Like, and because of, rampant reductions in prices, goodwill has been extensively discounted. Its fate runs parallel to that of customer and client loyalty... heavily qualified or being a quant recall from the past.
The concept of goodwill is founded on the belief, expectation and established record of sales, margins and profits that future income, dividends and competitive advantage are “bankable”. Repeat and referral sales have traditionally been the cornerstones for payment of goodwill, along with the anticipation of stability, growth and sustainability.
Some models and templates which determine the actual worth of the goodwill, which is inherent in individual businesses and sectors, provide for multiples of past and current annual gross or net profits. Many of those calculation structures are being refined or, indeed, discarded. The future vision, it seems, is clouded by volatility, change, shifting consumer sentiments and significant structural changes in commerce.
It is just another consequence of the “now” society in which we all operate. The concept of loyalty has necessarily been revised, like that of personal relationships. It is a circumstance that futurist Alvin Toffler wrote about in the 1970 book, Future Shock. Transience is the very essence of modern society.
Life partners are inclined to vow monogamy-with a qualification. That is, adherence to “serial monogamy”, in which I will be “faithful” to you when I am with you, but I won’t be for long.
For businesses, that makes the currency, appeal and viability of “loss leaders” somewhat redundant. In short, each encounter should be a profitable experience. Delayed financial returns from hoped-for long-term relationships may simply and unreasonably inflate profit projections and goodwill valuations.
The short-term horizons applied for the calculations of goodwill related to medical, legal and accountancy practices are understandable. Information Technology (IT) consultants often express frustration about the lack of value that is typically applied to their practices. Perhaps it’s just another VIRUS!
Entities which enjoy substantial, consistent and increasing goodwill worth tend to exhibit a common set of attributes. They typically centre on:
· Committed allocations of resources for product/service development, innovation and creation.
· Stable pricing policies, based on offering value, rather than on discounting advantage and the conduct of regular sales.
· Dedicated allocations of upgrading premises, systems and distribution networks. Currency in those attributes generates bankable currency flows.
· Considered, disciplined and scheduled professional training of all staff members and appropriate stakeholders.
· On-going investments in upgrading communications networks, because effective, efficient and timely two-way communication is the lifeline for all entities.
· Adherence to the process of structured planning with respect for the need to implement, monitor, quantify and refine time- oriented goals and benchmarks.
· A culture which promotes, supports, recognises, celebrates and rewards change, having fun and a pervading belief in a positive team spirit.
Sadly, there is a noticeably short list of recognisable international iconic businesses that project all of those attributes and the related profitable benefits of goodwill. Apple, Facebook and BMW are examples.
Within Australia, Liquor Barons, Liquor Legends and The Coffee Club come to mind. Encouragingly, there is an increasing pool of businesses which are striving to justify their goal to be numbered among the local entities which warrant payment for, and the benefits of goodwill.
For those in the retail sector, I refer to the acronym so often used by Jeff Rogut, the Executive Officer of the Australasian Association of Convenience Stores, being:
R.E.T.A.I.L – Retail Excellence Takes Attitude, Innovation, Leadership.
Focus on those three pillars and avoid the distractions of siren calls for discounting, outsourcing to overseas call centres and constant reductions in staff members, inventory and systems.
Barry Urquhart, Managing Director of Marketing Focus is a business strategist, an analyst and an International conference, keynote speaker. His latest presentation is:
“Insights on ‘The Big Picture’
Future-Proof Your Business