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Journal of Product & Brand ManagementBrands: the asset definition and recognition test

Tony Tollington

Ar tic le information:To cite this document:Tony Tollington, (1998),"Brands: the asset definition and recognition test", Journal of Product & Brand Management, Vol. 7Iss 3 pp. 180 - 192Permanent link to this document:http://dx.doi.org/10.1108/10610429810222822

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180 JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 7 NO. 3 1998 pp. 180-192 MCBUNIVERSITY PRESS, 1061-0421

Introduction

By keeping brands off the balance sheet and dismissing the claims of marketing

concerning the fruits of its labour, the accounting profession succeeds in preserving

its own reputation for integrity, at the expense of the integrity of marketing...

Effective regulation depends on reliable information, and in this accounting is

inevitably constrained by the uncertainties of the world which it represents. But

perhaps it does not illustrate how accounting can misuse the power it gains from

control of financial reporting, when the recognition tests which it applies are too

restrictive (Oldroyd, 1994, p. 44)

The above concluding comments are contained in anInternational

Marketing Review article entitled Accounting and marketing rationale: the

juxtaposition within brands (Oldroyd, 1994). It is an indictment of the

accounting professions treatment of brands to which this paper is a partial

response. The focus of this paper is upon the restrictive recognition tests

which Oldroyd (1994) cites as a reason for the reluctance of the accounting

profession to recognise brands as assets, brand assets, on the balance sheet.

It specifically addresses the restriction or, more accurately, the recognition

boundary created by the definition of an asset based upon a transaction or

event (see Appendix 1). In doing so it shows first how inappropriate the

existing transaction or event recognition boundary is for the widespread

recognition of brand assets on the balance sheet and, secondly, why theexisting attachment of brand assets to purchased goodwill appears to be so

strong. As a response to this situation the paper proposes the creation of a

new recognition boundary based upon an assets separable identity which, in

respect of brand assets, is underpinned by a new brand asset definition, as

follows:

Definition of a brand asset

A brand asset is a name and/or symbol (a design, a trade mark, a logo) used to

uniquely identify the goods or services of a seller from those of its competitors,

with a view to obtaining wealth in excess of that obtainable without a brand. A

brand assets unique identity is secured through legal recognition which first

protects the seller from competitors who may attempt to provide similar goodsand/or services and, secondly, enables it to exist as an entity in its own right and

therefore be capable of being transferred independently of the goods and/or

services to which it was originally linked.

There is nothing particularly new about the first sentence above. It is the

second sentence which offers the opportunity for brand asset recognition to

break free from the existing recognition boundary and, also, its existing

attachment to purchased goodwill. The content of the above brand asset

definition is explored towards the end of this paper.

The structure of this paper

The contents of this paper must inevitably delve into accounting matters in

some depth; however, the issues raised by Oldroyd are of sufficient

Brands: the asset definition andrecognition testTony TollingtonSenior Lecturer at Middlesex University Business School, London, UK

An execut ive summ ary

for m anagers and

execut ives can be found

at the end of th is art ic le

A new recognitionboundary

Breaking free


3/15

importance to the marketing fraternity to be worthy of exposure in the

marketing literature. This exposure will take the form of:

(1) an examination of the existing boundary within which brand asset

recognition currently takes place;

(2) reasons for a change to the existing recognition boundary;

(3) the creation of a new recognition boundary based upon an assets legally

separable identity which, in respect of brand asset recognition, is

underpinned by the above brand asset definition.

Setting boundaries

Our perception of the environment around us is conditioned primarily by our

five senses, that is, sight, touch, hearing, smell, taste, which we can use to

confirm that something tangible exists, and also to achieve a degree of

consensus in the use of our perceptional skills. As sentient beings we also

have perceptional skills which are psychological and intangible in nature and

which are typically expressed in terms of intellect, intuition, imagination and

so on. Our perception is also conditioned by the age we live in and ourgeographic location. Within this broad context the perception of an asset

could range from the physical (such as river water) to the intangible (such as

brand name awareness) and its existence could be for a purpose (such as a

social purpose) or for no apparent purpose in any given time and space.

Clearly, to define an asset in such broad terms would mean that almost

anything could qualify as an asset.

