Rating outlooks and watchlists tend to have a built-in lag, too. Moody’s has an 18-month horizon for its outlooks and 90 days for its watchlist, whereas S&P targets 90 days for its credit watch listings, and a longer but unspecified time-horizon for outlooks. Hence, credit ratings appear to be serially correlated. This in turn creates the impression that rating actions tend to lag changes in credit quality and their perception by market participants, reflected in spreads, substantially. Current research focuses on the rating outlook and its impact on corporate bond prices. Since the mid-1990s, European corporate bond investors on average have become much more professional. Consequently, changes in an issuer’s credit quality are anticipated earlier than they were some years ago. In conjunction with the increased liquidity of the European corporate bond market this has led to the observation that bond prices adjust rapidly to the fundamental assessment of market participants and their expectations regarding a possible rating change. Therefore, changes of the rating outlook that lead actual rating changes are monitored closely by corporate bond investors.
December 5, 2009
Changes in credit quality and their perception
October 20, 2009
How credit is perceived by customers
The concept of positioning relates to how a product is perceived by customers relative to its competitors. It originated in the advertising industry as a way of identifying those attributes of a product that should be placed in the buyer’s consciousness. For example, a product may be positioned as inexpensive, innovative, old fashioned, prestigious, high quality or any of a multitude of other attributes. Positioning influences attitudes to and perceptions of a product or company brand, rather than changing the product itself. The value of positioning decisions is that they increase awareness of a company’s or product’s capabilities. Positioning can refresh or reinforce an existing brand or explain a specific concept. It links closely with such things as brand management, competitive strategy, pricing, segmentation and market entry strategies.
October 18, 2009
What credit brand means to customers
The next priority is to understand what the brand means to customers, or what it is intended to mean, and then to find ways to deepen this appeal. This can be achieved by considering all aspects of the brand. For example, to whom does it appeal? Is the tone of voice commensurate with the brand values, target market and any existing perceptions? If you were to describe the brand as an entity, what would you choose and why? Use the brand. Understanding how the brand differentiates a product from its competitors is important in deciding which attributes to emphasise and how to target competitors. This can be explored by considering what makes the brand different. What makes it exceptional? How special is the brand and how easily could it be replicated? Ideally, there should be sufficient barriers to replication to ensure that the brand remains strong and distinctive. An audit of the brand will be helpful in determining how strong and credible it appears to customers and will give some insight into the extent to which the brand can be stretched into new markets, and the values that could enable (or disable) this from happening. Also to be considered is whether there is sufficient investment in the brand and how it can be strengthened.
October 15, 2009
Credit owerflow from one market to another
Furthermore, a strong brand can enable the product to overflow from one market into another, allowing the brand to spread in popularity. This is particularly the case in industries that are affected to a greate or lesser degree by fashion. For example, the strength and popularity of coffee houses such as Starbucks grew during the 1990s, spreading from the American north-west to the whole of the country and then to Europe. Brands can extend the life of a product, as by their nature they combine trust, respect, profile and marketing spend. This can often be used to inject new life into a stagnating product or even a whole industry.
The example of Danish toymaker Lego producing toys linked with films is an example of this trend. Lastly, brands provide a valuable, market- oriented focus around which firms can organise themselves. The brand manager is often directly responsible for what the product offers as well as how it appears to the customer.