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MISSION:INTANGIBLE, the blog of the Intangible Asset Finance Society, offers critical comments on intangible asset, corporate reputation, and finance; supplemented by quantitative reputation metrics. Intangible assets include business processes, patents, trademarks; reputations for ethics and integrity; quality, safety, sustainability, security, and resilience; and comprise 70% of the average company's value. MISSION:INTANGIBLE is a registered trademark of the Intangible Asset Finance Society.

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Kanebo: It looks bad

C. HUYGENS - Thursday, September 19, 2013
Charles Haskell Revson, founder of Revlon, liked to remind people that while his company manufactured cosmetics, it sold hope. Kanebo, a division of Kao Corporation (TYO:4452), ranking hope higher than safety or "confusion," continued selling defective skin whitening products more than a week after it was discovered that the product caused blotching.

Skin whitening products are popular among women all over east Asia, with users seeking lighter tones. The recall, involving almost 4.75 million products on retail shelves, was announced July 4, almost a week after Kanebo first decided to take them off the shelves.

News of the delay emerged in early September with pundits concluding that this will probably damage Kanebo's (and therefore Kao's) reputation. Perhaps, writes reputation controls expert Jonathan Salem Baskin. "Reputation, however, isn’t the purview of marketing or the outcome of good or bad publicity, but rather the result of financially-relevant stakeholder behaviors...Kanebo’s sourcing, manufacturing, and distribution operations are the drivers of its reputational value, and it will be interesting to see how it addresses any failures or shortcomings its investigation uncovers in areas such as sustainability, quality, and reliability. And only then will it see how deep its problems may go."  Read more.

The ethical issues associated with the recall delay raise another concern. It is possible that stakeholders' expectation of prompt action will conform to a standard that arguably was set by Johnson & Johnson in 1982. Or not. Much depends on the degree of goodwill Kanebo had established with its customers prior to this process failure, and the degree with which those customers concur with Kanebo's decision to delay notification "...(not to cause) confusion among customers... Concerns among customers could get worse if we were not properly prepared to answer their questions."

According to the news source Happi, "as of August 25 a total of 8,678 consumers in Japan had been confirmed to have blotches after using creams such as "Blanchir Superior", with 65 people reported as having the trouble overseas, according to Kanebo. The value of shares in the parent company Kao has fallen more than 15 percent since the recall was announced." Read more. 

Procter & Gamble: Everyone but the investors

C. HUYGENS - Friday, July 26, 2013
Several weeks ago, Huygens smugly reported that the expectations of Procter & Gamble's equity investors were ahead of the expectations of the other stakeholders, and that a price drop was inevitable. Things are never that simple. Since then, the S&P500 rose, and like a rising tide, raised all ships, including Procter & Gamble. However, the company's equity performance relative to its peers sank.

On the other hand, and more surprisingly, the expectations of other stakeholders is now much higher. As shown in the CRR meaasure, an indicator of reputational premium value, is now at the 93rd percentile up from the 86th percentile; and the current RVM volatility measure, an indicator of consensus trend, is lower from the 75th to the 33rd percentile.

Everyone agrees. It's a great company with a great reputation, and it's stock is not expected to outperform anyone in the near future. In this setting, as documented in Reputation, Stock Price, and You: Why the market rewards some companies and punishes others, a small positive surprise can create significant sustained economic value.

Procter & Gamble: Hope springs eternal

C. HUYGENS - Tuesday, June 25, 2013
A little over one month ago, AG Lafley returned amidst much fanfare to the helm of Procter & Gamble as Chairman, CEO, and President. Equity investors reacted favorably. Other stakeholders, less so. With four weeks and an awful equity week behind us, it's a good time to revisit the Steel City Re Reputational Value Metrics for the company.

As of this moment, 10h30 EDT Tuesday, PG is ahead of the S&P500 by around 1%. The 4% boost equity investors gave the company in the week following Lafley's formal arrival melted away, but the company on both a reputational and economic basis has inched up relative to its peers.

