Brands as "separable assets" 43

Brands as "separableassets"
Patrick Barwise (with Christopher Higson, Andrew Likierman and Paul
Marsh)

What is a brand name worth, and how can it be valued? These questions have
always been asked by company analysts and have recently also been the concern of
accountants. In this contribution to the 'brands debate; Patrick Banvise and his
co-authors set out the current state of our knowledge on brands: do they last, are
they stable and can their value be separated from those of other intangible assets?
The authors have little doubt that brand names have an economic value, but find that
attaching precise numbers to these valuations can be fraught with difficulties.

The last year or so has seen much controversy among UK

accountants over what has become known as the 'brands' debate.
This debate has raised fundamental issues about the role of financial
statements as well as about asset recognition and valuation. It has
also raised questions about the nature and sustainability of brand
names, as well as their separability from other intangible assets.
Valuations of intangibles such as publishing titles and mastheads
have been practised for some time by companies such as United
Newspapers, Reed International and News International.
Trademarks are specifically listed in the UK accounting standards
(SSAP14) as examples of identifiable intangibles, and as an instance,
Reckitt & Colman capitalised the Airwick trademark on acquisition
of Airwick Industries in 1985.
More recently, however, more and more has been heard of
companies wishing to include or which have included the value of "Moreand more
their brands as an asset in their published financial statements. Those has been heard of
who have recognised their acquired brands include Grand companies wishing
to include the value
Metropolitan, Guinness, United Biscuits, WPP and Ladbroke. of their brands as
Having written off the goodwill associated with the acquisition of an asset in their
Hilton International in 1987, Ladbroke even wrote it back as a brand published financial
name in 1988. There are far fewer instances of home-grown brands statements.I'

being included. The most widely publicised example was Ranks

Hovis McDougall's valuation of both its acquired and existing brands
in November 1988. But in these cases, the basis of calculation for the
sums involved, often hundreds (and more recently thousands) of
millions of pounds, is rarely disclosed, even in outline. Key

Business Strategy Review Summer 1990

44 Patrick Batwise

assumptions are not divulged because of the need to maintain

commercial confidentiality. Nor is it clear what premise of value is
being used.
Before any consensus can be reached on the principles that should
be adopted to value brands - either for use in accounts or in the
assessments made by company analysts - it is important that all
concerned should have a broad understanding of what we do and do
not know about brands. This paper is an attempt to summarise the
current state of knowledge, starting with the nature of brands and
branding.

Brands and Branding

Brand names, trademarks, and registered designs are used to identify
and differentiate a seller's products and services from those of its
competitors. This makes life simpler and less risky for the customer
"Brandnames and rewards the supplier for developing and promoting new products
make lifesimplerand services, and for maintaining consistently high quality. Branding
and less risky for
the customer." covers many services as well as products, retailers' as well as
manufacturers' brands, and industrial as well as consumer markets.
There are still many unbranded markets, usually because of
problems of achieving consistent supply (most farm products), the
cost of quality control (small building jobs), or because the item is -
and is known by the customer to be - a commodity (oil).
Nevertheless people have successfully branded chickens, bananas,
water, plumbing services, and even ice, and the trend towards
branding continues. Most of what we buy today is branded, in the
sense of having a legally enforceable brand name, usually linked to a
legally enforceable visual trademark.
Many successful brands are based on some physical product
differentiation, although the differences between competing brands
may be small. In categories such as cosmetics, clothes, spirits or
pharmaceuticals, a successful brand may be priced much higher than
its functionally identical rivals, yet still dominate the market. In some
of these cases, advertising and brand image may be of prime
importance. Conversely the customer franchise of brands like IBM
or Marks and Spencer's St. Michael has little to do with advertising.
A market such as petrol is dominated by the number and location of
outlets, with price as a secondary factor and branding probably only
third. Similarly, with infrequently bought items such as cars or white
goods, the product itself, its price and availability, and the firm's
reputation are considered to be more important than advertising. It
all depends on the context. But whatever the causes of success for a

