The World's 10 Most Valuable Brands
Although there's no panacea when it comes to investing metrics, investors would be wise to consider the value of a potential investment's brand.
The continued proliferation of globalization and the Internet have produced a world economy that is more competitive now than it's ever been before. Because these trends are bound to continue, companies are desperately hunting for ways to differentiate their products and services from the pack. And the best way to do that is through their brand.
With a strong enough brand, a company can effectively write its own rules. And a company that writes its own rules is much more likely to produce superior returns for shareholders than one that cannot. It's for this reason, in turn, that I've decided to identify the world's 10 most valuable brands according to a study by Inter brand, the world's largest brand consulting company.
The benefits of a strong brand
Among other things, a strong brand maximizes customer loyalty. What do you see when you drive by an Apple store on the day a new iPhone or iPad goes on sale? You see a long line, which had formed in the wee hours of the morning if not the night before.
To the economist, this behavior seems irrational. Why waste time standing in line for the new iPad, say, when you could spend your time productively and get the very same model the very next day?
The answer, of course, is that certain consumers are extremely loyal to the Apple brand and want to get their hands on its newest products regardless of time and/or cost. Known as Macheads, customers like these are the envy of all consumer-facing companies.
Secondly, a strong brand accords pricing power. Why do shoppers pay more for Coke or Pepsi over store-brand soda? Or Cheetos instead of Kroger's store-brand cheese puffs?
Is it because the former products taste better or cost more to produce than the latter? Not likely. The reason is that the associated brands have cultivated a bevy of loyal followers. And the value of that loyalty accounts for the price differential.
Again, to the economist, this behavior appears irrational. Yet to the investor, it's inordinately profitable. So if you're going to invest in a retail company, or any company for that matter, it's always important to keep brand power in mind.