Upheavals

The concept of “badwill”

If a strong brand adds value to the physical costs of a product, does a bad brand reduce the asking price? The instinctive answer of course is yes. But does it actually materially affect the asking price to the point where anything associated with that brand can only ever reach below what it needs to be worth?

In other words, should tainted brands have a “badwill” component built not just into their purchase price but also into their budgets that effectively places a ceiling on their future earning power and therefore their overall worth and viability?

I raise this as Satyam’s new owner Tech Mahindra ponders what to do about a name that right now spells nothing but trouble. While ad agencies, perhaps not surprisingly, are delighted at the thought of being able to rebuild the brand, arguing that one incident shouldn’t destroy a brand, my view is that it very much depends on the brand and on the incident. Dominos will survive its recent Twitterstorm despite the hoopla because everyone recognises that this was not an inherent pan-brand problem.

Satyam is different in my view. Its rot allegedly went all the way to the top and there is a direct correlation between the conduct and statements of leadership and the company’s demise. The assumption has to be that if the problems go that high, they are potentially endemic and therefore very little of the company’s reputation can be depended on.

It’s a little like saying “I still think Titanic is a great name for a boat”. Would you get on board?

POSTED: Thursday, 23 April 2009

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