June 01, 2017 @ 12:59 PM

June 01, 2017 @ 12:59 PM

K. J. Somaiya Institute of Management Studies and Research, Mumbai

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Goodwill is the only asset that competition cannot undersell or destroy

Published : Thursday, 1 June, 2017 12:45 PM

Goodwill is the only asset that competition cannot undersell or destroy

Read and develop points from following Essay Topic:
 
Goodwill is that invisible force which is difficult to earn and takes years to build but once earned, its benefits can be reaped for several years and generations. The significance of goodwill transcends the limited scope of a business and indeed pervades an individual's life.
 
In business terminology, goodwill is the amount of value that a company's good reputation adds to its overall value. The sum total of what a business has done in the past, the actions it takes in the present and plans for the future together help in building goodwill. A company's reputation hinges primarily on its conduct with clients, society and environment, development of trust in its brand, transparency in its processes and the ethical conduct of the company. If a business manages to have all this, it will automatically earn goodwill for the company or the brand.
 
The goodwill or the reputation that the company or the brand earns for itself would, in turn, help build a devoted clientele and attract more customers willing to put their trust in it. This will immune the company or the brand from competition as the goodwill that it has earned will give it an edge over its rivals.
 
The effect of goodwill cannot be seen so much in immediate tangible terms, such as buildings, profits and so on but in intangible gains such as trust, employee and customer loyalty, brand image, expanding networks and so on. The intangible benefits are crucial as they ensure long-term sustenance of the business.  Particularly, when the company is losing ground to its competitors and falls on hard times, the goodwill it has earned over the years plays a major role in keeping the company afloat.
 
That goodwill is important is evident from the fact that it is shown as a separate head in the accounts books of any company. It is an asset that never depreciates and, in fact, is always valued at a premium. Every business today is conscious of the image that it portrays of itself to the outside world and makes an extra effort to earn goodwill in the society. For instance, corporate houses have begun to allocate separate funds as part of their Corporate Social Responsibility (CSR).
 
These funds are employed to benefit the society in various ways-constructing hospitals, schools, old age homes, welfare programmes and so on. They realize that by doing so they will build goodwill for the company in the society which will add great value to their businesses and differentiate them from their competitors. The high investments made by the business houses in such programmes are offset by the high rate of return, both tangible and intangible, that the business is likely to earn over several years in the future and thus, makes for a good business decision.

At an individual level, goodwill is created over a period of time by being a trustworthy, reliable and kind person. Such a person will be respected wherever he/she goes and is more likely to be offered help if needed than a person with no goodwill or a bad reputation. The peculiar feature of goodwill is that it spreads rapidly through word-of-mouth. The reputation or the goodwill that the person has in the society will influence the society’s perspective and behaviour towards the individual.

Therefore, Marshall Field has rightly said that, “Goodwill is the one and only asset that competition cannot undersell or destroy”. It affects the prospects of both the business and the individual and should, therefore, be an important consideration.
 
 
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