What are the obstacles to the branding principles?

In any company amongst the various policies, the brand policy alone stand to be different and conflicts tend to arise. Many of the general policies are implicit and innocuous, but when it comes to brand they pose a hindrance to a true brand policy and the brands are always looked at as unfavorable from the corporate accounting angle.

The prudence principle is applied in accounting standards of a company and hence any investment that may not result in tangible returns will be treated as liability or expenditure rather than an asset. You can take the classic example of communication industry where in investments are made to make the general public aware of the brand’s identity.

 

There is no possibility of such investment resulting in immediate tangible returns or even in next few years and hence the investments are taken into account as an operating expense and appropriately deducted from the profits of the company for the accounting year. However, investments or expenditure incurred on advertising, talented staff, R&D, and machinery can help in building a brand capital.

 

The accounting principle is thus responsible in creating a bias that handicaps brand companies because of their projected undervalued image. For example, if you consider a company A where the expenditure towards awareness creation is on the higher side, it will show in its balance sheet a lower annual profit and a lesser assets value. This is very normal for emerging companies and is a part and parcel of the growth cycle of any company.

Now when you compare the company A with company B, where the company B invests a huge amount in its production process and machineries without anything spending on its brand building or image building. All these expenditure or the tangible investments of the company B are valued as fixed assets and hence depreciation was allowed over a period of time there by creating a very profound image about the company. Though the company B may project a rosy picture as per the accounting standards, the real fact in real terms could be that the company A is in better position because of the brand building.

 

Brand policy also gets affected during the valuation process that is taken up every year, as the product manager’s contribution to the company is judged based on the physical returns or the contribution generated by his products. Though such type of evaluation based on the tangible results are of short term in nature, the real benefits of expenditure or investments made on brand building and image building will be seen or will be visible only after few years.

Further, the product-based accounting principles never encourage product managers to invest in any of the efforts that may lead to additional advertising that in turn may strengthen the brand building effort despite the fact that such expenditure are capable of improving the company’s position in the market.

 

Hence the product managers are made to focus only on investments with a general interest on their own account statement. For instance, consider the major brand of Palmolive that covers many products such as shampoo, shaving cream, liquid detergent, etc., where the brand name will be able to communicate only one of these products as a prominent image leader. When it comes to investment made it will certainly get justified primarily by the sales forecast of that product. Though the ultimate purpose of this expenditure is to benefit all the product categories of the company, the expenditure will be shown under one category of the product only for accounting convenience.

 

Many British companies in order to safeguard their companies’ interest against the bias meted out by the accounting standards have started showing their brands as assets in their balance sheets. This particular practice even questioned the very fundamental of accounting standards, as in any balance sheet only real estate and equipment are considered as capital. Today, it has become a necessity for companies to some how represent their brand equity in their balance sheets, as it is one of the beneficial intangible assets in long run. Further, decision-makers, particularly in brand building areas insist on such a provision for providing an asset value for the brand in the balance sheet.

 

Majority of the successfully operating various types of communication agencies also fails to comply with the requirements of sound brand policy. Many advertising agencies, despite the fact of owning its own network of partner companies that take care of operations such as packaging, name research, graphic identity, were not able to promote itself as an integrated communications group in the crux of the network.

Further, the job of many advertising agencies centers around campaigns that are spread over a very limited period of time, say within a year whereas when it comes to brand policy it is quite different and it needs to be developed over a long period of time with all the sophistication that are needed in the industry.

 

On many occasions, companies were not able to find the necessary expertise within their communications group for fulfilling the companies’ need for a brand building. Though the communication group of a company is responsible for advertising and strategic thinking, for obvious reasons they are not made use in any brand building process.

 

As the advertising agencies are also not in a position to address strategic issues such as the ideal number of brands in a portfolio, the very survival of the brand will be under jeopardy and that makes the responsibility of the advertising agency in an awkward position of being judge and jury. And this scenario has resulted in forming a new branch of study or profession by name strategic brand management consulting.

 

Now with the assistance of the personnel, who are good at strategic brand management consulting, companies will be able to get consistent, integrated guidelines for the development of their brand portfolios with the advantage of multiple techniques. The brand equity of any company greatly depends on the company’s ability to innovate things and in the absence of any visible innovation, the brand will take a beating.

Even though sales people complain about the restriction on their innovative ideas, the company will jeopardize its interests if any weak brand equity is allotted to such groups especially in a multi-brand scenario.

Attractive pricing always go hand in hand in case of weak brands and the incentives offered to the distributors can serve as a booster in market. But there may be occasions where in the regular customers or the brand’s consumers may not appreciate such type of innovative ideas and that may result in downslide of sales. Furthermore, as the product is not reassuring, the non-buyers also refuse to recognize the product.

 

In an another scenario of the innovation getting launched after few weeks duly bearing a popular brand name, then the distributors might refuse to part with the differential premium price amount for the valid reason of that they have bought the product at a lesser rate earlier. Hence, even in a circumstance where the brand is strong, the company has to reduce the price so as to avoid the wrath of the principal distributors. One of the strategies followed by the world’s popular band L’Oreal is that it will allocate its inventions based on its brand potency. The newly innovated product will first be marketed under the prestigious brands that too in selected market channels so as to offset the high production cost of the new product.

 

The success of communication managers in the field of brand building greatly depends on the usage of words wisely. For instance, with the wordings of “Philips tomorrow is already here!” the Philips Company was not able to reap the real benefits out of the slogan because of improbability of banning all advertising on batteries or electric bulbs that trivialized the assertion. The situation could even been handled better by advertising about the future of bulb types rather than manipulating with the current sales.

 

Unfortunately, there is no possibility within an organization either to visualize or to restrict such unforeseen circumstances or constraints. A strong baseline structure of a company always helps in an efficient brand management and any company should possess staff who are capable of appreciating the brand’s intangible attributes and at the same time be able to ensure a continuity in the process of brand building.

 

The companies are also aware that a given brand can be linked to several different technologies and to understand this concept better consider the case of Buitoni, the brand that sells frozen, canned and vacuumed packed foods, all produced by different companies and marketed by different sales teams. This particular concept has in fact paved a way for a brand new of study or profession that could be aptly referred as Brand management across companies.

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