Tuesday, January 17, 2012

The Brand Payoff

How much is a brand worth?  
That’s the question that firms like Interbrand try to answer, 
by isolating the value of a brand from the sum of its vendor’s 
other assets.  Put it this way: would you rather own all the 
factories, trucks, and offices that belong to Coca-Cola – 
ranked #1 for the 12th consecutive year in Interbrand’s 
annual “Best Global Brands” report; or would you rather 
own the exclusive worldwide right to market a soda under
 the Coke trademark?
Quantifying the net worth of any particular brand 
isn’t easy, as you might imagine.  There are all kinds of 
factors to consider – from brand recognition to
target audience to first-mover advantage.  But
regardless of the factors at play, ultimately the
value of a brand is tied to its capacity to
increase profits for its owner.  In the marketplace,
a strong brand accomplishes this in three ways.
Second, a strong brand boosts margins.
The most robust brands enable their companies
to increase profits by simply increasing prices. 
If customers have a strong preference for
your brand and you decide to raise your prices,
most will stick with you and continue to
 consume a relatively undiminished quantity
 of your product.  When Warren Buffett
and Charlie Munger bought See’s Candies,
they did so knowing that customers had
such a fierce devotion to See’s that
they could move prices up without
driving sales down.  They did, and
it worked.  Since acquiring the famous
candy company, they have raised prices many times,
much faster than the rate at which candy-making
 costs have risen.  They used the strength of
the brand to improve margins and thereby
improve profits.
Third, a strong brand buffets a company from
 external circumstances.  Even at the height
 of the global recession, Appleprofits continued
 to dazzle investors and analysts alike.
(In 2009, one Forbes.com headline read simply,
 “Apple Kills Recession.”)  Consumers have
raced to purchase every new iteration of the
 iPhone, even as the economic downturn
 has squeezed profits for many other
companies, not to mention whole
industries and sectors.  Strong brands
 serve as safeguards against uncertainty
 – perhaps the most resilient kind of asset
 in these volatile times.
A strong brand protects your sales, improves
 your margins, and ensures your resilience.
It’s a valuable asset – and, for some businesses,
their most valuable asset.  That’s why we all
should want to actively build our brands: it’s
where the money is.

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