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July 24, 2004

Valuing Halo Effects of Lost Leadershi 

Back in the 1980s for product brands we collected a databank : how much share does a market leader enjoy just because its seen as market leader? We did this by seeing how share slumped for a former market leader once it had clearly been deposed. Our best estimate then 20% of business was due solely to being though of market leader- this made sense eg for customers who didnt know or care how to choose and therefore believed  the safest (and least socially criticised choice) would be going with the leader. Other's said more subtly that the leader had more to lose if ever it did something untrustworthy and hence gave them a greater guarantee. 

There are now several good reasons for believing that the lost halo effect is much more than 20%:
1) networked effects
2) service effects; I have noticed on more than one occasion recently that a company whose service staff training I thought was best, may only have been relying of the joie de vivre that a market elader's staff gets (eg fewer complaints); once these service people lose market leadership relationships, they tend to be the elss capable of all in terms of handling genuine complaints caringly

Of course brand valuation algorithms defined as they were since the 1980s to be clueless about whole system dynamics have no idea about the risks of these and other trust-flow futures, even though they are entirely measurable should leaders wish to include them in the quality of their intangibles decisin-making. If you are investing for a pension, don't invest in brand companies unless they can prove they do transparency audits as well as transactional ones the Big 5 global accountants were kings of doing on the shred.  Many more reasons why pensioners-to-be should avoid non-transparent companies in equity markets here

Chris Macrae,
open sourcing transparency mapping and intangibles valuation at

GPS Systems - UK  
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