Boundaries can be established from a variety of perspectives (see Llewellyn,

1994); however, highly pertinent to the accounting professions perception

of its economic environment is the setting of a clearly defined boundary in

respect of the recognition of an asset. This probably involves, first, a

narrowing of the broad context espoused above with the possible effect

that the financial information produced within a specified recognitionboundary may not be fully reflective, in terms of scope and metaphorical

understanding, of the perceived economic reality it is trying to capture and

portray. Secondly, from the information users perspective, the possibility

always exists that what constitutes an asset may change with social,

economic, technological and other circumstance so that the original

recognition boundary, established by the accounting profession, becomes

increasingly unreflective of their perceived view of reality. In the first

instance the argument is that the original recognition boundary-setting

process may be too restrictive and, in the second instance, the argument is

that the boundary may need to be changed to reflect environmental change.

The existing boundary for the recognition of brand assets

The recognition of internally created brand assets

If the existing asset recognition boundary is too restrictive then this is likely

to result in an incomplete view of the balance sheet. For example, in respect

of intangible assets, Grand Metropolitan plc capitalises (as an asset on its

balance sheet) the purchased Burger King brand asset whilst excluding the

internally created or home-grown Croft sherry brand asset. The selective

capitalisation of purchased brands alone usually arises from the definitional

requirement (Appendix 1) for the recognition of an asset to be based upon a

transaction or event, a basis which is largely inappropriate for the

recognition of internally created or home-grown brands. This, in turn, results

in an incomplete view of the balance sheet because it can be argued that,

whether purchased or not, if both of the above brands are capable of

JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 7 NO. 3 1998 181

Perception skills

An incomplete view


4/15

producing wealth then there is a prima facie case for both of them to be

recognised on the balance sheet. Indeed, the Accounting Standards Board

(ASB), the UK accounting regulatory body, has recently acknowledged that

An internally developed intangible asset may be capitalised only if it has a

readily ascertainable market value (ASB, 1997, para 14). However, whilst

a readily ascertainable market value or some other value is essential, asset

recognition is still defined as resulting from a transaction or event and the

two issues, measurement and recognition, should not be confused. This

assertion is based upon a simple premise (and prerequisite): first define and

recognise an asset before measuring its worth. If one does not define and

recognise, for example, a brand asset (above) prior to measurement then any

separate measurement exercise erroneously becomes a means of both

recognition and measurement (see brand values extracted from goodwill

recognition, below). As Wood (1995) put it ...definition should be

attempted because if we do not have some idea of brand phenomenology it is

impossible to develop a reasonable model for valuation.

Recognising brand assets as an extraction from purchased goodwillIt is clear from the brand accounting practices of a few notable companies

(Appendix 2) that, in these instances, they have rejected the dominant

accounting stance of subsuming brand assets within the goodwill asset in

favour of their separable recognition on the balance sheet. Yet, the basis for

such recognition can appear to be somewhat tenuous. For example, the

recognition of brand assets usually arises within the context of purchased

goodwill, that is, it is extracted from and is limited by the transaction-based

amount paid for goodwill upon acquisition of a business. Except in some

unusual cases, such as Ranks Hovis McDougall plc (see Rutteman, 1990) ,

brand assets typically utilise part of the transaction-based recognition trigger

associated with goodwill to validate their own recognition as separable

assets.The above situation is unsatisfactory because, in accounting terms, the

existence and value of purchased goodwill and, by association, the existence

and value of the extracted brand assets are dependent upon the difference in

the relative sizes of fair asset values acquired and money paid for the

purchase of a business which, in theory, could be zero or even negative (see

Appendix 4). Yet, paradoxically, the brand asset could exist in reality and

represent a useful source of future wealth. As a result it is suggested that the

existing boundary for the recognition of intangible assets should be

reassessed to allow, if necessary, for asset recognition to break free from the

constraint imposed by goodwill and the transaction or event-based

recognition trigger associated with the definitions of an asset (Appendix 1);

hereafter it is referred to as the asset definitions.

