In order to arrive at a rating, one crucial assumption is made: credit worthiness is a stable concept. This means that historical data may be used to transform the information obtained from a company into estimates for default probability and loss severity. Since fundamentals change gradually over time, multinotch rating changes are unlikely. Rating agencies therefore use Outlooks and Watch Lists as leading indicators for potential rating changes. They signal in which direction the next rating step will probably occur. If, for example, a negative outlook is assigned, the rating agency usually defines certain criteria that have to be met by the issuer over a certain period of time, otherwise a rating downgrade can be expected. An example would be that a company must achieve positive free cash flows within a predetermined time-horizon. The failure to do so will result in the loss of the current rating.
November 21, 2009
Credit worthiness is a stable concept
October 28, 2009
Confront your credit problems
Thought needs to be given to how one avoids head-on confrontation with the market leader, the brand with the most to lose. The market leader can be expected to react strongly against newcomers with the aim of crushing them before they have a chance to get established. The brand that is attacking the market leader therefore needs a valuable, attention-grabbing benefit or distinguishing feature, and the ability to convey its message convincingly. Once a position has been taken, the decisions that follow should ensure that it is consistently defended. Consistency is essential: positioning means striving for leadership in one particular area. Another important decision is therefore the choice of a powerful and simple message. For example, Volkswagen launched the Beetle in the United States with the slogan “Small is Beautiful” and for many years Mars bars purported to help you “Work, Rest and Play” (particularly if eaten every day). But you must know how the message will be received. Often the best way to establish a position is to associate with something that may already be in people’s minds. An example is customers’ desire for value, highlighted by low-cost airlines, such as easyJet, Ryanair and South-West Airlines, which emphasise their no-frills service and low prices.
October 13, 2009
How credit brands build customer loyalty
This links with the next advantage: the ability of brands to build customer loyalty, again because of the trust and even affection that they can generate. Customer groups can identify preferred brands easily, becoming repeat purchasers. A classic example is the old adage “no one ever got fired for buying ibm”. In this extreme case, even when consumers did not necessarily like the product, they still respected the brand.
Another advantage of brands is that businesses can launch profitable new products with a flying start by exploiting the popularity and strength of an established brand. Cherry Coke and Diet Coke are examples of this approach, where the strong, established Coca-Cola brand (probably one of the strongest commercial brands in history) underpinned the launch of these two new drinks. This reinforced the brand still further by attacking the competition, adding another dimension to the brand (innovation) and developing new markets (such as the diet soda market). There are two benefits: brands often make it easier to introduce new products by exploiting “brand equity”; and they provide opportunities to open up new market segments. For example, food manufacturers often exploit their position to create sub-brands of diet versions (such as an established yogurt manufacturer successfully launching a low-fat product).