[iDC] brands & finance
adam.arvidsson at unimi.it
Tue Jul 7 19:58:56 UTC 2009
Just wanted to share this brief passage from an entry on 'brands' that I've been commissioned to write for the Encyclopedia of Consumer Culture:
brands and finance
The shift of attention, form the material to the immaterial, from products to brands as the focus of strategic managerial intervention has coincided with a general financialization of the economy. As production processes become ever more globalized and socialized, involving extended networks of sub-contractors and co-producers, values and profits ever more depend on the ability to appropriate a share of the global surplus that circulates on financial markets. Within management this development is visible in the growing orientation towards share-holder oriented corporate governance, where the goal of management is no longer principally that of maximizing the long-term position of the company, but that of maximizing the (often short term) value of stocks. Brands play two important functions in relation to this new global financial economy. First, because production processes have been socialized and globalized, most mass-market products are now produced by similar (or even the same) subcontractors. This means that material production processes have become generic and, as a consequence, most mid-market products, practically identical as to form and function. Given the virtual absence of functional and quality differences between such products, the ability to construct a brand that makes a meaningful or affective difference becomes a crucial strategic advantage. This way, brands become an ever more valuable strategic asset. Second, and perhaps more importantly, brands are becoming ever more important as financial assets. While some of the value of brands consist in their ability to motivate consumers to pay a premium price for goods, an ever more important aspect of their value consist in their ability to convince investors to pay a ‘premium price’ for stock. The reasons for this are complex but worth reiterating briefly. The globalization of production means that companies rely ever more on external resources in the production process: the capacity of cooperation within the complex networks of subcontractors on which they rely; the ability of their co-workers to innovate, and be creative and flexible (qualities that can, per definition not be commanded), or, as we mentioned before, the ability to attract positive affective investments or even innovation form their consumers and the public at large. These are resources that are located outside the processes that can be controlled and measured by means of established accounting regimes (that were, overall erected in the 1930s to address the problem of inadequate accounting of the productivity of industrial capital, which had been a mayor factor behind the stock-market bubble of the 1920s). This means that a growing share of the productive resources on which companies rely cannot be adequately represented by their book values. Instead they are talked about as 'intangibles'. In general intangibles are resources that one suspects are crucial to business success, but that cannot be adequately measured or represented. Presently brands are the most important and fastest growing of these intangible assets. While impossible to measure in any precise way, figures indicate that the value of brands amounted to some 20 per cent of the market value of forms in the 1950s, and some 70 per cent in the 2000s. Interbrand, the words most important brand consulting firm, routinely value brands to between 30-60 per cent of the market value of companies. This means that to the extent that financial rent becomes an ever more important component of corporate profits (and this is the case in most consumer-oriented companies), the role of brands becomes not only that of motivating consumers to pay a premium prices, but also or principally that of motivating investors to pay a share prices that reflect a valuation of up to 60 per cent above book value. In other words, brands are becoming important as cultural conventions that determine the division and appropriation of the global surplus that circulates on financial markets. Consequently corporate branding strategies are increasingly directed towards the construction of such cultural conventions, with a view to underpin high financial valuations, and not just consumer demand. This is particularly noteworthy in the fashion and luxury sector. The value of fashion brands has increased massively since 2004 (when investors turned to fashion and art in the wake of the dot.com-crash). Consequently the strategic focus of global fashion brands has shifted away from that of producing innovative garments and accessories able to follow or anticipate the flow of global demand, to that of investing ever more in the construction of a valuable brand image, through investment in high- street presence, the creation of art museums, luxury hotels and resorts, sponsorship of the fine arts, and generally a presence in the cultural environment in which the people who trade on financial markets move. Arguably a similar logic contributed to explain the rising popularity and importance of CSR (Corporate Social Responsibility). To the extent that brand grow in importance as financial assets, then a 'good reputation' among the public at large (and not just among particular consumer groups) acquires tangible economic value. This way it becomes ever more important to contain and, if possible anticipate responses to company behaviour on the part of a diverse group of stakeholders. Overall the nexus between brands and finance exemplify an emerging key value logic of the information economy, where the socialized immaterial production that unfolds in diffuse networks of interaction and communication is connected directly to financial markets, where, packaged in the form of brand, it serves to provide the kinds of cultural conventions that can support the distribution of value and profits.
Adam Arvidsson Associate Professor Department of Social and Political Sciences University of Milano via Conservatorio 7 20122 Milano, Italy tel. +39-02.503.21209 fax.+39-02.503.21240
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