Business Strategy Review Summer 1990

 Brands as "separableassets" 45

particular product or service, the supplier will usually seek to protect 'EEvery day, British
consumers eat
that success via legal property rights in the brand name or trademark. million Rowntree's
Kit-Kat bars. There
An Example: Kit-Kat are several other
fairly similar
Every day, British consumers eat 3 million Rowntree's Kit-Kat bars. chocolate covered
There are several other fairly similar chocolate covered wafers on the wafers on the
market but Kit-Kat outsells all of them combined. Why? market but Kit-Kat
Perhaps surprisingly, the answer to this question is not really outsells all of them
known. But we do know that consumers like the product and - more combined. Why? "
important - keep on liking it; that they find it reasonably priced and
very widely available; and that their buying of Kit-Kat is reinforced
by seeing it frequently advertised and promoted. It is also known that
for most consumers Kit-Kat is a trusted and familiar brand with
associations derived from usage and also from advertising ("have a
break') over many years, and that they instantly recognise its name
and packaging.
Kit-Kat is a good example of a successful brand and especially
relevant to the brands debate because of Nestle's 1988 takeover of
Rowntree. As with many established brands, much of its success is
based on value for money to the consumer: consistent product
quality at a competitive price. Kit-Kat's value for money reinforces
consumers' tendency to buy that brand at the point of sale. This in
turn reinforces its very wide retail availability. At the same time, the
high sales of Kit-Kat allow economies of scale in production and
distribution (in turn reinforcing its competitive price) and heavy
expenditure on advertising and promotion.
Many of the elements of the success of a big brand like Kit-Kat
are mutually reinforcing. But for reasons which are still not well
understood, they do not lead to ever-increasing sales: in most
established markets, market shares are fairly steady from year to
year. Factors which limit the possible tendency for brands to keep on
getting bigger are that preferences vary between consumers; that
most consumers also like some variety (partly depending on the
usage occasion); and that tastes change over time and between
generations, encouraged by the launch of new products - most of
which fail however.
All this gives a successful brand a great deal of momentum.
Kit-Kat was launched over 50 years ago and with good management
and reasonable luck should still be a significant profit earner in
another 50 or even 100 years. This makes the brand itself much
older, yet still likely to be much longer-lasting, than the plant on
which it is produced or than most of its consumers. It is undoubtedly
an asset in the sense used by Solomons (1988) of a "resource or right
incontestably controlled by Rowntree, that is "expected to yield it

Business Strategy Review Summer 1990

46 Patrick Barwlse

future economic benefits". Although intangible, it is likely to be more

durable than the associated tangible assets, whose value in any event
depends critically on the sales of the brand.

The Longevity of Brands

Kit-Kat is a highly successful established brand in a very stable
category - chocolate confectionery. More generally, what is the
longevity of brands?

The Stability of Established Brands

Most new brands fail. The actual proportion depends on definitions,
"Mostnew brands
but of new brands launched nationally maybe one in five achieves a
fail." level of sales and profitability that might justify a substantial brand
valuation. To achieve this in so-called fast-moving (i.e.
frequently-bought) consumer goods - "fmcg" - the brand must
obtain high trade acceptance and consumer trial, convert this into
repeat-buying, and show that it can sustain its sales for at least a
couple of years once its advertising and promotion support come
down to a profitable long-term level. All this might take 3-5 years
from national launch.
But if an fmcg brand does become established and profitable,
there appears to be a good chance that it will remain so for many
years or even decades. Indeed, with continuing marketing support
"Butif an fmcg
there is no inherent reason why it need have a finite economic life.
brand does Unfortunately we know of little or no systematic research into the
become long-term stability of product category sales or of brand shares (see
established and Day's 1981 review of the "product life cycle"). Despite some
profitable, there definition problems for both brands and categories this is a
appears to be a
good chance that
researchable topic, although it would be harder to get data on
it will remain so for profitability, as opposed to sales. But the anecdotal evidence is clear
many years or that, for frncg, category sales and shares can be remarkably stable.
even decades. I' Notwithstanding competition, development, and social changes,
many fmcg brands have not merely survived but remained dominant
for decades. Examples in the UK are Kelloggs Cornflakes, Cadburys
Dairy Milk, Hovis, Brooke Bond, Bisto, Stork, and among non-foods
Colgate, Persil, Johnsons Wax,Dettol, and many more. The top ten
UK grocery brands have an average age of 42 years (see Table 1).
These general impressions about the stability of brands were
confirmed through an informal analysis of brand advertising
expenditure in 1970 and 1988. Data were taken from MEAL (Media
Expenditure Analysis Limited) for several food and drink categories
(beer, biscuits, bread, breakfast cereals, chocolate confectionery,

