What Is a Brand Moat?

Building a moat around your business is a lot like building a moat around your castle -- it's a great way to protect your assets and keep intruders at bay. Although there are many different ways to build a moat, a brand moat is one of the strongest.

What is a brand moat?

A brand moat is simply an economic moat strategy that's developed around the concept of branding. A moat is something that's unique about a business that can't be reproduced easily. Although most businesses like to think they have unique branding, most really don't.

So, when you build a brand moat, you're building a strong brand with a clear identity that isn't going to appeal to just anyone. It appeals to who it appeals to, and it sells the fantasy of a specific lifestyle or other benefit, often with the side effect of creating hardcore devotees for life.

For investors, identifying strong brand moats is one way of choosing companies that will stand the test of time, since generations of customers have come to know and love what the companies have to offer, and they believe they can rely on them into the future. This often creates a situation where customers are paying premiums simply for the branding, and that also helps shareholders.

Choosing stocks from companies that you know and that you use in daily life is one way of tapping into the power of a brand moat. Compare these to the nearest competitor and see just how far apart they truly are. That's not to say that a competitor without a brand moat can't make money or that they can't be a profitable investment. But, there is something more durable about companies with brand moats that have stood the test of time.