A boundary change to reflect environmental change

A soft systems approach

Part of the aforementioned psychological characteristics of human beings is

the ability to attribute meaning to the reality they perceive. Unlike a

television transmitter which, through an electronic process, simply encodes,

transmits and decodes a two-dimensional view of reality, human beings are

also able to interpret and give meaning to the process using intellectual

concepts. These concepts are often themselves derived from the perceived

reality they seek to portray and as a result both concept and perceived reality

steadily create each other. For example, a perceived reality could be that a

successful football star represents a source of wealth leading to the

182 JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 7 NO. 3 1998

Separable recognition

Fair asset values


5/15

development of a concept that, under certain circumstances, human

resources can be capitalised. This concept can then be repeatedly recreated

through an examination of the certain circumstances taking into account

age, fitness, league status, star status, contractual arrangements, legal

constraints and so on.

The above television transmission process is an example of a hard system

where the boundaries or limits to its existence and operation are well defined

and delineated. Contrast this process with a soft system, such as the

existence and operation of an asset, where its boundaries or limits are

difficult to define and delineate from the broad context referred to in the

previous section of this paper. For example, the definition of an asset refers

to future economic benefit which, as a generic phrase, could easily

encompass previously uncapitalised items such as advertising expenditure

(see Picconi, 1977).

In a soft systems approach to a perceived view of reality it is, in part, the

ever-changing outcome of social processes in which human beings

continually construct and negotiate with others their perceptions and

interpretations of the world outside themselves that enables them to produce

rules for coping with it. These rules are never fixed once and for all

(Checkland, 1988). (See also Morgans (1980) radical humanist paradigm,

Moores (1991) critical legal studies/ critical accounting approach and

Marsden and Littlers (1996) social constructionist paradigm for similar

organisation, legal/accounting and marketing viewpoints, respectively.) It

follows that if the perceptions and interpretations change, maybe because

society is perceived to have changed, then there may also be a case for

changing the accounting rules. For example, in the first part of the twentieth

century, software, biotechnology, telecommunications, genetic engineering

and so on were all virtually non-existent and yet today they represent

potentially huge and sustainable sources of wealth. The asset definition

states that assets should be recognised if they are triggered by a transaction

or event. One deleterious effect of this definition, for example, is that on

the 1996 balance sheet of pharmaceutical giant, GlaxoWellcome plc, neither

the valuable research patents nor the select band of highly skilled boffins

who created them are represented as assets, despite being a critical source

and determinant of wealth, respectively. Whilst the salary payment to these

boffins, currently charged to revenue, represents an accumulation of perhaps

thousands of historic transactions which could be aggregated and capitalised,

they probably bear little relationship to the current and future wealth to be

derived from the patented ideas created by them the true, internally

created, sources of wealth not recognised by the asset definition.

The GlaxoWellcome plc example shows that anomalies can arise which are

not captured within the existing boundary for the recognition of an asset.

Such examples can be a source of conflict between those who seek to

maintain the status quo and those who advocate change, that is, either

through a creative manipulation of the existing recognition boundary (such

as extracting brand assets from goodwill) or by redefining it (such as

creating a new definition of an asset). In this latter respect the situation may

be similar to Kuhns (1970) model of revolution where a crisis stage is

reached and the dominant paradigm is overthrown by a new reigning

paradigm (see also Gambling, 1987).


A contrast in systems

A source of conflict


6/15

An economic perception of reality limited by legally determined boundaries

The asset definitions are firmly embedded in an economic perception of

reality. For example, the perceptional stance only includes assets capable of

producing future economic benefits, such as a car used for hire, selling and

other wealth-creating purposes rather than for social purposes. This being

the case, then a brand, whether purchased by a business or not, whichcontributes towards producing future economic benefits, should similarly be

regarded as an asset. However, for most companies this is not the case

because, within the broad economic boundary for the recognition of all

economic assets, the accounting profession has erected a further narrower

and predominantly a legal boundary based upon recognition of a

transaction or event, a boundary which does not capture internally created

brand assets. The advantage that this narrower, predominantly legal

boundary has over the broader economic boundary is that it makes it easier

to identify, date and measure selected economic assets captured within the

boundary; a boundary of a type which, according to Llewellyn (1994), is

egocentric. An egocentric boundary acts as a container for the system parts,

is relatively autonomous and is focused on internal design, in this case, thetransaction or event-based recognition of an asset. In contrast, an open

systems boundary is permeable and boundary-spanning exchanges can

occur, for example, between a persons perception of their economic

environment in relation to their perception of the total environment. Those

assets which are not captured within an egocentric boundary, such as

internally created assets, cannot be tied to a specific transaction and date and

it is, therefore, more problematic to recognise and value them (see Arnold et

al., 1992; Arthur Andersen & Co., 1992; ASB, 1996; Barwise et al., 1989;

Kato Communications, 1993; Power, 1990; Wood, 1995).