Business Strategy Review Summer 1990

 Brands as "separableassets" 47

Table 1
Britain's Top Ten Grocery Brands

I 1
Brand
Persil
Owner

Lever Brothers (Udever)

Sales 88/89

f 192.lm
2 Nescaf6 Nestle f 188.4m
3 Whiskas Pedigree Petfoods (Mars) f 180.8m
4 Ariel Procter and Gamble f 171.8m
5 Andrex Scott f 164.8m
6 Coca-Cola Coca-Cola & Schweppes Beverages f 141.8m
7 PG Tips tea Brooke Bond 0x0 (Unilever) f 115.8m
8 Chum dog food Pedigree Petfoods (Mars) f104.lm
9 Heinz baked beans H J Heinz f94.0m
10 Flora Van Den Berghs and Jurgens (Udever) f91.7m

Source: Checkout, December 1989

coffee, soft drinks, wines and spirits) plus cigarettes, detergents,

petfoods, and toothpastes (MEAL 1971,1988/89).
A full analysis would involve following up many individual cases,
and obtaining data on sales and market shares as well as on
advertising. At this stage all that can be said is that easily the majority
of brands advertised heavily in 1970 were still big brands in 1988, and
that virtually all those that were not had either been new brands in
1970 that never became successful or old brands that declined
steadily, rather than through some major collapse that made the
headlines.

Unanticipated Reductions in Value

There are many examples of established brands which decline or
even die. What happened to Rinso, Woodbine, and Double
Diamond, or even to Lassie, Tide, Kensitas, and Quaker Puffed
"Whathappened to
Wheat? Again there is a lack of systematic research, and detailed Rinso, Woodbine,
examples are hard to find since companies and advertising agencies and Double
have understandably more to say about their successes than their Diamond, or even
failures. But the overwhelming impression is that, in fmcg, brands to Lassie, Tide,
almost always decline slowly rather than suddenly. In some cases a Kensitas, and
Quaker Puffed
large established brand may be perceived as offering poor quality or Wheat?"
value and may also lack sufficient marketing support. These
weaknesses can make it vulnerable to competitive entry (as has been
suggested in such cases as Cadburys Dairy Milk, Wimpy, Smiths
Crisps) and/or a reaction from consumers (Watney's Red Barrel). An
established brand may also be vulnerable to changes in technology
(the impact of synthetic detergents on established soap powders),

Business Strategy Review Summer 1990

48 Patrick Barwise

consumer tastes and habits or legislation. But even in these cases, the
established brands seem to have taken many years to decline, and
many such brands have been successfully adapted or relaunched. In
particular, it appears to be very unusual for an established fmcg
brand to suffer a serious sales decline (say 20 percent or more) over a
period of say 2-3 years if sales were previously steady or growing.
However, the economic value of a brand is likely to be
significantly less stable than its sales, partly because profits are more
volatile than sales and partly because values are more volatile than
profits. Present values will be very sensitive to changes in the
expected future growth rates of profits and also to changes in the
discount rate.
So even for established fmcg brands with continuing marketing
support, it is not clear how often there would have to be
unanticipated write-offs if brands were recognised in the balance
sheet. This would partly depend on the premise of value, especially
on how the accounting principle of conservatism was applied. One
mitigating factor is that the value of a portfolio of brands would be
less volatile than the value of an individual brand.
Non-fmcg Brands
The evidence on non-fmcg brands is even less clear. Generally,
branding is a less significant factor in industrial than in consumer
"Brandingis a less
significant factor in markets, although there are exceptions. Similarly, total category sales
jndusirja/than in tend to be more volatile in markets with larger, less frequent
consumer markets." purchases (consumer durables, industrial capital goods). Fashion also
introduces extreme volatility into some markets, perhaps especially
those aimed at young people. Above all, markets where technical and
product innovation are the main sources of competition are typically
much less stable than fmcg, both in terms of total category sales and
in terms of market shares. This not only holds for high-tech industrial
markets such as computers, aerospace, and pharmaceuticals, but also
in such technology-based consumer categories as cars, motorcycles,
toys, watches, and cameras - markets where UK companies have
often been less successful than their overseas (e.g. Japanese and
German) competitors. Brand valuation will tend to be less significant
in these categories, although again there are exceptions such as
"house" brands connoting 1w;ury and/or reliability across a range of
models. Systematic research would be needed to establish more
firmly the historical variation between these various types of
category. Such research could also look at service brands, for
example in retailing, leisure, and financial services.

