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
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.
Construction Capital Limited