The dominance of the transaction or event boundary is derived from its

definitional status. Organisational researchers have endless theoreticaldebates on what the boundaries are or whether there are any: the accountants

settle the matter by definition, and acquiring boundaries means, for an

organisation, acquiring reality (Meyer, 1983). The consequence of erecting

a transaction or event boundary is that it may fail to capture enough

information to portray an acceptable picture of a perceived economic reality.

The picture is always incomplete; however, what accountants should

determine is how much distortion in the picture is acceptable, particularly if

one believes intangible assets are of increasing importance:

The financial statements of a business enterprise can be thought of as a

representation of the resources and obligations of an enterprise and the financial

flows into, out of, and within the enterprise...Just as a distorting mirror reflects a

warped image of the person standing in front of it or just as an inexpensive

loudspeaker fails to reproduce faithfully the sound that went into the microphone

or onto the phonograph records, so a bad model gives a distorted representation of

the system that it models. The question that accountants must face continually is

how much distortion is acceptable (FASB, 1980, para 76).

One suspects that the level of distortion, particularly in respect of internally

created assets, is becoming increasingly problematic for the accounting

profession. This is a point worth exploring further by looking at alternative

ways in which recognition of an asset could take place other than on the

basis of a transaction or event.

This is now considered within three broad asset categories as shown in

Table I.


An economic perceptionof reality

The level of distortion


7/15

These three categories are as follows:

(1) common economic;

(2) separable;

(3) transaction or event.

Common economic asset refers to all assets capable of producing wealth. In

this category there are also assets which are uniquely common, that is, they

have no separable identity attributable to any particular business entity, nor

are they the result of a transaction or event but they, nevertheless, can be

used to produce wealth, for example, the atmospheric nitrogen used by

fertilizer companies. Separable assets are assets which can, if required, exist

separately from the other assets of a business and which are often capable of

being used to produce wealth in a variety of business situations. The

separability of an asset is evidenced by being capable of transfer, physically

and/or legally, between parties; a feature which, incidentally, appears to be

lacking in respect of goodwill since no one, in their right mind, would

purchase goodwill without the other acquired assets of a business. A

separable asset can exist irrespectively of whether it was purchased or not,

that is, it is a feature of its nature rather than a business transaction.

Transaction or event-based assets are assets which are recognised usually as

a result of a purchase or where a legal obligation arises such as a legal

judgement debtor. Transaction or event-based recognition typically

establishes a date, item and amount.

The examples in Table I are not mutually exclusive since it is possible to

move or repeat individual examples upwards (3-2-1) but not downwards

(1-2-3) between categories. For example, common grazing land(category 1) is not a separable item to a business (category 2) nor the

product of a transaction or event (category 3). Similarly, internally created

trade-marked brands (category 2) are not the product of a transaction or

event (category 3) but they have economic capabilities (category 1) such

as the Coca-Cola brand. At present only category 3 assets tend to be

included on the balance sheet. The argument presented in this paper is that

the asset recognition trigger should now be extended to include category 2

and 3 assets. Both categories are legally determined; for example, the

statutory trade-mark registration of internally created brands and the

contractual recognition of purchased brands, except that category 3 assets

usually possess an original cost whereas category 2 assets require an

independent valuation.


Table I. Asset categories

1. Common economic asset examples

Common lands foresting, harvesting, grazing etc.

Atmospheric gases nitrogen, oxygen etc.

Sea water minerals, fish, cooling, dumping etc.

