FRANCHISE: Brand equity depends on its customers

What you need to know:

  • New accounting standards address this shortcoming through “fair value” which differs from historic costs, because it values assets according to what they would fetch on the open market.
  • Historic cost is what the asset cost originally less accumulated depreciation.

Accountants base business evaluations on historic performance and activities. They record income and expenses during the accounting period, work out profit and how shareholders equity changes from period to period. Unfortunately, by the time the accounts are published, the information is old.

New accounting standards address this shortcoming through “fair value” which differs from historic costs, because it values assets according to what they would fetch on the open market. Historic cost is what the asset cost originally less accumulated depreciation.

This approach caused problems for brand owners and one of the new accounting standards currently in use is a standard dealing with brands.

A guide on how a “fair value” for a brand should be measured is still being finalized. However, these accounting standards relate to companies with product brands such as Coca-Cola, Pepsi Co etc with no real relevance to franchising.

In franchising a brand is much more than the logo. Most successful franchisors recognize that brands are dynamic and need to adapt to local market dynamics without sacrificing their integrity.

It is important for the franchisor to know what the core of the brand is, which includes attributes, benefits, values and personality. However, even with franchisees as “partners” and most competitive positioning, there are no guarantees.

The franchisor only has influence and not complete control over the customer experience which involves franchisees and their staff.

A franchise brand can be explained in more than one way. First, it is the position you hold in the consumers’ minds telling them who you are, what you do and why you are better/different from competition.

Second, it is the franchise system’s tangible expression of vision, values and personality.

Third, it is the intangible equity that increases the value of the system. Fourth, it is the promise made to the consumer. Fifth, it is how you “look, speak and act” at every point of contact. Finally, it is what the franchisees pay for.

Managing a franchise brand is everyone’s responsibility including franchisees and their staff. Good internal systems, standards, quality controls, communication and well-trained personnel are important aspects of protecting the brand.

In franchising brand equity is dependent on its customers. It is a perception in the consumers mind, created or implemented by experience and brand positioning.

It is not what is promised but what the consumer experiences, it not just an arbitrary marketing thing. Focus is on the brand with a business model to drive and sustain its values. Consumers are attracted to different brands on the basis of matching the brand benefits with what they seek. Therefore, brands need constant nurturing.

Brands vary in power and the value they have in the market. A strong brand has high brand equity meaning it has a high brand loyalty, name awareness, perceived quality, strong brand associations and other assets such as trademark, logo etc.

Brand equity has emerged over the past years as a key strategic asset for franchise systems. Franchisors and franchisees regard the brand as a source of control and a way to build a stronger relationship with customers.

The writer is a Franchise Consultant helping indigenous East African brands to franchise, multinational franchise brands to settle in East Africa and governments to create a franchise-friendly business environment.

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