What's in a brand? Any investor who follows the Dow Jones Industrial Average (DJINDICES:^DJI) knows how important a strong brand can be -- and how damaging it is when a company's brand becomes tarnished. The index has undergone many changes over the years, and many of these changes were enacted in response to the diminished value of one brand or the strengthening of another.
When the automobile became a common sight on city roads, the Dow responded by adding the strongest auto manufacturers to its exclusive list. The rise of a consumer culture prompted the Dow's inclusion of the most popular department stores. Companies that developed and marketed advanced technology have found a place in the Dow's ranks in every era from the Electric Age onward. Branding mattered then, and it matters even more today.
Last time, we looked at 3M, Interbrand's 77th-most-valuable global brand. Today we'll be taking a look at the brand behind Caterpillar (NYSE:CAT), a Dow component since 1991 and Interbrand's 61st-most-valuable global brand of 2012, to better understand how it was built and how it has helped create one of the world's largest companies.
Building brand value
Thanks to a decade's worth of data from the Interbrand consulting firm, we can analyze Caterpillar's branding successes (or failures) over the past 10 years relative to some more standard corporate measures. We'll also dive into some of Caterpillar's pivotal public moments to see how they helped build a brand to stand the test of time.
Over the last decade, Caterpillar's market cap has grown 153%. Its annual revenue (with its most recent trailing-12-month revenue serving as 2012's result) has grown by 191%. The company's latest brand value is 88% greater than it was a decade ago. This is a bit different from the previous two brands we discussed, 3M and Johnson & Johnson, which both saw more growth in their brand values than in their market caps or revenues.
Behind the brand
Caterpillar's complete focus on the industrial business market makes it a rarity on Interbrand's list, as few consumers will ever be in position to say "I want to buy something from Caterpillar" -- unless those consumers have a lot of disposable income and a passion for bulldozers. That doesn't mean Caterpillar isn't a globally recognized industrial icon, or that a business-focused brand can't earn public trust and respect.
Interbrand points to Caterpillar's successful integration of Bucyrus as evidence of the company's branding expertise. The mining-equipment subsidiary contributed a big chunk of revenue to Caterpillar's resource segment, which Fool contributor Eric Volkman points to as evidence of Caterpillar's acquisition savvy. Interbrand also notes a growing focus on customer education and outreach, particularly at its Caterpillar University site and a site-and-app combination to streamline equipment rentals.
One weight on the Caterpillar brand this year has been a labor dispute with employees in Joliet, Ill. The striking workers capitulated in August in what was considered a win for Caterpillar, though the hard line taken against employee demands could damage its image. However, because Caterpillar doesn't sell to consumers, this seems like a minor issue and unlikely to tarnish the company's brand among its base of industrial customers, many of which have surely dealt with labor disputes of their own.
Caterpillar also continues to pull ahead of heavy-equipment rival Deere (NYSE:DE), Interbrand's 85th-most-valuable global brand. Its second-quarter earnings showed better growth than Deere's, but the smaller Deere doesn't have any bad-PR overhang like the Joliet strike. Interbrand gushes about Deere's "authenticity," which means a lot in the agricultural-equipment market but is perhaps less important to heavy industry.
Prices, however, are very important, and Caterpillar's recent across-the-board price hike announcement could dent its image among cost-conscious purchasing managers. With Joy Global (NYSE: JOY), Terex (NYSE: TEX), and General Electric (NYSE:GE) determined to gain share in the competitive (but risky) mining-equipment market, Caterpillar could find that its quest for margins will result in long-term weakness. Chinese industrial uncertainty -- a big problem for the entire mining industry -- does not make this the best time to start telling nervous customers to pony up.
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