The aim of this book is, on the one hand, to characterize the nature of the information communicated by companies in terms of estimating brand value and, on the other hand, to identify the determinants of this information according to companies’ characteristics.
This book is therefore divided into five chapters. Chapters 1 and 2 look at different perspectives of the brand and how to create brand value. We examine the growing role of the intangible in our economy, as well as the nature and determination of brand value and brand equity.
In Chapter 3, we review the acquisition of the GUCCI brand by the Pinault-Printemps-Redoute (PPR) Group (now Kering), focusing primarily on the financial information disclosed during this transaction and the valuation method used for the acquisition of Gucci. This case study provides an opportunity to discuss the disclosure of brand information and the valuation of the brand as part of the PPR Group’s strategic refocusing on luxury brands.
In Chapters 4 and 5, based on a sample of international brands identified from the Brand Finance and Interbrand databases, we explain the nature, characteristics and determinants of the information disclosed by companies in relation to the brands they own and operate.
Our study will highlight the inadequacy of financial communication and the need to take into account the financial reporting of brands in supplementary parts of annual reports. More specifically, we will discuss the need to provide investors with more reliable, relevant and detailed brand information. We will propose clear recommendations to companies based on the discussion of our results.
1
The Brand as a Source of Value Creation
The purpose of this first chapter is to define the concept of a brand and to describe its fundamental features. This chapter also deals with the value companies’ use of brands. We define the brand according to an economic perspective and also describe its evolution through the centuries; we will also establish the link between the market and the brand. We will see whether the use of brands creates value and whether the mechanics developed by economic theory are sufficient to ensure brand use. Brands have a limited lifespan, and we will assess whether the means of preserving brands are sufficient to ensure the maintenance of brand ownership.
1.1. The historical, legal and economic character of the concept of a brand
Before studying the contemporary nature of the concept of a brand, it is useful to consider the origin of brands. The brand is a perennial tool for trade. Whatever the reasons for the use of a brand, it has always been used to indicate an origin and a source. In the Middle Ages, craftsmen “marked” or “branded” their products in order to identify their production. It is therefore a simple transition from “branding” to “brand” (or, in the French, “marquage” or “marking” to “marque”), and thus legislators were able to take into account the property associated with brands.
The first laws that clarified brand ownership appeared in the 18th Century. Thus, these laws highlighted the rights of individuals and companies in terms of industrial property. The first nation to understand this need and recognize this right was the United States, enacting a law in 1790. It was quickly followed by France, which followed suit on January 7, 1791, enacting a law signed by King Louis XVI. The use of a brand attached to the product by entrepreneurs was clear. Entrepreneurs, for their part, very quickly understood that the brand could give them an advantage, which today would be described as “competitive”.
Brand use indirectly accompanied industrial development, as entrepreneurs indirectly felt the need to develop by being recognized by their brand. This evolution leads us to understand that, contemporarily, the brand allows companies to develop by creating value.
Farjaudon (2007) distinguishes two categories of brand value, weak brands and strong brands. Awareness of brand value makes it possible to dissociate the category the brand belongs to from the brand itself. The strong/weak association is defined in relation to the market shares that can be conquered by the brand. The strategy implemented by the manager in charge of brand development will depend on this categorization. Thus, it has been shown that when the brand is strong, the consumer becomes more important than the distributor in terms of the attention paid by the managers. The attention is then directed towards marketing, but not only that. Indeed, in the case of strong brands, which are recorded as assets on balance sheets, the shareholder becomes an essential player.
In this book, we will focus on brands accounted for by all types of companies. Brands are not just a name on the product; the nature of strength is a central point in determining their value to both the consumer and the shareholder. The measurement of brand awareness, the mental evocations associated with it, the perceived quality and the ability to build loyalty are the four most commonly accepted criteria for defining brand strength (Aaker 1994). This approach is based on an understanding of consumer behavior and suggests that creating a strong brand requires creating a strong emotional bond with the consumer, building consumer loyalty and promoting the distribution of products through a distinctive sign capable of winning them over. However, when certain brands become too strong, they become synonymous with the goods adjacent to them. Thus, for example, “Google” for search engines, “Caddie” for shopping carts and “Kleenex” for paper tissues. In short, whether they are strong or weak, it is necessary to understand how brands appear and how they evolve.
We will follow this evolution in this first chapter, which aims to define the different foundations of the “brand” concept. We emphasize that the brand is a complex concept whose materiality is composite and that, once created, it acquires an economic role. However, it is also not easy to create, it requires imagination, and this gestation leads to the acquisition of a right that must be legally protected. On the basis of these observations, we will examine the fundamental characteristics of the brand and the possible links between the historical, economic and legal character that the brand encompasses.
1.1.1. The brand’s historical character
The brand and branding, depending on the period, did not serve the same purpose. We have already pointed out that as far back as Antiquity, potters used to mark their pottery in order to allow a better identification of the pots coming out of their workshop. The basis of this marking was not intended for commercial purposes, but was used to prevent theft of the pots made and stored around the factory. This phenomenon has been perpetuated through the ages. The branding of animals is one of its extensions. In the Middle Ages, brands found another function. Corporations, in turn, used them. There was, on the one hand, the artisan’s individual brand and, on the other hand, the collective brand of the corporation. One was used to individualize the work, the other to delimit the corporation’s territory. The corporation could thus sanction the craftsman who jeopardized their reputation. In the end, the craftsman’s mark was guaranteed by his corporation. The brand had no defined use; it could “reach customers or identify products to protect against theft” (Pollaud-Dulian 2010, p. 721), provided that corporate brands guaranteed a certain quality and the fact that a brand belonging to a corporation had to ensure its own protection and respectability. In addition to this principle, royal decrees already punished counterfeiting.
The revolution of 1789 in France challenged the practices established by corporations, trades and foremen and completely abolished them. Article 44 of the texts enacted on March 2 and 17, 1791 (the Le Chapelier Act) established