All 6 entries tagged Intangible

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January 06, 2009

Outline of Research Project

Follow-up to Importance of Brands from Saya's Ramblings...

Introduction and background

·        What is branding, brand management, brand strategy, development of brands, historical approaches, where it stands today.

·        Evidence of brand value and importance of brands and branding today, for internal and external stakeholders:

·        Internal: marketing division, management, employees (human capital)

·        External: shareholders for their value creation, investors for their investment initiatives

Literature review and Theoretical underpinning

·        Economics of brands as a source of market value for firms.

·        The economic importance of intangibles (brands) in our economy today supported with some statistical evidence from critically reflecting on the literature review. An example of statistical; evidence includes: Increased R&D expenditure in healthcare sector, market-to-book value ratios of Fortune 500 companies and suggesting the higher market value over tangible assets.

·        The differences in value of brands within different industries (Sattler & Hupp, 2003)

·        How the theory of the firm, more specifically the resourced-based view (RBV) of the firm explains the importance of intangibles (brands) to regain the firms’ competitiveness in the marketplace. How brands play a pivotal role amongst all other intangible assets of a firm. Critically reflecting on the development of RBV and how it addresses issues of immutability, mobility, tradability, scarcity, substitutability and other characteristics of brand intangibles for a firm or a specific industry.

Aims and Objectives of this research

·        The goal of this research is to outline the linkages the brand equity to that of brand investments

·        This issue has been on the top of the agenda for marketers to try to justify spending in branding, marketing and other ancillary activities.

·        Using the theoretical backgrounds and literature review, the goal of this research will be to critically reflect on the findings and put things into perspective using the RBV of the firm and the Value, Rare, In-imitable, Non-substitutability (VRIN) model laid out by Barney (1991).

Data and Methodology

·        I shall first be using secondary financial data from firms which have a noticeable brand, both business-to-business (B2B) and business-to-customers (B2C)

·        I shall be looking into how analysts’ make recommendations from current earnings regarding the performance of future earnings and how (if any) brand equity plays a role in such recommendations.

·        A typical analyst report includes company profile, financial forecasts, operational performance and other sub-headings that highlight the overall firm’s outlook for the future. After careful consideration of various factors, the analysts then reports to the investors if the security of that firm is either a Strong buy, Buy, Hold or a Sell situation.

·        I shall try to look into how the recommendations of worlds top brands (approx 50) have changed over time and how has it been reflected in analysts recommendations. This way I shall try to highlight any anomalies (if any) or obvious movements in trying to find out the linkages of the brand financing with brand investments within capital markets.

Conclusions

·        Summarise the findings from the empirical analysis

·        Outline the possible problems faced during the study: while gathering, analysing, highlighting brand elements from reports, etc

·        Suggest further improvements in security analysis and modelling such with emphasis of brand equity and its overall impact on the business

·        Reflect on future research realms connected with my results


December 09, 2008

Importance of Brands

Follow-up to Brand Equity from Saya's Ramblings...

“A brand name represents a strong communication link between the firm and the market”

Market based assets: (Garvin, 1996)
•    Consumer trust
•    Perceived quality
•    Perceived value of brand

Brand instruments:
•    Trademarks
•    Symbols
•    Logo
•    Registered designs
•    Brand name and firms’ reputation
•    Integrated communication

Successful implementation of brand strategies:
•    Advertising
•    Media
•    Packaging
•    Networking and word of mouth to create a strong, favourable and unique association (Keller, 1998)
•    Public relations teams
•    Charity events
•    Low-cost promotions
•    Sponsorships
•    Linkages with other companies, spokespeople, personalities

Brand effects:
•    Competitiveness in the marketplace
•    By creating market-based assets perceived by the consumer, firms are able to nurture perceived brand value and consumer brand equity, which in turn create profitability for the firm
•    Brands create the identity of the firm in terms of name or trademark or a consumer influence on their minds
•    Brands enable consumers to make confident, purchase decisions thus easier for firms with previous brands to introduce newer brands, adding to less risk for firms to innovate to produce newer products and services
•    Brands are a key source of immutable assets for the firm, where they can not be copied by their competitors and thus differentiating feature, leading to sustainable growth

