Should you do a u-turn if you see a GAP in the market and it’s out of the blue?

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According to dictionary.com the definition of a U-turn is

1. a U -shaped turn made by a vehicle so as to head in the opposite direction from its original course.

2. a reversal of policy, tactics, or the like, resembling such a maneuver.

For anyone that’s looking for a current example of a branding u-turn then I’d recommend looking at what has happened since the US clothing and accessories retailer GAP introduced their new logo last week.

GAP Inc, which was founded in 1969 in San Francisco, is home to a number of brands including Old Navy and Banana Republic. Their most famous brand though is that of GAP itself.

GAP has approximately 3,100 stores around the world and last year had revenue of nearly $15 billion.

They are a great brand and their “blue box logo” (shown above on the GAP shopping bag) is one of the best known logos in the fashion world.

They decided however to change the logo and introduced the new logo shown below. Now, what do you think of the new logo? Which one do you prefer – the original one or the new one?

Personally I think that the new one looks as though it would be more suited to a high tech or consultancy company. The original one seems to better match their concept of clothing being laid back and traditional.

Following the launch of the new logo last week there was uproar on social media sites such as Twitter and Facebook with people demanding that the old logo be brought back.

The upshot is that on Monday GAP released a press release where they announced that the new logo would be withdrawn and the previous one reinstated.

In the words of the President of GAP Brand North America there was “an outpouring of comments from customers and the online community in support of the iconic blue box logo.”

A decision was therefore made not to use the new logo but to revert back to the previous one.

Was this a company listening to its customers and giving them what they wanted or was it a company that didn’t speak to their customers enough before making the change? There will be arguments both ways.

We shouldn’t forget the cost of this u-turn.

There would have course have been the fee GAP paid to their branding agency (probably ex-branding agency now). A quick straw poll in the office felt that the fee paid for this particular design should have been in the region of £10.

There would also have been the costs of redesigned packaging and signage with the new (now old) logo on it plus of course all the management time.

They say that “there’s no such thing as bad publicity”. I’m not sure GAP’s Branding agency would agree with this.

Get out your sketch pad if you want to overcome a barrier…

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If an organisation can create a successful barrier to entry then it will have a great competitive advantage.

In simple terms, a barrier to entry can prevent competitors entering the market.

We’ve blogged before about a good example of a barrier in the Indian telecommunication market but a recent attempt to create a barrier by Southampton Football Club in the UK was met by a truly artistic response.

Southampton FC decided that they would try to boost their income by preventing any non Southampton FC photographers from taking photos of their match with Plymouth Argyle.

This barrier meant that the only photographers present were official Southampton FC photographers and hence any photos of the match would have to be purchased from the official agency. A nice revenue source for the club.

Ignoring the rights and wrongs of this in terms of impact on other clubs and setting a precedent, this is indeed a pretty tough barrier to overcome.

Understandably upset at having to pay for photos of their local team, the Plymouth Herald newspaper approached well known local artist Chris Robinson.

Chris watched the match on television and then drew “comic strip style” pictures of the football action which were then published in the paper instead of photos.

As you can see, the results were pretty impressive.

It also resulted in a pretty unusual answer to the question of “How do you overcome a barrier to entry”.

The answer now includes, “Draw some cartoons”.

Marks & Spencer – the figures weren’t padded out but what about…

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Marks & Spencer (M&S) are one of the best known retailers in the UK. First established back in 1884 they have been a mainstay of British fashion for as long as anyone can remember.

They have however had a turbulent journey over the last few years but yesterday they announced their results for the quarter ended 2 October and a number of things were quite impressive.

First of all, the ability to release their figures within 3 working days of the end of the quarter was in itself no mean feat.

The figures themselves were also very good with group sales up by 6.5% and all the major divisions showing impressive growth. So, how have they managed this? After all, although we’re coming to the end of the recession people are still being careful about money.

According to Marc Bolland, the Chief Executive of M&S, “Customers are returning to quality. In Food they are responding well to our better value and innovation, and in Clothing are increasingly choosing M&S’s great fashions and quality that lasts.”

They were also successful in introducing “innovative new products” (classic Ansoff’s Product Development). For example, they have just announced that they will be the first to launch men’s “enhancing underpants” on the UK high street.

