Brand Power Boosts Profits

Brands are funny things. In many ways, they're intangible, yet they undisputedly have value. BusinessWeek magazine and Interbrand regularly survey the brand world and report on their findings. For 2003, the top brand was Coca-Cola, owned by Coca-Cola (NYSE: KO). It was also the top brand name in 2002.

The No. 2 and No. 3 spots were also the same as in 2002, namely Microsoft (Nasdaq: MSFT) and IBM (NYSE: IBM), respectively. The values given to these brands were about $70 billion for Coca-Cola, $65 billion for Microsoft, and $51 billion for IBM. Not too shabby. Further down the list, the No. 54 brand was Kleenex, owned by Kimberly-Clark (NYSE: KMB) and valued at $5 billion. How can such intangible items have such massive values that, in many cases, eclipse the total value of entire major American corporations? Just think about how a brand works.

Let's say you want to produce a new movie. You can do so, but getting the funds will be difficult. Not to mention persuading people to show it, review it, and pay to see it will be tough, too. But... slap a brand name on it, such as Disney (NYSE: DIS), and all of a sudden it's news. It will automatically draw some viewers -- perhaps many, if word of mouth is good. A powerful brand can increase your odds of success.

The New York Times recently reported on new brand ventures by some familiar companies. Some of these firms, to stem sagging sales, are inventing new offerings and slapping familiar names on them, successfully. Some examples:

• Clorox (NYSE: CLX), maker of Glad Wrap, a product some 50 years old, is now selling Press 'n' Seal film, which features sticky edges to prevent leaks in stored foods.
  
  
• Meanwhile, Procter & Gamble (NYSE: PG) was so confident of its new "2-in-1 Action Packs" that combined dishwashing powder and liquid soap in gelatin pouches that it didn't even take the trouble to test the new item with the public.

These launches show us why brands such as Kleenex can command such value. Imagine the launch of a dubious item such as "Acme Foot-wipes." Doesn't sound too promising, right? But if it's "Kleenex Foot-wipes," it will likely get instant attention and, to some degree, the benefit of the doubt. Kimberly-Clark can't afford to slap the Kleenex name on lots of goofy bombs, but through careful research and creativity, it can successfully use the value of its brand to generate profitable new offerings.

Learn about promising stocks of companies that sport strong brands in our investing newsletters.

Longtime Fool contributor Selena Maranjian owns shares of Microsoft.