“Brand strategy is a policy for creating and nurturing sustainable competitive advantage. It consists of “the development and maintenance of sets of product attributes and values which are coherent, appropriate , distinctive, protectable and appealing to customers” (Murphy, 1992:3)

Brand strategy challenges:
•    High resources, budgets required
•    Impact on creating growth opportunities and market based assets
•    Coherent, consistent and integrated communications policy in the midst of immense competition (corporate communication)
•    The guarantee that the brand strategy will work. The effectiveness of the plans

Brand traits:
•    Memorable, simple, recognisable by customers, credible and deliverable (Blacket and Denton, 1992:79)



Bibliography

Blacket, Tom and Graham Denton (1992), Developing New Brands, in: John Murphy (Editor.), Branding a Key Marketing Tool (2nd), 73-85, Basingstoke, UK: MacMillan Press.

Garvin, David (1993), Building a Learning Organisation, Harvard, Business Review, 71(July-August)

Keller, Kevin Lane (1998), Strategic Brand Management: Building, Measuring and Managing Brand Equity, Upper Saddle River, New Jersey: Prentice Hall

Murphy, John (1992), What is Branding?, in: John Murphy, (Editor) Branding a Key Marketing Tool, London: Macmillan Academic and Professional Ltd.


December 07, 2008

Various Forms of Intangible Assets

Various forms of intangible assets:

·       Intellectual property when taking the form of legal rights that include patents, trademarks or unprotected managerial know-how

·       Brands when incorporated within a durable products we see on the shelves of a supermarkets

·       Unique organisational design: simply what the name suggests, it is the way in which the firm is set up to provide the service.


November 24, 2008

Brand Equity

What is brand equity?

American Marketing Association defines a brand as “a name, term, sign, symbol, or design, or a combination of them, intended to identify the goods or services of one seller or group of sellers and to differentiate them from those competitors”(Kotler, 2003, p. 418).

In essence, to brand a product or a service is to create marketable differences to differentiate it from other similar products or services in order to derive excessive profits to the company providing the service or product.

Although marketing activities and other activities create an impetus for brand creation, a brand ultimately resides in the minds of customers. Thus for the branding to be successful, it is essential for the customers to be convinced that there are meaningful differences among brands in the product or service category.

Brand equity is the added value endowed to products and services. This value may be reflected in how consumers think, feel and act with respect to the brand, as well as the prices, market share, and profitability that the brand commands for the firm. Brand equity is an important intangible asset that has psychological and financial value to the firm.

Srinivasan et al. (2001, p. 1) defines brand equity as “the incremental contribution ($) per year obtained by the brand in comparison to the underlying product (or service) with no brand-building efforts.” Furthermore he outlines the sources of brand equity through (1) brand awareness, (2) incremental attribute perception biases and finally through (3) incremental non-attribute preferences.


November 11, 2008

Is there hope at the end of the tunnel?

The following the new research areas within "Intangible Assets" that I might focus on, depending on my meeting with the supervisor:

"Research and Development"

Research and Development expenditure: issues concerning capitalisation, amortisation, or value-relevance to firms within health-care, technology or financial services industry where R&D has greater impact.

The paper by Lev and Sougiannis (1996) suggests that R&D capitalization process yields value-relevant information to investors. Since R&D capital is associated with subsequent stock returns, there is a systematic mispricing of the shares of R&D-intensive firms (underreaction to R&D information), which is in contradicting to FASB Statement No. 2: 'A direct relationship between research and development costs and specific future revenue generally has not been demonstrated

Chan and Sougiannis (2001), go deeper into the relevance of accounting disclosure of R&D expenditure on stock market returns and uncertainty in valuation of companies.