On the ladies side of things the success of the “Wonderbra phenomenon” has been well documented since they were introduced in the 1990s but in the words of M&S the Bodymax enhancement pants for men have a number of advantages.

The “frontal enhancement pants” are “specifically designed to visibly enhance your shape” and the “bum lift pants” are said to “lift and shape your buttocks for a visibly sculpted look”.

Mr Bolland also said that there had been “a positive response to increased investment in marketing”. It will be interesting to see how they market the enhancement pants.

Now, you’re possibly thinking what sort of person would buy these enhancement pants? You may also be wondering how comfortable they are to wear.

In answer to this final point I’ll let you know as soon as my pair are delivered.

That’s some obligation – it will take 180,000 years to repay it…

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Yesterday, the so called “Rogue Trader”, Jerome Kerviel, whose unauthorised trades cost his former employer Societe Generale vast losses was sentenced.

Whilst this has got a serious element to it (he was jailed for 5 years) it also has a certain element of farce. As well as the jail sentence he was ordered to pay compensation to his former employer.

Now, this wasn’t any “normal” compensation we’re talking about here. It was the princely sum of €4.9 billion. Yes, Mr Kerviel was told that he has to pay nearly €5,000,000,000 to his former employer.

Based on his annual earnings before going to jail it would take him nearly 180,000 years to pay that amount! Societe Generale have sensibly announced that they will not be pursuing the money.

Control environments don’t generally strike students as the most scintillating area of their studies.  A number of ACCA and CIMA Papers however place considerable emphasis on controls, using Sarbanes-Oxley and the COSO frameworks.

Respecting controls might slow down an employee’s daily work routine and may feel sometimes like a constraint on innovation and enterprise.  Sometimes, it may be tempting to circumvent controls, especially if it generally appears to result in making quicker profits.

Anybody tempted to do this might be interested to note the Paris court’s decision to sentence Mr Kervie.  Although the hapless gentleman alleged that the bank had been complicit in allowing him to trade beyond his authority limits, this seemed to be little defence in either showing innocence or getting a more lenient sentence.

The lesson seems to be fairly clear.  Even if the tone appears to be one of disregarding controls because management don’t take them seriously, if anything then goes wrong, management will most probably not agree that controls were considered to be unimportant!

The safest thing to do is to assume that any controls are meant to be respected, even if it doesn’t feel that way.

It could literally be your “get out of jail” card.

£2.5 billion but can you have your cake and eat it?

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On Monday it was reported that China’s Bright Food Group was investigating the potential purchase of Britain’s United Biscuits for up to £2.5 billion.

Whilst on the face of it one food company buying another food company isn’t that exciting it does raise some interesting points.

Importantly, it also makes you think of whether Jaffa Cakes are in fact biscuits rather than cakes…

First of all though in classic Michael Porter’s Competitive Advantage of Nations terms then particular countries are considered to be strong in certain industries.

Germany for example is renowned for the production of high powered cars such as Audi, BMW and Porsche. Japan is a world leader in high tech cameras such as Canon, Nikon and Pentax.

Britain on the other hand is a powerhouse in the production of biscuits. After all, who needs luxury cars and high tech cameras when you can have a lovely cup of tea with a nice biscuit or two?

Secondly, the fact that another company from a so called emerging market is now potentially making a significant acquisition of a company in a more developed market sends an interesting signal about the current trend of globalisation.

Both these points are all very well and good but what’s this all about a biscuit or cake discussion?

United Biscuits produce some household name products including McVitie’s biscuits, Hula Hoops and Twiglets. They also produce Jaffa Cakes.

Jaffa Cakes were the subject of an infamous tax case a few years ago. To cut a long story short the debate was whether a Jaffa Cake was a cake (considered to be a basic foodstuff and hence not liable to VAT) or a chocolate covered biscuit (considered to be a luxury food product and hence liable for lots of VAT).

So, how on earth can you decide whether a food product is a cake or a biscuit?

The deciding factor was that when a cake is left to go stale it gets hard whereas when a biscuit is left to go stale it goes soft.

The argument went to a VAT tribunal (which is in effect a type of Court) and as part of the evidence put forward a 30cm Jaffa Cake was baked and left to go stale (and hard) so as to convince the tribunal that it was in fact a cake.

