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The Investment Value of Brand Franchise

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  • Jack Treynor

Abstract

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.

Suggested Citation

  • Jack Treynor, 1999. "The Investment Value of Brand Franchise," Financial Analysts Journal, Taylor & Francis Journals, vol. 55(2), pages 27-34, March.
    • Handle: RePEc:taf:ufajxx:v:55:y:1999:i:2:p:27-34
    DOI: 10.2469/faj.v55.n2.2258
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