2. Separable asset examples

Internally created trade-marked brands, research patents, registered designs,copyrighted software, books, music and films

Extracted mineral deposits

Animal semen and horticultural seeds

3. Transaction or event asset examples

Purchased brands, software, patents, designs, films

Other fixed assets

Assets capable ofproducing wealth

Three categories


8/15

The definition and recognition of brand assets within a revised

boundary based on separability rather than a transaction or event

If, according to the asset definition, recognition of an asset is restricted by

the imposition of a transaction or event boundary then consideration

should be given either to similarly restricting the scope of the definition of a

brand asset or to removing or changing the boundary in both definitions. The

debate is then a question of priorities with the author having argued, in the

preceding sections of this paper, that changing the boundary is a necessary

prerequisite to the recognition of increasing important internally created

assets, such as brand assets.

Any proposed boundary changes can be included in a new definition of a

brand asset which, ideally, should also try to accommodate the existing

definitions of a brand from the marketing literature and the existing

definitions of an asset from the accounting literature. In this latter respect

the definition of a brand asset would be constitutive, that is, there would be

constructs underpinning its definition which is similar to those underpinning

both the definition of a brand (Appendix 3) and an asset (Appendix 1). The

first sentence of the new brand asset definition is clearly constitutive (seeintroduction). It defines what a brand is and, as an asset, what it does, that is,

produce wealth. The second sentence above introduces the legal boundary

within which recognition of a brand asset can take place. It is based on the

notion of separability as briefly discussed in the preceding section of this

paper. It is this latter aspect which is now examined.

Revised recognition criteria

A way of recognising something, which cannot be visually or tangibly

recognised, is to establish some criteria for recognition which takes authority

by becoming acceptable to society as a whole. Recognition would then

become context specific: it would rely upon society decreeing what should

become recognisable as an intangible asset, with authority being given

usually through law and practice. It therefore becomes a legal abstraction

which takes on a unique physical form through supporting documentation.

For example, a trademark, which is intangible by nature, can be given

recognition through statutory registration. A definition of a trade mark is that

words, designs, letters, numerals, shape of goods or packaging... are...

capable of being represented graphically which is capable of distinguishing

goods or services of one undertaking from those of other undertakings

(Trade Marks Act, 1994). Brand assets comprise more than just trade marks

(such as name awareness, perceived quality) but the advantage that the latter

have over the former is that their legal registration and documentation

become a partial but, nevertheless, physical surrogate for the missingintangible resource. This basis for recognising brand assets provides a higher

degree of certainty, as to their existence, than other brand attributes such as

brand loyalty and quality. Additionally, the legal identity of trade marks

accords to brand assets other attributes normally associated with physical

assets which would not otherwise be present, namely separability and

exchangeability, which are addressed below. Trade marks are, therefore,

able to offer a vehicle for the acceptance by accountants of the recognition

of brands and more importantly of their inclusion on the balance sheet as

assets, independently of purchased goodwill.

It may be argued that a trade mark can never be regarded as a surrogate for a

brand asset. However, compare some of the definitions of a brand in

Appendix 3 and the opening lines of the authors own definition of a brand


A question of priorities

Context specific


9/15


10/15

definition. It leaves completely untouched the evidence associated with

measurement; however, as stated earlier in the paper: first define and

recognise a brand asset before considering measurement issues. Otherwise,

as Lloyd (1989) humorously put it, It would be like knitting a wooly for an

octopus without realising it had eight legs.

Rorty (1981) refers to research which helps society to break free fromoutworn vocabularies and attitudes as edifying research. It is a stance,

adopted in this paper, which sees truth as what is better for us to believe

rather than as the accurate representation of reality since, it can be argued

that the latter is, in part, based upon socially constructed beliefs anyway (see

Hines, 1988). According to Hines (1991), to knowingly speak what may

appear to be an abnormal discourse requires confidence in ones personal

vision and the courage to communicate that vision. This is, in part, because

rationalism and materialism prioritize the intellect and miltitate against the

living and experience of other human potentials such as emotion, intuition,

imagination, spirituality and aesthetics. The personal vision presented in

this paper is based on the view that brand assets and other intangibles either

create or help create wealth or they do not and, if the former prevails, then,

in principle, they should all be separately capitalised.