The final result was that Jaffa Cakes are indeed cakes so you can now have your cake and eat it (VAT free).

How much does it cost to buy your loyalty?

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Last week one of the top policemen in the UK admitted to getting discounted flights for his family by using air miles obtained on tax payer funded flights.

John Yates, who is the Assistant Commissioner of the Metropolitan Police (i.e. the  Greater London Police), is entitled to fly business class on official trips abroad. This enables him to amass significant amounts of air miles which can then be used for free flights in the future.

With a nice corporate governance angle the rules of the Metropolitan Police say that these air miles must be used for future work related flights and not personal ones. In what he claimed was an oversight, Mr Yates however used these air miles for a number of personal flights.

I’m sure it was the last thing on Mr Yates mind but from the Airline’s point of view, the provision of air miles can involve big figures.

The IFRS Interpretation Committee (formerly known as IFRIC) didn’t make many friends when they wrote IFRIC 13: Loyalty Programmes.

Broadly, IFRIC 13 says that when you are given loyalty programme points by a business, they have to recognise a proportion of the total sale to you as a sale of loyalty points.  In other words, they are buying your loyalty, rather than rewarding it.

This means that each sale has to be unbundled into two components – a sale of loyalty points at the value to the customer (which is likely to be very much higher than the cost of delivering the promised service) and the underlying sale itself.

As the loyalty points are used up or expire, the deferred revenue from loyalty points sold is recognised as revenue.

Previously, the accounting policy of most companies had been to recognise loyalty costs as a provision at the expected marginal cost of delivering the service.

This can be a fairly significant figure.  By “fairly significant”, we naturally mean “completely massive”.  Have a guess what the effect was on shareholders’ equity in the restated 2008 accounts of British Airways for implementation of IFRIC 13.

The answer is £206 million.  Nope, that’s not a typo; getting towards a quarter of a billion British Pounds.  Ouch.

We at ExP travel fairly a lot for work and we’ve noticed that airline loyalty programmes have become a little less generous of late.  Maybe the new accounting rules are something to do with this?

Do you own a iPhone or is it a Hiphone, an Ephone or a Ciphone?

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On Saturday Apple officially launched the iPhone 4 in China. They also opened up two new flagship stores in Shanghai and Beijing.

China is the world’s largest mobile market with more than 800 million subscribers so it would seem to make sense that Apple sell their products there.

Why has is taken them so long to launch the iPhone 4 in China though? After all, the iPhone 4 was originally launched in the US back in June and in countries such as Australia, Netherlands and Singapore in July.

The handsets themselves are manufactured in China so it’s not as though they haven’t had any experience of doing business in the country.

There are various reasons why companies have phased product roll outs in different countries. The sheer scale of a “global launch” for a company like Apple would be extremely challenging. Having sufficient inventory in stock on global launch day would not only be a logistical nightmare but would probably be physically impossible.

An additional challenge for Apple is that they need to agree matters with their strategic communication service providers in each territory (in other words, the mobile phone operator they will be partnering with in each particular country). This also takes time.

Anyway, from now onwards we’ll be seeing the iPhone 4 in China but anyone that has been to China recently though could be forgiven for thinking that the iPhone 4 has already been in the country for a while.

A significant issue for Apple is the increase in the number of iPhone clone companies.

As well as clone companies that produce illegal fake copies of the phone there are also businesses that produce reasonable quality phones which are very similar to the iPhone. They are designed so that they try not to break any patent protection that Apple has set up. I’m sure though that Apple’s patent lawyers are monitoring these products very closely!

A quick search on the internet for example shows websites selling products such as the HiPhone, the Ephone and the Ciphone. With prices starting at less than $100 there will be a significant number of people opting for these items.

Oh, and in case you were wondering the photo above is of the Hiphone.

Is this your shopping list: bread, milk, eggs and Viagra?

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Monday could be a big day for a lot of people.

Tesco, one of the leading UK supermarkets, will commence selling the erectile dysfunction drug Viagra.

Viagra has been a huge success for Pfizer. It’s one of their blockbuster drugs and millions of the little blue tablets have been sold over the last 10 years.

One of the drawbacks though for a lot of men that want the drug is where to get hold of it from. In the UK you generally need either a doctors prescription or to risk buying it from potentially suspect internet sites.