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 Brands as "separableassets" 49

SeparabiIity
Despite the variations, exceptions, and gaps in our knowledge
indicated above, the evidence is that many brands are sufficiently
long-lived to be regarded in economic terms as important capital
assets. But are they separable?
In current marketing jargon, what customers buy - and suppliers
try to differentiate and sell - is the "extended" or "augmented
product". This includes:
the physical "generic product" itself for example, instant
coffee or loanable funds,
other attributes of the ''expected product" to at least a
normally-acceptable level: price, packaging, availability,
technical support, after-sales service, etc,
where possible and cost-justified, offering the customer "more
than what he thinks he needs or has become accustomed to
expect" (Levitt 1981): useful extra features or services, plus
anything else which raises the perceived value of the item,
including brand imagery.
All this raises serious problems of separating the value of the "Thereare
serious problems
brand name and trademark from the many other elements of the in separating the
"augmented product". value of the brand
name and
Legally Separable Rights trademark from
the many other
Production of a brand may involve using various legally separable elements of the
property rights such as patents. Marketing usually involves other 'augmented
property rights - brand names, trademarks, and registered designs. product "I.

These are used to identify and protect the brand, but they are not
themselves the brand - or not the whole brand.
In extreme cases of "pure1' branding, a commodity may be
packaged and branded in a way that commands a much higher
market share and/or net margin (even after allowing for the cost of
advertising and packaging) than other less successful rivals. In the
"ideal" case for separability, the brand's image and reputation among
consumers and the trade would now owe nothing to the supplier's
wider image and reputation. In this case, someone buying the
property rights could obtain the full value of the brand without
buying any tangible assets. Smirnoff vodka might come close to this
ideal, if the buyer were a highly competent producer and distributor
of spirits.
The same would be less true of Heinz baked beans, despite the
fact that (like vodka but unlike, say, BMW cars) the product is
physically very similar to its competitors. It is hard to imagine H J

Business Strategy Review Summer 1990

50 Patrick Barwise

''Itis hard to Heinz selling the rights to their brand name and trademarks in the
imagine H J Heinz UK, especially without also selling physical assets. But if they did,
selling the rights
to their brand
this would be so widely publicised that not just the trade but many
name and consumers would know that the beans in the Heinz cans were no
trademarks in the longer "real" Heinz baked beans but somebody else's beans labelled
UK, especially Heinz. It is virtually impossible to estimate whether or how much this
without also would lead to a loss in volume or margin. Changes in consumer
selling physical
assets."
perceptions are hard to predict.
Successful smaller brands, even if they use a house name, may be
more separable than a massive brand like Heinz. For instance, many
brands acquired over the years by firms such as Reckitt & Colman,
RHM, Beecham, and Premier Brands have successfully transferred
ownership. But in practice, such transfer has usually involved buying
tangible assets as well, if not a complete business.
In most cases, it is extremely unclear how much of the value of the
brand could be transferred to even a well-qualified buyer merely by
selling the separable property rights. Almost invariably, the value of
the brand is intimately bound up with other intangibles (reputation,
"The value of the know-how, skills, relationships) which are not legally separable from
brand is intimately the business as a whole. In economic terms, this is partly true of all
bound up with
other intangibles assets. A jumbo jet is of little value without the ability to service it, fly
which are not it, and fill it with passengers. Yet no-one has a problem in valuing the
legally separable asset on the assumption that the owner has the means to exploit it,
from the business because if someone else buys it it is still the same jumbo jet. This is
as a whole. 'I
not true of the property rights in most brands, which have a value
that is more specific to their particular owners.