2. Brand valuation – capitalisation issues, affect on capital market performance of listed companies, or ability to leverage marketing expenses to stock returns

3. Human Capital – development, valuation, capitalisation, health-care and technology sector

4. Trademarks – to forecast sales, profits, return-on-investment, relevance of investing in such intangibles


October 20, 2008

Possible Research areas within Intangible Assets

From my preliminary literature review I have found the following aspects concerning Intangible Assets within both Accounting and Marketing Journals, although I am still unclear which strand of business I wish to pursue for this project.

From the accounting standpoint, “…the fair value of tangible assets [in the old days,] was routinely determined and the difference was simply thrown into the balance sheet as goodwill.”[1] Nowadays the markets are focussing more on the origination of this non-financial measure and their differing treatments such as for internally generated intangibles or post-acquisition balance sheets goodwill. Historically the accounting profession has had the capitalisation of intangibles as the centre of debate to determine its scope, valuation methodologies and widespread acceptance by the capital markets. The production of IAS 38 and its revisions during 2008 provides the key definitions, recognition criteria, measurement methodology and disclosure requirement governing intangible assets in financial accounts. Such a standard has been the result of the on-going convergence projects of the two of the world’s major accounting standards boards: IASB and FASB. A possible research focus would mean I start from the development of goodwill and intangible assets within the accounting profession and how the standards have evolved under the various named boards (ASB, FASB and IASB). I could then focus on a specific type of intangible or narrow it down to a specific industry and do some case-studies or survey type analysis. The research could focus on the purpose of valuation of intangibles via the cost, income or market approaches, whether for tax purposes, litigation purposes, corporate planning or defensive strategies in light of take-over bids or for any other commercial purposes that may arise in businesses.

On the other hand, the marketing profession has focussed on defining the “nature and substance,”[2] of specific intangibles types (such as brands, customer loyalties, employee equity, etc.) to focus on the construct in order to clearly define its role for marketing managers and value it accordingly. Thus, the roadmap is much clearer after defining specific intangibles and subsequently valuing them as a result. A basic literature review revealed vast amounts of information concerning specific type of intangibles such as brands, intellectual properties, employee assets, customer loyalty and so on. In this respect, I could not narrow my approach myself to restrict myself on any specific type of intangible and therefore you may enlighten me with some leads as to where I may begin if I were to pursue this side of intangibles.

An alternative approach to “intangible” research is within the capital markets. I could focus on the efficient market hypothesis to test stock trading strategies to the level of intangibles in a specific industry sector. This strand of research would demand first a literature review of the various stock-trading strategies and subsequently refining the thesis question. Again I haven’t done much research in this strand of intangibles, but could dig deeper to refine the topic.

A final note on intangibles: research on intangibles is quite a complex one as illustrated an extract from a literature review.[3]

The different classifications are rather confusing for practitioners who want to apply the concept in practice. However, it is important to realize that the concept of intangible assets is discussed from various perspectives, including accounting, strategy, human resource management, information systems, knowledge management, among others (Marr, 2004), and these different perspectives can lead to different emphasis in the definitions (Marr et al., 2003).

Some possible ambiguous terminology or phrases that I came across while I was conducting the basic literature review included:

International Valuation Standards Committee (IVSC)

“Royalty Relief”

Brand valuation

Brand strategy

Effect of brand equity on business performance

Brand switching behaviour

Value relevance of intangible assets

Book “Valuing Intangible Assets” by Reilly and Schweihs (1999)



[1]David Haigh 2008. VALUATION: Setting a standard of value. Brand Strategy, September 8, 38. http://www.proquest.com/ (accessed October 19, 2008).

[2] L. Wood, Brand value: the future. The Journal of Brand Management 5 4 (1998), pp. 245–255.

[3] Marr, B. and C. Adams, The Balanced Scorecard And Intangible Assets: Similar Ideas, Unaligned Concepts. Measuring Business Excellence. 8 (3) 2004 pp. 18-27


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