Goodwill: the convergence of finance and marketing

The vision has changed from one where only tangible assets had value to one where companies now believe that their most important asset is their brands, which are intangible. These intangible assets account for 61 per cent of the value of Kellogg’s, 57 per cent of Sara Lee and52 per cent of General Mills. This explains the paradox that even though a company is making a loss it is bought for a very high price because of its well-known brands.

Before1980, if the value of the brand had been included in the company’s earnings, it would have been bought for a penny. Nowadays brand value is determined independently of the firm’s net value and thus can sometimes be hidden by the poor financial results of the company. The net income of a company is the sum of all the financial effects, be they positive or negative, and thus includes the effect of the brand.

The reason why Apple lost money in 1996 was not because its brand was weak, but because its strategy was bad. Therefore it is not simply because a company is making a loss that its brand is not adding value. Just as the managers of Ebel-Jellinek, an American-Swiss group, said when they bought the Look brand: the company is making a loss but the brand hasn’t lost its potential. Balance sheets reflect bad management decisions in the past, whereas the brand is a potential source of future profits. This potential will become actual profit only if it can meet aviable economic equation.

It is important to realize that in accounting and finance, goodwill is in fact the difference between the price paid and the book value of the company. This difference is brought about by the psychological goodwill of consumers,distributors and all the actors in the channels:that is to say, favorable attitudes and predisposition.Thus, a close relationship exists between financial and marketing analyses of brands. Accounting goodwill is the monetary value of the psychological goodwill that the brand has created over time through communication investment and consistent focus on product satisfaction, both of which help build the reputation of the name.

Brand financial valuation,

Rank Brand Value (US$ billion)
1 Goggle 66,434
2 GE 61,880
3 Microsoft 54,951
4 Coca Cola 44,134
5 China Mobile 41,214
6 Marlboro 39,166
7 Wal-Mart 36,880
8 Citi 33,706
9 IBM 33,572
10 Toyota 33,427
11 McDonald’s 33,138
12 Nokia 31,670
13 Bank of America 28,767
14 BMW 25,751
15 Hewlett-Packard 24,987
16 Apple 24,728
17 UPS 24,580

What exactly are the effects of this customer and distributor goodwill?:

  • The favourable attitude of distributors that list some products of the brand because of their rotation system. In fact retailer may lose customers if it does not stock products of a well-known brand that by definition is present everywhere. That is to say, certain customers will go else whereto look for the brand. This goodwill ensures the presence of the brand at the point of sale.
  • The support of wholesalers and resellers in the market for slow-moving or industrial goods. This is especially true when they are seen as being an exclusive brand with which they are able to associate themselves in the eyes of their customers.
  • The desire of consumers or end-users to buy the product. It is their favourable attitude and in certain cases the attachment or even loyalty to the brand that is the key to future sales. Brand loyalty may be reduced to minimum as the price difference between the brand and its competitors increases but attachment to the brand does not vanish so fast; it resists time.

The brand is a focal point for all the positive and negative impressions created by the buyer over time as he or she comes into contact with the brand’s products, distribution channel,personnel and communication. On top of this, by concentrating all its marketing effort on a single name, the latter acquires an aura of exclusivity. The brand continues to be, at least in the short term, a byword for quality even after the patent has expired. The life of the patent is extended thanks to the brand, thus explaining the importance of brands in the pharmaceutical or the chemical industry.

Brands are stored in clients’ memories, so they exert a lasting influence. Because of this,they are seen as an asset from an accounting point of view: their economic effects extend far beyond the mere consumption of theproduct.In order to understand in what way a strong brand (having acquired distribution, awareness and image) is a generator of growth and profitability it is first necessary to understand the functions that it performs with the consumers themselves, and which are the source of their valuable goodwill.