Incremental Profit or Cash Flow

Even if there is a way of defining a brand as something legally
separable, it may also be impossible to find a valid (in terms of
economic value) and objective way of separating its incremental
profit or cash flow from that of the rest of the business.
Marketing is mostly concerned with volume, not margin (in the
sense that in most markets, market shares differ much more than net
margins). Of course, profit is about both, and there will often be a
trade-off between the two, especially in the short term. But the main
difference between a brand which makes a lot of money and a
competitive brand which makes much less is usually that the
successful brand sells far more volume at a comparable margin, not
vice versa. Often the most successful brands like Kit-Kat and Mars
are sold at very competitive prices,
Valuing a brand by estimating its price premium compared with a
"generic" competitor (eg Mullen and Maim, 1989) may therefore not
only be arbitrary but also fundamentally invalid. It depends on the

Business Strategy Review Summer 1990

 Brands as "separable assets" 51

accident of whether there happens to be a cheaper "generic" (e.g.

private label - which is not truly generic) equivalent; it potentially
overvalues small, high-priced brands and undervalues large,
value-for-money brands; and it neglects the fact that production and
distribution efficiencies may be inseparable from the brand's success '% method that,
without heavy
in the market. A method that, without heavy massaging, would massaging,
attribute little value to brands like Kit-Kat and Mars must be open to would attribute
question. little value to
One alternative method of separating the brand's incremental brands like
profit or cash flow is to allow for the opportunity cost of the tangible Kit-Kat and Mars
must be open to
(and possibly the other intangible) assets involved in producing, question."
distributing, and marketing the brand, excluding its name and
trademark (eg Penrose and Moorhouse, 1989). Assessing this is
inherently highly subjective.

Corporate Brand Names

The problem of separability applies most of all to corporate brand
names. One recent case is WPP's f175 million valuation of its J
Walter Thompson and Hill & Knowlton brand names (WPP 1989). It
is hard to see how these can be described as legally separable at
anything like this value:
0 It is not presumably suggested that anyone would pay f175
million merely for use of these brand names.
Nor is it presumably suggested that the economic value of
WPP without these names would be El75 million less than
with them.
In such a case, the reader of a financial statement therefore needs
to know precisely what else, apart from the brand names and
trademarks, is included in such a valuation. The reader can then
judge whether whatever is being valued is indeed separable, as well
as whether the actual valuation makes sense, given the firm's premise
of value.
More generally, if an asset is durable and separable, its value will
depend on its likely future profitability.

Future Profitability
Estimating a brand's future profitability (in terms of profit or cash
flow) inevitably involves taking a view about its future market
performance. It cannot be validly assessed by looking only at
historical marketing expenditure, since

Business Strategy Review Summer 1990

52 Patrick Barwise

0 much investment in long-term market position is non-cash

(pricing competitively) or well outside the marketing budget
(quality control)
the long-term value of marketing expenditure (on advertising,
selling, promotion, trade support) is usually impossible to
assess.

Marketing Factors
In principle, each brand's profitability would have to be the subject
"Thelong-term of a tailored forecasting exercise, based on specific details of the
value of marketing brand, its market, competitors, and channels, and its likely future
expenditure is
usua//yimpossjb/e development. In practice, an outside valuer must use a more
to assess.'' consistent framework which includes such factors as "market share,
numbers of competitors, barriers to entry, customer loyalty, levels of
advertising expenditure, and stability of revenue" (Cameron-Smith
and Mattiussi 1989).
The widely-publicised assessment of overall brand strength
carried out by the consultants Interbrand includes seven key factors
(RHM 1989, Penrose and Moorhouse 1989):
leadership (dominance of market or market share)
stability (how long and well established)
0 market stability (e.g. food and drinks categories are less
vulnerable to change than say high-tech or clothing)
internationality (an international brand is seen by Interbrand
as more valuable than a national brand with the same sales and
profits, other things being equal)
trend (long-term trend, presumably of sales)
support (amount, consistency, quality, focus, and nature of
marketing support)
protection (strength and breadth of legal title).
Obviously, subjective judgement is needed in estimating these
factors, combining them into an overall brand strength, and
converting this to an economic value. To give one simple example,
merely assessing the first factor, market leadership, involves:
Deciding how broad or narrow a market definition to use. This
is aZways partly subjective (in product-market even if not in
geographical terms) and greatly affects whether a brand is seen
as a big fish in a narrow market segment or a small fish in a
wider market (Day et a1 1979).