The vital signs (top chart, left) show increased historic and current reputational value volatility relative to peers moving from the 33rd and 73rd percentiles to the 35th and 75th percentiles respectively in a peer group comprising 44 household and personal care products companies. The CRR, a measure of relative reputational ranking (Reputation Premium in the language of Consensiv, the reputation consultancy and publisher of the Consensiv50), is up from the 83rd to the 86th percentile. Return on equity is up much more from the 29th to the 42nd percentile. Last, overall reputational value volatility, Current RVM volatility in the chart top right, (Consensus Trend in the language of Consensiv) is drifting downward to below 4%. The latter metric indicates overall, stakeholders aren't expecting any surprises

In summary, the equity measures are notably ahead of the reputational measures. Experience shows that in a stable market setting, equity is more likely to move down, than reputational value metrics are likely to move up. In a volatile downmarket, a Company like P&G is likely to move up reputationall relative to its peers; that won't keep the equity from sinking.

Huygens suggested P&G puts were in order June 2. With a net drop since then of only 0.34%, the data suggest there is more room to fall.

Procter and Gamble: Not invented here

C. HUYGENS - Friday, September 14, 2012
There was a time not long ago when Procter & Gamble's reputation for marketing prowess was a reflection of its competencies in both communications and product innovation--old school marketing comprising the 4 p's of product, placement, promotion, and pricing. That reputation translated into pricing power and outsized margins that wound their way down to net income and stock price. No more. Bloomberg reports that Procter and Gamble is now trading at a 22% discount to the 31-company Bloombert Industies Global Household Products Index.

The loss of innovation Mojo traces back to what was then celebrated as a brilliant stroke of open innovation. P&G let go of control of innovation, killed-off the not-invented-here bias, and advanced the mindset of "proudly invented elsewhere." By 2006, more than 35 percent of P&G's new products in market had elements that originated from outside P&G. The Harvard Business Review promoted this turn of events as an evolution to be emulated.

Increasingly, its looking like another case of it-seemed-like-a-good-idea-at-the-time. "There’s been a dearth of pioneering brands emerging from the world’s largest consumer-products company. Spending on research and development in fiscal 2012 ended June 30 was $2.03 billion, or 2.4 percent of sales, the same as the prior year and down from 3 percent of sales in 2006. P&G’s most recent homegrown blockbusters -- Swiffer cleaning devices, Crest Whitestrips, and Febreze odor fresheners -- all went on sale at least a decade ago, reports Bloomberg."

The Steel City Re reputation metrics indicate that P&G is a well regarded powerhouse ranking in the 95th percentile among the 43 members of the Household/Personal Care products sector. But its reputation is shaky. Its most recent reputational volatility is ranked in the 58th percentile of its peer group; for the past year, it was only ranked in the 14th percentile. There is no clear directionality, but our experience suggests that when a stable giant begins to shake, the direction is more likely than not downward.

PG: Red in Cincinnatti

C. HUYGENS - Saturday, July 14, 2012
The rest of the nation is sweltering under a general heat wave but it pales in comparison to the burning platform supporting Bob McDonald in Cincinatti. Activist investor Bill Ackman is wielding the torch.

Writes Slate Magazine (R Cyran, 13 July), “Procter & Gamble is a hulking target for an uppity investor like Bill Ackman… Since Bob McDonald replaced Lafley as CEO in 2009, the shares are up 16 percent. The S&P 500 index, however, has gained more than 40 percent over the same span, and rival Colgate’s stock is up almost 50 percent.” We could go on documenting the case being built agains McDonald. Let’s cut to the chase and turn to the Steel City Re reputation metrics.

Over the past few years, Procter & Gamble morphed itself from an marketing/R&D/product development giant into a marketing/licensing/sales machine. Only problem is, it is paying a premium for innovation and is being squeezed by the big box retailers on the other end of the value chain. What do the reputation metrics show? There are 347 companies in the Consumer Non-Durables sector of which 44 compete in the Household/Personal care Industry where Procter & Gamble is one of 20 firms with market caps of $175 billion +/- 35%. Among this peer group, the company’s reputation rank has slipped to the 91st percentile. All of its directional derivative metrics – both its velocity and vector -- are negative. The vital signs chart shows that its reputation value is very volatile. Historically it ranked in the 7th percentile; now it is in the 68th percentile relative to its peers. Its return on equity is in the 60th percentile having lost 3% over the trailing twelve months (median -4%, S&P500 -0.6%). Forward looking metrics show an above average level of stability, which is not good when the trend is negative. Procter & Gamble is a company whose reputation once stood for innovation. The company monetized that innovation with fabulous marketing. It still has great brands, for sure, but what does that mean today if the value chain leaves little for the brand owner at the end?

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