Naomi Klein says, brands have come to dominate the world of commerce and much more
besides, to the extent that we now live in a ‘branded world’.

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