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 Brands as "separableassets" 53

Deciding how much weight to give to market rank (1,2,3, etc),

market share (e.g. 20 percent - which could be by volume or
value), relative share (say, 70 percent of the market leader's
share), and the strength of main competitors other than the
market leader.
More fundamentally, deciding whether, when, and to what
extent market leadership merits any special bonus in the
specific context, over and above the brand's current
performance. Of course most market leaders make higher
profits in absolute terms, and in many markets also as a
percentage of net assets, although the evidence on this is less
clear cut than often supposed (Anderson and Paine 1978,
Jacobson and Aaker 1985, Anteriasian and Phillips 1988). But
it is not clear that they justify a higher earnings multiple, even
on average. In many cases, specific factors such as antitrust will
actually limit a market leader's scope for growth.
Given the nature of markets and marketing, there is an inherent
trade-off between the economic validity of a valuation (which
inevitably involves much subjective judgement about the kinds of
marketing factor listed by Interbrand) and its objectivity, consistency,
or of auditability. Finding an appropriate compromise will always be
difficult, and will also depend on whether the purpose is managerial
or for financial reporting.
Brand Share and Brand Loyalty
As already noted, brand shares in most markets differ dramatically 'Brand shares in
(by a factor of ten or even more) between the largest and smallest most markets
brands, and these shares are often remarkably stable from year to differ dramatically
year. This implies a degree of long-term "brand loyalty" on the part of between the
consumers. In the shorter term (from several purchases up to several largest and
smallest brands,
dozen purchases of the product category) such loyalty is in fact and these shares
weaker - or certainly different - than often supposed, and is hardly are often
ever exclusive (Ehrenberg 1972,1988). remarkably stable
Most consumers' buying of a product category is heavily biased from year to year. "
towards one or two favourite brands, but they will quite often buy
another instead if it is on offer, if their favourite brand is out of stock,
or perhaps just for a change. The momentum of most successful
established fmcg brands is not the result of "high-involvement"
exclusive brand loyalty but, for most of its consumers, rather the
reverse: a ttlow-involvementttsomewhat routinised preference likely
to continue well into the future.

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54 Patrick Barwise

A brand need not have the finite economic life assumed for most
'Hbrand need not tangible assets. In fact, unlike with plant and equipment, continuous
have the finite usage can even increase rather than reduce its value. In a case like
economic life
assumed for most
Kit-Kat, this may mainly reflect long-term familiarity and product
tangible assets. In reliability. In others, the brand may have acquired other positive
fact, unlike with images and associations over time - as Coca Cola discovered when
plant and they changed the product formulation. In yet other cases the brand's
equipment, so-called competitive positioning (design, presentation, advertising,
continuous usage
can even increase
etc) may emphasize its traditional or classic "heritage". This
rather than reduce especially applies to luxury items for older, affluent - or would-be
its value." affluent - consumers.
However, the opposite may occur. Consumers may become bored
with the product and its advertising - familiarity may become
over-familiarity - or the associations may become negative for a
new generation of younger consumers. This obviously applies in
categories like clothes and music. It also holds for mutually
inter-related categories. In beverages, soft drinks are younger than
tea and coffee, vodka is younger than whisky and cognac, and lager is
younger than ale. Even at the individual brand level, brands like
Pepsi and Smirnoff may try to position themselves as young people's
brands, also gaining extra benefit from demographic trends.
The sustainability of a brand's market position in the very long
term thus depends on many factors, some of them highly
unpredictable, mainly relating to future consumer tastes and
competitor activity. The unpredictability of changes in consumer
tastes reflects people's fundamental ambivalence about change.
Often, the reasons for such change are far from clear, even with
hindsight.
For frequently-purchased items, short- to medium-term brand
loyalty on a timescale up to a couple of years or so is better
understood. Brand loyalty (whether measured in terms of
repeat-buying of the specific brand, multi-brand buying of that brand
and others, or related measures of consumer attitudes and beliefs) is
fairly weak and quantitatively predictable (Ehrenberg 1972, 1988;
Bird and Ehrenberg 1970; Barwise and Ehrenberg 1985). One
important finding is that, within a given product category which can
be quite widely defined (e.g. instant coffee whether freeze-dried or
spray-dried, caffeinated or de-caffeinated, etc), these various
measures of brand loyalty vary little between brands, apart from a
systematic and predictable tendency to be somewhat higher for the
bigger brands. The evidence has recently been summarised by
Ehrenberg et a1 (1990). This means that there would be little value in
exploring these measures of current short-term brand-loyalty and
image strength in an attempt to quantify long-term brand values.

