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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 Interbrand, 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 (Nasdaq: AAPL ) 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.
The 10 most valuable retail brands
Every year, Interbrand ranks the world's most valuable brands. There are three key aspects that contribute to its assessment: the financial performance of the branded products or services, the role of brand in the purchase decision process, and brand strength. After factoring all of these things in, Interbrand arrives at an estimate of a specific brand's value.
Using this method, Interbrand concluded that these 10 companies have the most valuable brands in the world:
Brand Value (Billions)
Market Capitalization (Billions)
|Coca-Cola (NYSE: KO )||$71.9||$161.1|
|IBM (NYSE: IBM )||$69.9||$238.1|
|McDonald's (NYSE: MCD )||$35.6||$98.2|
|Hewlett-Packard (NYSE: HPQ )||$28.5||$45.6|
Sources: Interbrand's Best Global Brands 2011, Yahoo! Finance.
Given the power of these brands, it's likely that you're familiar with most, if not all, of the companies on this list. To highlight a few:
- Coca-Cola and IBM have the unique distinctions of being more than 100 years old each and, perhaps more importantly, being major holdings of Warren Buffett's Berkshire Hathaway.
- McDonald's shares are up roughly 30% since last year, though they've been affected by news that its CEO, Jim Skinner, is retiring.
- HP, despite its recent leadership crisis, continues to be a powerhouse in the personal computer and printer sphere -- though its shares have languished of late, down more than 40% in the past year alone.
Foolish bottom line
Although there is no panacea when it comes to investing metrics, the power of a company's brand should factor into an investor's decision whether to invest in the company. And it's for this reason that our analysts recently released a free report about three American companies set to dominate the world. Access this report while it's still available.