To selectively capitalise brands simply because they are recognised on a

rule-driven transaction or event basis is to risk letting the form dominate the

substance; the substance being an economic environment where intangible

assets are perceived to be increasingly important to economic survival and

where, according to Quah (1997), success comes not from having built the

largest factory, the biggest oil supertanker, or the longest assembly line. In a

weightless economy, success comes from knowing how to locate and

juxtapose critical pieces of information, how to organise understanding into

forms that others will demand. Oldroyd (1994) questions whether a change

of accounting orientation towards brands is possible. This paper presents

one idea towards changing accounting orientation in favour of the

widespread recognition of brand assets on the balance sheet, whether

purchased or not, and independently of goodwill.

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Appendix 1: US and UK definition of an asset

Assets are probable future economic benefits obtained or controlled by a particular entity as a

result of past transactions or events.

(FASB, 1985)

Assets are rights or other access to future economic benefits controlled by an entity as a result

of past transactions or events.

(ASB, 1995)

Appendix 2

Appendix 3: Definitions of brands and brand equity

A brand is a name, term, sign, symbol or design, or combination of them which is intended to

identify the goods or services of one seller to differentiate them from those of competitors.

(Kotler, 1980)

...a name, term, design, symbol, or any other feature that identifies one sellers good or

service as distinct from those of other sellers. A brand may identify one item, a family of

items, or all items of that seller.

(Bennett, 1988)

A brand is a recognised name associated with a product, which projects an image to the

consumer such that he or she rates the product associated with the brand higher than other

comparable products.(Mainz and Mullen, 1989)

Brand equity is a set of brand assets and liabilities, linked to a brand, its name and symbol,

that add to or subtract from the value provided by a product or service to a firm and/or to that

firms customers. For assets or liabilities to underlie brand equity they must be linked to the

name and/or symbol of the brand...The brand assets and liabilities on which brand equity is

based will differ from context to context. However, they can be usefully grouped into five

categories: 1. Brand loyalty, 2. Name awareness, 3. Perceived quality, 4. Brand associations in

addition to perceived quality, 5. Other proprietary brand assets patents, trademarks, channel

relationships etc.

(Aaker, 1991)

Appendix 4: The recognition of goodwill

In determining whether goodwill has any economic impact at all it is probably necessary toavoid the operating terms of SSAP22 and APB No.16 (below) and define it in terms of its

nature, otherwise one cannot be sure that the wealth it may create is actually derived from it

rather than from one or more, as yet, unidentified subsumed assets. It has been variously

described in terms of customer loyalty, strategic locations, superior management, brands and

so on (see Nelson (1953), Catlett and Olsen (1968), Tearney (1973), Falk and Gordon (1977)),

however, in accounting terms, it is simply a transaction-based arithmetic difference created by

the application of a rule:

Goodwill is the difference between the value of a business as a whole and the aggregate of the

fair values of its separable net assets(ASC, 1989) or

A difference between the cost of an acquired company and the sum of the fair values of

tangible and identifiable intangible assets less liabilities is recorded as goodwill (APB No.

16).


Table AI. Examples of companies that include brand assets on their 1996

published balance sheets

Capitalised brands

Company (m) cb/ta%

Cadbury Schweppes plc 1,547 34

Grand Metropolitan plc 3,884 35

Guinness plc 1,395 18

Note: cb/ta% = capitalised brands/total assets 100


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Executive summary and implications for managers and

executives

Brand asset valuation: a skirmish in the war between marketing and

finance?

As a marketer Im not aware of the rude names accountants reserve for us.Weve certainly a few for accountants and accountancy typified either by the

term bean counter or by the quotation from Oldroyd used by Tollington to

open this article on the definition of the brand asset. We could maintain that

the reluctance of accountants to consider brands as real assets represents

their professional desire to maintain absolute control over the inner sanctum

of business reporting the balance sheet. But this wont get us very far in

securing a role for marketing in business investment strategy.

If we accept that it is irrational to exclude internally created brand assets,

while including purchased brand assets, we have to develop and use a

measure of internal assets. As marketers, we understand brands better than

finance officers and they cannot expect to define and value assets withoutthe active contribution of marketing people. For marketers the acceptance of

brand asset value by accountants would represent the acknowledgement of

the value to firms of investment in those brands. And this changes the way in

which firms must view advertising and marketing expenditure.