Business Strategy Review Summer 1990

 Brands as "separableassets" 55

Typically the best indicator of brand shares in ten years' time is brand
shares today, especially if they have been historically stable. A recent
related finding is that loyalty for retail store-groups is similar to
loyalty for brands (Uncles and Ehrenberg 1988).

Brand Extensions and International Markets

Whatever the problems of separating and quantifpng the value of a "Typicallythe
brand, its primary value is usually based on expectations about the best indicator of
future economic performance of the existing product or service brand shares in
(subject to minor changes to sustain or improve its value) in its ten years' time is
current market. Some brands have the additional value of facilitating brand shares
the launch of new products or services under the same brand name today.'I

into the same geographical market ("brand extensions"), or the

existing product or service into new markets, or even both.
Most brand names cover more than one pack size, model, or
service. Beyond this, use of the same brand name can reduce the cost
or increase customer acceptance of new related offerings. Practice
varies. Guinness promoted their alcohol-free lager Kaliber as
"brewed by Guinness", in contrast to the product positioning of the
original entrant, Barbican. Mars tends not to emphasize its name on
individual confectionery brands, whereas the Cadbury name appears
more prominently not only on confectionery brands but also on some
of the grocery brands now owned by Premier Brands. Others such as
United Biscuits go even further, giving the McVities brand name and
trademark considerable prominence in the packaging and promotion
of brands like Hob Nobs and Jaffa Cakes. The use of such umbrella
or house brand names is a complicating factor in the attempt to
separate and value individual brands, and seems likely to increase in
response to the escalating cost of successfully establishing new brand
names.
There is also uncertainty about the scope for brand extensions,
which have recently been a growth area and one of the forces behind
the current US interest in building and exploiting the value of
"Anattempt by
established brands, referred to as "brand equity" (Leuthesser 1988, Levi to penetrate
Tauber 1988). The issues relate to how well the extension fits the the off-the-peg
customer's perception of the existing brand and of the firm's men's suit
capabilities. For instance, brand labels are now widely used (often market using the
under licence) in the clothing and fashion accessories markets. But Levi brand name
failed.
I'
an attempt by Levi to penetrate the off-the-peg men's suit market
using the Levi brand name failed. There is also concern that
launching a new brand under an existing name may reduce or "dilute"
the value of the established brand: hence, for example, Beecham's
extreme caution in launching Sparkling Ribena or the possibility that

Business Strategy Review Summer 1990

56 Patrick Barwise

the success of Miller Lite may have reduced sales of the parent
"The idea of Miller beer brand (Ries and Trout 1989).
exploiting a The idea of exploiting a successful brand in a wider or even global
successful brand in
a wider or even market is a fashionable topic, stimulated by Ted Levitt some years
global market is a before the current preoccupation with 1992 (Levitt 1983). Th'is seems
fashionable topic." to have been a major factor in the Nest16 acquisition of Rowntree. As
with branding generally, t h e overall trend is towards
internationalization, but there are formidable implementation
problems in terms of national tastes, regulations, advertising media,
languages, and organization. The scope varies widely, for example
between beer and spirits, and is again hard to predict.

