Developing each product required its corporate sponsor to invest hundreds of millions of dollars. For example, Gillette invested $700 million to develop the Mach3 razor blade in an effort begun in 1990. Paramount spent over $200 million to bring director James Cameron’s vision of “Titanic” to the screen.

These investment expenditures gave rise to economically valuable, legally recognized intangible assets, including copyrights (“Titanic” and Windows98) and patents (Viagra and Mach3) that give the investing firms the exclusive right for a certain period to sell the newly developed products. Pfizer sold over $700 million worth of Viagra in 1998 after its introduction in April; “Titanic” sold $1 billion in theater tickets before it entered video sales; and Gillette’s Mach3 razor blade was the top seller in the United States by the end of 1998, having secured more than 10 percent of the razor blade replacement market in less than a full year.

Patents and copyrights on new consumer products are not the only types of intangible assets. New processes for making existing goods, such as the process for coating cookie wafers with chocolate, and new producer goods, like PC servers and fiber optic telephone cables, can also be patented or copyrighted or, perhaps, protected as trade secrets. Other intangible assets are brand names and trademarks, which can help a firm certify the quality of an existing product or introduce new products to potential purchasers. Not only can a reputation for quality persuade shoppers to try an item for the first time, but a clever use of advertisements can go a long way toward targeting precisely those who will gain the most from the product and thereafter become loyal, repeat customers.

This article appeared in the July/August 1999 edition of Business Review.

View the Full Article