Bridge over ocean
1 March 1999 Financial Analysts Journal Volume 55, Issue 2

The Investment Value of Brand Franchise

  1. Jack Treynor

Brand loyalty manifests itself in consumers' willingness to pay a higher price for the brand they prefer. Some manufacturers choose to limit their output, sell only to customers loyal to their brand (their franchise), and charge the higher price. Others choose to charge a lower price rather than limit their output. Because franchises can contribute as much, or more, to future cash flows as their plants contribute, companies in the first group support their franchises by large investments in advertising, introducing new versions of their products, and so on. Accountants, however, are reluctant to capitalize the expenditures that support franchises, which causes gaps between market value and book value. If the fixed marketing costs can be identified, however, analysts can estimate the investment value of the franchise and the manufacturer's efficiency in defending it.

Read the Complete Article in Financial Analysts Journal Financial Analysts Journal CFA Institute Member Content

We’re using cookies, but you can turn them off in Privacy Settings.  Otherwise, you are agreeing to our use of cookies.  Accepting cookies does not mean that we are collecting personal data. Learn more in our Privacy Policy.