Conclusion
A successful, established brand undoubtedly has economic value, in
the sense that a company is worth more with such a brand than
without it. Most new brands fail, but once successfully established,
brands can have very long lives, especially among so-called
fast-moving (i.e. frequently-purchased) consumer goods. Indeed, the
fact that most new brands fail itself increases the (ex-post) value of
successful established brands.
However, there are very major practical problems in establishing
what a brand is worth. In most cases the value of the brand is
impossible to separate from that of the rest of the business, and is
more than the value of legally separable property rights in the brand
name or trademark under almost any premise of value. Any valid
assessment of a brand's future profitability involves many inherently
subjective judgements about marketing factors such as competitive
market position, overall market prospects, and the quality and value
of marketing support.
These subjective judgements mean that there is a fundamental
conflict between economic validity and the degree of objectivity
"Thereis a needed for financial accounting. Unfortunately, there is little scope
fundamental
conflict between for reducing these uncertainties by analysing measures of short-term
economic validity brand loyalty, since these seem unlikely to yield us&l information
and the degree of about long-term brand values. Other subjective factors (linked to the
objectivity needed premise of value) include the scope for, and value put on, new
for financial strategic options such as brand extensions and international
accounting.'I
expansion.

"Brand Equity"
The economic value of brands, referred to as 'brand equity", is the
subject of much debate in the USA and is currently the top research

Business Strategy Review Summer 1990

 Brands as "separable assets" 57

priority of the Marketing Science Institute (MSI 1988, Leuthesser

1988).
However, the focus is not on corporate financial reporting. If
anything, the aim is the opposite - to use the concept of brand
equity managerially to counter what is seen as an undue emphasis on
the short-term financial performance of businesses. If brand equity
could be measured with sufficient reliability, it could be built into the
routine management accounting and performance
measurement/reward system for business units and product and
marketing managers. While difficult, this would impose less severe
tests of separability and objectivity than would be needed for audited
balance sheet purposes.
Underlying this debate is the widespread feeling among marketing
people that profit-based performance measures encourage
"short-termism", i.e. actions that produce quick profits while possibly
reducing long-term brand equity. For instance, this may involve
over-pricing, but the particular issue most often mentioned is the
pressure to switch marketing funds out of so-called "above-the-line"
media advertising into "below-the-line" trade and consumer
promotions.
Briefly, the only part of media advertising effect which can (with
luck and skill) be measured is usually short-term and this rarely "The only part of
justifies the cost of the advertising (for some examples of best media
advertising effect
practice, see Feldwick, 1990, or other earlier volumes in the same which can be
series). Most advertisers believe that most of the value of advertising measured is
is rather longer-term, although this is not provable. Conversely, trade usual@
and consumer promotions can more often be shown to cover their short-term and
short-term costs (again, with luck and skill), but are not believed to this rarely
justifies the cost
increase long-term brand equity. Promotions may even reduce brand of the
equity by "cheapening" the brand's image among consumers and advertising.'I

weakening the manufacturer's long-term bargaining position with the

trade.
The impossibility of demonstrating the long-term value of
advertising expenditure is the reason why it has to be expensed and
why in practice advertising decisions are not made by the normal
investment appraisal process, although in principle they should be
(Dean 1966).
The debate about "brand equity" and "short-termism" may be
managerially important, and partly explains why marketing directors
appear more enthusiastic than their financial colleagues about
putting brands in the balance sheet (Hider and Hayward 1989), but
that is a subject which lies beyond the scope of this paper.

Business Strategy Review Summer 1990

58 Patrlck Batwlse
~

All four authors are at London Business School, where Patrick Barwise
is Professor of Management and Marketing, Christopher Higson is
Lecturer in Accounting, Andrew Lila'eman is Professor of Accounting
and Financial Control, and Paul Marsh k Deputy Principal, Faculty
Dean and Profasor of Management and Finance. This article is a
revised version of Section 3 of Accounting for Brands, a report by the
four authors commissioned and published l a t year by the Institute of
CharteredAccountants in England and Wales.

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~~~

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Business Strategy Review Summer 1990