There is coffee and there is Starbucks coffee – brand differentiation – the company has transformed a commodity into a specialized product, and the brand is an undeniably important driver behind its success. Starbucks has a unique cultural footprint which the company has built through years of innovation, branding, and image differentiation, and that sets the company apart from its competitors.
NIKE, Inc. (NYSE:NKE) is another great example about a powerful brand as a competitive advantage. The company has built a rock solid position via decades of sponsoring the world´s most renowned athletes and generating memorable marketing campaigns. This has implications when it comes to profit margins, and also in terms of growth opportunities.
The company has been expanding both into new sport disciplines and different countries over the last years: sales from the soccer segment grew from $1.5 billion in 2007 to near $2 billion currently, and emerging markets like China look especially promising for Nike. Having the most valuable brand in the athletic shoes and apparel business has certainly been an important asset behind this growth.
The Safety of Brands
Let´s assume for a second you are the person responsible for technology at your office, no you don´t need to put on your glasses and your Star Trek t-shirt for this simulation. The company´s CEO tells you to find the best solution to make sure that the company´s systems are safe from hacker attacks or industrial espionage, so you start analyzing possible choices for a comprehensive security framework.
After some research, you narrow down the choices to two possible candidates: International Business Machines Corp. (NYSE:IBM) and a lesser known IT company from India which looks quite innovative and full of talented people. I think at the end of the day you will probably go with IBM anyways, especially if you value job stability.
If the other company makes a mistake, you are going to feel the heat for that decision. IBM is a much safer choice: the company has been around for more than 100 years, and counts each of the Fortune 2000 companies as clients. A serious mistake coming from IBM sounds less plausible, and even if it does happen, nobody is going to blame you too much for choosing IBM versus other alternatives.
Interbrand rates IBM as the second most valuable brand in the world after Coca-Cola, and the company is Warren Buffett´s third biggest position in Berkshire Hathaway´s portfolio. You certainly don´t need to be rocket scientist to connect the dots between brand value, competitive advantages and Buffett´s investment decisions.
Bottom Line
The article Brand Investing: Simple and Effective originally appeared on Fool.com and is written by Andrés Cardenal.
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