Turning Coke’s Brands into Bonds

by Chris Kenton on May 4, 2007

Victor Cook shows once again the potential for marketers with a strong financial framework to contribute real value to corporate strategy, in a recent post about Coca-Cola’s options in maximizing the value of its brands. Most marketers, when they think about Coca-Cola, think about the myriad ways in which Coke has accelled in branding. After all, when you take away the label, it’s just sugar water in a can–sugar water that lends Coke a nearly $120 Billion market cap.

Many students of marketing understand the tremendous intangible value of the Coca-Cola brand, and even business students were impressed when Coke was able to valuate their brand as a $5 Billion line item on their balance sheet. But this is child’s play compared with the kind of strategy that emerges when you mix the idea of brand value with financial instruments like bonds.

As Victor lays out in an earlier post, there is a precedent for companies to monetize the value of their intangible brand assets by issuing bonds. David Bowie did it by issuing a bond backed by the royalties of his song catalog, and Sears evolved the concept by creating a holding company into which they transferred the ownership of their major brands–like Crasftman and Kenmore–which licensed the use of those brands back to Sears for a fee.

As Victor points out, the understanding of the word bond is a classic example of the gap between marketing and finance:

The meaning of the word "bond" is symbolic of the huge gap between the language of corporate finance and traditional marketing. In corporate finance "bond" is a noun. As used in the article "The New Alchemy At Sears" in the April 16, 2007 issue of Business Week.

In traditional marketing "bond" is a verb describing the relationship between a consumer and a brand. If you were to search the Internet for the phrase "Brand Bonds" before this Business Week issue hit the news stands, most of the returns would refer to the traditional marketing definition.

But the power of such financial concepts in the hands of able marketers takes on new meaning. In his latest post, Victor lays out a strategy for leveraging the concept of brand bonds to free Coca-Cola from a significant conflict between their tangible and intangible assets and operations. He lays out a strategy in which Coca-Cola would aggregate the large stable of secondary global brands and sell them to a non-subsidiary holding company, which in turn would issue bonds based on the royalties of those brands, and license them back to Coke for global commerce. He makes the argument that such a strategy would allow the market to more ably determine the value of the Coca-Cola brand, and would allow Coke to elvate the value of both their operations and brands as separate entities.

It’s a bold and interesting idea–especially when you consider that it emanates from a marketing mindset. Not exactly the marketing mindset that currently permeates business, but certainly one we should cultivating.  

 

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