To get to the stage where brand assets are acknowledged there are still a

number of hoops for marketers to jump through.

Accepting that brands are assets

As Tollington demonstrates, there remains a significant school of opinion

within accountancy that argues against the recognition of brand assets. The

nub of this argument is the belief that, without a transaction, there is noaccepted market value. Without this recognised market value the asset

cannot be included on the firms balance sheet. Tollington argues that this

recognition requires accountants to acknowledge the logical inconsistency of

the current position vis--vis brand asset valuation. The definition of an

asset in accounting terms needs broadening to accept, in Tollingtons terms,

new boundaries for acceptable brand definition.

Creating a recognised measure of brand value

If the boundary change is accepted, we can only act on including internally

created brands in the balance sheet if a recognised measure of brand value

exists. Much has been achieved in this area but there remain differences ofopinion about how to value brands. Does the brand value represent the sum

of consumers willingness to pay a premium over unbranded competitors?

Or should we measure brand asset value on the basis of the premium placed

on the brands existence by investors in the firm?

Understanding the relevance of financial measures to marketing

Marketers are notorious for their lack of financial acumen and knowledge.

At times we cover this ignorance up by the disparagement and dismissal of

accountancy. Yet, marketers know that appreciating financial issues is vital

if we wish to see marketing budgets as an investment rather than a cost.

Certainly, marketing education and training should include more financial

and accounting learning.


This summ ary has been

provided to al low

managers and execut ives

a rapid appreciat ion of

the conten t o f th is

art ic le. Those w ith a

part icular interest in the

topic covered may then

read t he art ic le in toto t otake advantage of the

more com prehensive

descript ion of the

research un dertaken and

its results to get the ful l

benef i t of the m aterial

present


14/15

Developing means of measuring how well marketing expenditure

enhances the asset value of brands

As with measuring brand asset value, we face a problem dealing with

assessing return on investment for marketing expenditure. In brand terms

this requires an understanding of advertising effectiveness measures and

other ways of assessing how well our marketing activity benefits the brand.

Simply adding brand assets to the balance sheet may help the manifest

financial position of the firm but we can only make management use of this

inclusion if we can assess with some degree of confidence how well our

investment is contributing to enhancing asset values.

The debate about brands as assets will continue since most managers accept

that a brand cannot be seen in any other way than as an asset. Tollington

expresses the view that brands can be seen as independent of the product or

service to which they were originally attached. This view requires a change

in thinking not just by accountants but by marketers themselves. The

ability to separate a brand from the products carrying that brand is by no

means universally accepted by marketers let alone people in other

management disciplines.

If the marketing profession is serious about shifting the view of brands and

brand investment, there is a need for concerted action. And we need

consistency in our view of brands and a willingness to accept that the

arguments of accountants are not merely spiteful but represent a considered

view of assets and asset valuation. The accountancy position may face

criticism from the view of logic but without doubt the accounting standards

currently in place do represent a consistent view of valuing companies and

their assets.

Finally, we must accept that the brand valuation issue is just one of the

challenges facing those developing accounting standards. Not only are there

international differences in accounting practice but the treatment of otherassets buildings, intellectual property, customer databases also needs

attention given inconsistencies in the treatment of these assets by firms.

Tollington shows marketers the way forward by couching his arguments in

the terminology of accountancy and finance research rather than trying to

convert finance officers to marketing terminology and attitude.

(A prcis of the article Brands: the asset definition and recognition test.

Supplied by Marketing Consultants for MCB University Press.)



15/15

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2. YenChun Jim Wu. 2009. Renaming effect of brand value: stateowned enterprises. Management Decision47:10, 1555-1581.[Abstract] [Full Text] [PDF]

3. Tony Tollington. 2001. UK Brand Asset Recognition Beyond Transactions or Events. Long Range Planning34:4, 463-487.[CrossRef]

4. Tony Tollington. 2000. The cognitive assumptions underpinning the accounting recognition of assets. Management Decision38:2, 89-98. [Abstract] [Full Text] [PDF]

5. Tony Tollington. 1999. The brand accounting sideshow.Journal of Product & Brand Management8:3, 204-218. [Abstract][Full Text] [PDF]

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