Strategic Brand Management Related Practice Tests

Strategic Management Practice Tests
Brand Equity In Question What Is A Brand? Differentiating Between Brandassets, Strength And Value Tracking Brand Equity Goodwill: the convergence of finance and marketing How Brands Create Value For The Customer How Brands Create Value For The Company Corporate Reputation And The Corporate Brand Strategic Implications Of Branding What Does Branding Really Mean? Permanently Nurturing The Difference Brands Act As A Genetic Programme Respect The Brand ‘contract’ The Product And The Brand Each Brand Needs A Flagship Product Advertising Products Through The Brand Prism Brands And Other Signs Of Quality Obstacles To The Implications Of Branding Brand And Business Building Are Brands For All Companies? Building A Market Leader Without Advertising Brand Building: From Product To Values, And Vice Versa Are Leading Brands The Best Products Or The Best Value? Understanding The Value Curve Of The Target Breaking The Rule And Acting Fast Comparing Brand And Business Models: Cola Drinks From Private Labels To Store Brands Evolution Of The Distributor’s Brand Are They Brands Like The Others? Why Have Distributor's Brands? The Financial Equation Of The Distributor’s Brand The Three Stages Of The Distributor’s Brand The Case Of Decathlon Factors In The Success Of Distributor's Brands Optimising The Dob Marketing Mix The Real Brand Issue For Distributors Competing Against Distributor's Brands Facing The Low-cost Revolution Should Manufacturers Produce Goods For Dob's? Brand Diversity: The Types Of Brands Luxury, Brand And Griffe Service Brands Brand And Nature: Fresh Produce Pharmaceutical Brands The Business-to-business Brand The Internet Brand Country Brands Thinking Of Towns As Brands Universities And Business Schools Are Brands Thinking Of Celebrities As Brands The New Rules Of Brand Management The Limits Of A Certain Type Of Marketing About Brand Equity The New Brand Realities We Have Entered The B To B To C Phase Brand Or Business Model Power? Building The Brand In Reverse? The Power Of Passions Beginning With The Strong 360° Experience Beginning With The Shop The Company Must Be More Human, More Open Experimenting For More Efficiency The Enlarged Scope Of Brand Management Licensing: A Strategic Lever How Co-branding Grows The Business Brand Identity And Positioning Brand Identity: A Necessary Concept Identity And Positioning Why Brands Need Identity And Positioning The Six Facets Of Brand Identity Sources Of Identity: Brand Dna Brand Essence Launching The Brand Launching A Brand And Launching A Product Are Not The Same Defining The Brand’s Platform The Process Of Brand Positioning Determining The Flagship Product Brand Campaign Or Product Campaign? Brand Language And Territory Of Communication Choosing A Name For A Strong Brand Making Creative 360° Communications Work For The Brand Building Brand Foundations Through Opinion Leaders And Communities The Challenge Of Growth In Mature Markets Growth Through Existing Customers Line Extensions: Necessity And Limits Growth Through Innovation Disrupting Markets Through Value Innovation Managing Fragmented Markets Growth Through Cross-selling Between Brands Growth Through Internationalisation Sustaining A Brand Long Term Is There A Brand Life Cycle? Nurturing A Perceived Difference Investing In Communication No One Is Free From Price Comparisons Branding Is An Art At Retail Creating Entry Barriers Defending Against Brand Counterfeiting Brand Equity Versus Customer Equity: One Needs The Other Sustaining Proximity With Influencers Should All Brands Follow Their Customers? Reinventing The Brand: Salomon Adapting To The Market: Identity And Change Bigger Or Better Brands? From Reassurance To Stimulation Consistency Is Not Mere Repetition Brand And Products: Integration And Differentiation Specialist Brands And Generalist Brands Building The Brand Through Coherence Defining The Core Identity Of The Brand Confirming The Presence Of Brand Core Facets In Each Product Identifying The Role Of Each Product Line In The Construction Of The Brand Graphically Representing The Overall System Of The Brand Checking The Coherence Worldwide The Three Layers Of A Brand: Kernel, Codes And Promises Respecting The Brand Dna Managing Two Levels Of Branding Growth Through Brand Extensions What Is New About Brand Extensions? Brand Or Line Extensions? The Limits Of The Classical Conception Of A Brand Why Are Brand Extensions Necessary? Building The Brand Through Systematic Extensions: Nivea Extending The Brand To Internationalize It Identifying Potential Extensions The Economics Of Brand Extension What Research Tells Us About Brand Extensions Avoiding The Risk Of Dilution Balancing Identity And Adaptation To The Extension Market Segments Assessing What Should Not Change: The Brand Kernel Preparing The Brand For Remote Extensions Keys To Successful Brand Extensions Is The Market Really Attractive? An Extension-based Business Model: Virgin How Execution Kills A Good Idea: Easycar Brand Architecture The Key Questions Of Brand Architecture Type And Role Of Brands The Main Types Of Brand Architecture The Flexible Umbrella Brand The Aligning Umbrella Brand (masterbrand) Choosing The Appropriate Branding Strategy New Trends In Branding Strategies Internationalising The Architecture Of The Brand Some Classic Dysfunctions What Name For New Products? Group And Corporate Brands Corporate Brands And Product Brands Multi-brand Portfolios Inherited Complex Portfolios From Single To Multiple Brands: Michelin The Benefits Of Multiple Entries Linking The Portfolio To Segmentation Global Portfolio Strategy The Case Of Industrial Brand Portfolios Linking The Brand Portfolio To The Corporate Strategy Key Rules To Manage A Multibrand Portfolio The Growing Role Of Design In Portfolio Management Does The Corporate Organization Match The Brand Portfolio? Auditing The Portfolio Strategically A Local And Global Portfolio – Nestlé Handling Name Changes And Brand Transfers Brand Transfers Are More Than A Name Change Reasons For Brand Transfers The Challenge Of Brand Transfers When One Should Not Switch Analysing Best Practices Transferring A Service Brand How Soon After An Acquisition Should Transfer Take Place? Managing Resistance To Change Factors Of Successful Brand Transfers Brand Turnaround And Rejuvenation The Decay Of Brand Equity The Factors Of Decline Distribution Factors When The Brand Becomes Generic Preventing The Brand From Ageing Rejuvenating A Brand Growing Older But Not Ageing Managing Global Brands The Latest On Globalisation Patterns Of Brand Globalisation Why Globalise? The Benefits Of A Global Image Conditions Favouring Global Brands The Excess Of Globalisation Barriers To Globalisation Coping With Local Diversity Building The Brand In Emerging Countries Naming Problems Achieving The Delicate Local–global Balance Being Perceived As Local: The New Ideal Of Global Brands? Local Brands Can Strike Back The Process Of Brand Globalisation Globalising Communications: Processes And Problems Making Local Brands Converge Financial Valuation And Accounting For Brands Accounting For Brands: The Debate What Is Financial Brand Equity? Evaluating Brand Valuation Methods Brand Valuation In Practice The Evaluation Of Complex Cases What About The Brand Values Published Annually In The Press? Strategic Brand Management Interview Questions