The definition of a ‘brand’ is when the name and/or logo of a company is so recognizable that people associate it with a specific feeling and experience which can be both good or bad. Most brands have a confluence of the their name with a logo, and colors that all become familiar. Most of the biggest brands in the world create expectations for customers, employees, and investors for service, quality, taste, and experience.
Brand equity is the intrinsic value that accrues from customers recognizing a brand logo or name of a company more than a more generic competitor that sales a similar service or products. Brand equity is an asset of intellectual property as the specific value of a name brand is difficult to measure with a specific monetary value as a part of a business. A brand’s equity value can add dramatically to the total valuation of a company due to its notoriety and sales volume based on popularity.
The strongest brands are the ones that become used in place of common nouns or verbs. In the 1980’s you did not make a copy you Xeroxed it. In the south you don’t drink a cola you drink a Coke. You don’t go do a search online instead you Google something. These are the highest levels of brand recognition and add a huge edge to a business and its stock as it has built in customers and leveraged advertising with residual recognition.
Other name brands can make you think of a smell and an atmosphere like Starbucks. Others can make you think of low prices like Wal*Mart or great service like Zappos. McDonald’s might make you think of a familiar and consistent experience and taste anywhere you go when you see one. Apple can make you think of quality and user experience.
In investing a stock with a name brand has a built in edge from a fundamental perspective for repeatable sales and being able in many cases to have higher margins based on demand for their brand. The stock also gets free advertising as investors at all levels know about the company and their business operations through personal experience many times.
When choosing a stock for investment or for your watch list to trade, brand power can be one key parameter to look at. When you look at Warren Buffett’s portfolio it seems that he considers this a lot for his long term investments.