Why Invest in Top Brands?

Why Invest in Top Brands?

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The Interbrand results have been released, publishing the yearly list of the 100 most valuable global brands.

According to Grant Alexander, a director of Private Client Holdings, these top brands are important for shareholders and not just for consumers.

How it works

Interbrand draws on financial results and projections for brand valuation. It:

  • Reviews a company’s financial statements
  • Analyses its market dynamics and the role of a brand in income generation
  • Separates those valuations attributable to tangible assets (capital, product, packaging, etc.) from the residual that can be ascribed to a brand.

“Brand building activities and financial performance are linked,” says Alexander.

Brand value is based on the concept that the owner of a well-known brand name can generate more money as consumers believe that a product with a well-known name has a higher value than products with less well-known names.

The power of a brand

 

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A trusted brand is a treasured asset, valuable to companies because they are valuable to consumers.  Companies are bought and sold for large sums of money – not just based on the value of factories, patents and processes – but on the strength of their brands.

“The fact that people will pay more for a branded product than a generic one, and more for a favoured brand than the alternatives, makes it obvious then that a brand which has forged a strong and lasting relationship with consumers will be a dominant market player.”

“Business efficiency, market growth, and investor confidence all have an important influence on share price as well,” advises Alexander. “But we have observed that companies that own stronger brands tend to perform more strongly in the market as a whole.”

Brands worth their weight in gold

“Brands have the ability to sustain earnings during the tough times through “brand loyalty” but also enhance growth during the good times with their ability to enter new markets and launch new products.”

According to Alexander, for leading brands the cash flows tend to be resilient, reliable and sustainable and often the sole basis of a business’s existence. The companies behind these leading brands usually offer investors’ high market share, coupled with higher margins and low volatility.

Alison Job
Alison Job holds a BA English, Communications and has extensive experience in writing that spans news broadcasting, public relations and corporate and consumer publishing. Find her at Google+.