Tesco are one of the most successful supermarket chains in the world. In strategic Ansoff’s Matrix terminology they have done very well with market development (4,811 stores in 14 countries with an amazing 2,482 stores in the UK alone) together with product development (an estimated 40,000 product lines ranging from pizza to petrol to perfume).

Tesco are about to add another product line to their offerings and from next Monday shoppers will be able to pick up Viagra from over 300 Tesco stores.

As finance people we know all about the challenge of getting pricing decisions right.

Tesco are not the first mainstream chain of stores to stock Viagra. Last year, the high street chemist Boots became the first store in the UK to sell Viagra without a prescription. You can currently buy 4 of the blue pills from Boots for £55.

A price skimming or premium pricing strategy for Tesco wouldn’t really work as the Viagra market is a mature market. Tesco has instead undertaken a classic penetration pricing strategy whereby they price the product at an attractive price with the aim of growing its market share.

From Monday, you will be able to buy 8 of the blue pills at Tesco for £52.

Whilst the per tablet charge at Tesco is a lot lower than what can be found at Boots, £52 is still a significant amount of money. There’s a recession on and times are hard for a lot of people. Only time will tell whether Tesco made the correct pricing decision.

Has the Big 4 become the Big 3?

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Things have changed. You won’t be hearing much about PricewaterhouseCoopers any more.

Is this breaking news? Does this mean that we will be talking about the Big 3 rather than the Big 4?

Should PricewaterhouseCoopers partners and staff be rushing to recruitment consultants to get another job?

There’s no need to panic as all is well with the company. What they have done though is undertaken a rebranding exercise.

The company has commonly been referred to as PwC since it was established via a merger back in 1998 between Price Waterhouse and Coopers & Lybrand. With effect from Monday though they will now officially go by the name of pwc.

As part of a multi-million pound make over not only will the company be known as pwc but the corporate logo and corporate colours have changed.

The new logo incorporates the letters “pwc” in lower case along with a 6 rectangle symbol in shades of orange and red.

According to pwc, the brand was refreshed “in order to strengthen, and modernise how it represents its worldwide network to its clients, its people and the communities in which it operates.”

Global brand consultants Wolff Olins designed the logo in collaboration with PwC employees and clients. The complete rebranding process reportedly took two years.

From a personal point of view, I like the new logo and orange/red spectrum colours which I think are nice fresh, clean colours.

What about people from some of the other accounting firms? My guess is that they must be relieved. With KPMG having blue/white, Ernst & Young black/yellow and Deloitte navy/green it must have been a relief all round that pwc went for orange/red.

Auditing the auditors – in a rather public way!

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In the UK, the Professional Oversight Board is one of the bodies that works towards improving the quality of audit work and audit firms.

They have just published their 2010 inspection reports into the Big Four audit firms.  If you feel so inspired, you can read these reports free here.

Obviously, not only the Big Four know how to audit.  However, it’s probably fair to assume that if there is a pattern in perceived weakness in audit within the biggest firms, it’s probably a pattern within the profession as a whole.

The good news is that in almost all cases, the POB found that audit work was done well or acceptably, though with room for improvement.  There’s something very healthy about a profession that scrutinises its own commanding heights and then publishes its findings in a wholly public way.

The general public are all stakeholders in our profession and they deserve to see the results of our own introspection.  Partners in big audit firms whose work has just been the subject of constructive criticism may feel somewhat differently about this of course!

A pattern within the reports is that nobody seems to be especially strong at conducting goodwill impairments.  Three of the Big Four were specifically criticised by the POB for failing to obtain sufficient, appropriate evidence to support the clients’ assertions that goodwill had not been impaired.

In the frank but diplomatic language of these reports, it sounds like the audit teams in certain particular audits didn’t really know how to approach deciding whether purchased goodwill had actually been impaired.

Is this the fault of the auditor, or is it the fault of accounting standards that require goodwill impairments to be recorded but aren’t entirely specific about how to do it?  We think it might well be a bit of both.

Criticisms such as audit reports being issued on a date before the audit working papers had been signed are somewhat harder to justify, however.

We imagine that the partner responsible for that one might have a table to himself or herself at the office Christmas party.