Warren Buffett loves cheeseburgers and cokes.

He also loves brands.

Buffett is a brand investor, with an investment strategy that reads like a branding primer, in this from the Washington Post:

From his growing list of acquisitions, Warren E. Buffett seems to be investing like the world’s richest 10-year-old boy, if that boy lived in 1955 America.

He is Coca-Cola’s largest shareholder. He owns Dairy Queen. Last year, Buffett got a train set, buying into Burlington Northern Santa Fe Railway. And in late April, he bought a piece of the world’s largest candy store, sinking $6.5 billion into the Mars-Wrigley chocolate-and-bubble gum merger…

In the eyes of many, the Oracle of Omaha…looks like a brand investor.

Brand investors buy companies with well-known or well-regarded names — Apple, Tiffany, Disney and McDonald’s, to name a few…

Brand name companies…can often charge more for their products than their less-established competitors and weather tough times more smoothly because of their loyal customer bases. They also have the ability to leverage their name recognition to increase business — whether it’s expanding operations by attracting more Marriott hotel franchisees, launching a new flavor of Crest toothpaste or extending the Clorox brand from bleach to moist towelettes…

“Brands…[provide their owners] pricing power that allows the business to maintain margins throughout varying economic periods. Secondly, you get repeat business. And those two things lead to consistent earnings.”

Branded products companies have a higher propensity to pass along price increases when they have increasing costs themselves…

“The consumer is buying more than just the raw material… They’re buying something else, whether it’s a trusted relationship, or confidence in the product, an acknowledgment of a higher quality.”

In recent weeks these pages have explored the links between brands and authenticity, otherwise known as trust.

Rather than a slogan or logo, the process behind effective branding is about creating and reinforcing confidence - trust - in the benefits offered by an organization, product or place.

Brand investors agree.

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Brands and branding are big business.

A handful have clearly understood this truth all along.

Now another respected voice is saying the same thing, in this from Brands in the Boardroom: Key branding issues for senior executives, a publication of Intellectual Asset Management Magazine:

The world’s most famous brands have values that can be measured in tens of billions of dollars –real sums that can be realised through securitisation and other methods of monetisation. You need only look at the interest generated today by techniques for calculating brand value to see that brands are now recognised as corporate assets to be audited and managed along similar lines as a company’s more traditional, tangible revenue generators. Employers, investors and other stakeholders expect those running companies to understand the major principles that drive and sustain brand value: after all, we are talking about what can often be the single most important asset a corporation owns.

We agree.

There is more, of course:

Without question, a brand’s ability to communicate an instant message to target audiences is where much of its power and value lie. A strong brand instils trust in consumers, making them feel confident that the choice they are making offers them high levels of consistency and quality. And a strong brand needs to have an identity and a personality that can be protected in all markets where its owners operate or may wish to do so in the future.

Could not have said it better ourselves.

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Scottish Enterprise, Scotland’s economic development agency, offers this:

“In the highly competitive world of food retailing, strong branding is one of the most powerful and valuable tools a business can have to both win new customers but also secure the loyalty of existing ones.”

True.

A brand is the most valuable asset of any organization, in part as the only corporate asset that can appreciate is your brand.

True in food retailing, or any business category.

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From this story in The Hindu, another definition of brand:

Brand…is…a promise that the brand and its products will meet the expectations generated over time.

Nearly identical to our definition of brand, linked here.

The story, also appearing in The Hindu Business Line, includes this:

Brands provide the basis for differences between apparently similar offers. They play a key role in generating and sustaining the financial performance of a business. In industry where competition is increasing and there is surplus capacity, strong brands help in differentiating products in the market.

Well said.

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In the 1930s, Harvard linguist George Kingsley Zipf found that “the” — the most-used English word — occurred about twice as often as “of” (second place), about three times as often as “and” (third) and so on.

All well and good, but how does Zipf’s Law apply to the discipline of branding? A recent study in Australia illustrates the power of branding in developing consumer preference and market share. From the New York Times:

Jan H. Hofmeyr, an expert on consumer behavior at Synovate…said he recently discovered that Zipf’s law also applied to the brand preferences of consumers and their spending habits.

“Marketers have always known it’s better to be No. 1 than No. 2, but now you can attach a revenue consequence to that,” Mr. Hofmeyr said.

Before being adopted by Synovate, Mr. Hofmeyr’s ideas were tested in Australia on two product categories: toilet paper and instant coffee. Consumers were asked to identify the brands they used and to rank them in order of preference.

According to his model, consumers who used four brands of toilet paper might have been expected to spend about 53 percent of their toilet paper budget on the top choice, 27 percent on the second brand, 13 percent on the third and 7 percent on the fourth.

In the Australian test case, consumers actually spent 50 percent on the top choice, 33 percent on the second, 9 percent on the third and 8 percent on the fourth. Averaged over hundreds of consumers, Mr. Hofmeyr said, the study showed an unusually high correlation between stated preferences and actual purchase decisions.

Zipf’s law…demonstrates the relative benefits of moving up in the rankings, Mr. Hofmeyr said. A product that leaps from second to first in a category can…affect a company’s bottom line, he said, while the advantage of moving up to, say, No. 5 from No. 6 is much smaller.

“With this approach, the moment you determine a brand’s ranking, you can predict the market share,” he said.

A real world understanding of Zipf’s Law is found in the Number One Number Two strategy initiated by Jack Welch early in his tenure as CEO of GE. If a GE business wasn’t first or second in its markets worldwide, or couldn’t be made so, it would be sold.

And how might any brand become number one or number two in its industry? By use of an own the conversation® strategy.

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We recently discussed the topics of resurrected dormant brands, otherwise labeled Zombie Brands, and their value due to latent brand equity.

A follow-up story appears at the online magazine Slate, speaking to revived brands such as the Indian Motorcycle, the McDonald’s McRib sandwich, Polaroid recast as a flat panel TV brand, and the MG motor car.

Read more about similar dormant brands here.

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According to one source, strong brand equity offers the following benefits:

Facilitates a more predictable income stream,

Increases cash flow by increasing market share, reducing promotion costs, and allows for premium pricing, and

Brand equity is an asset that can be sold or leased.

Brand equity also creates an ownable competitive advantage, is your sole appreciating asset, and decreases advertising expense.

Read more here.

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Why are dormant brands such as Tab, Ford Taurus, and Vionnet resurrected and relaunched? The answer is in power of brand equity, often in brands with a long dormant legacy. It’s the reason the Ford 500 becomes the Ford Taurus, Tab becomes Tab Energy, and the Vionnet fashion brand is revived under the leadership of another respected fashion house.

For more on what one source refers to as “Zombie Brands,” click here to listen to an MP3 audio version of the story.

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“Branding is a competitive advantage without equal. People will wait longer, travel further, and spend more for a favored brand.”

This advice is offered by Dr. David A. Shore, PhD. Dr. Shore is an Associate Dean at Harvard University, School of Public Health, where he teaches Harvard graduate courses such as “Strategic Marketing: Gaining Competitive Advantage Through Positioning, Branding, and Building Trust.”

We agree. As offered previously, contrary to the depreciation experienced by every other balance sheet asset, a brand is the sole asset capable of appreciating in value. The natural result of an asset creating competitive advantage is value appreciation, and growth in balance sheet equity.

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“The only corporate asset that can appreciate is your brand.”

This sage advice was offered by Bill Kupper, President of Business Week. Mr. Kupper was part of a panel appearing at The CEO Forum, hosted in Beijing earlier this month.

We agree. Contrary to the depreciation experienced by every other balance sheet asset, a brand is the sole asset capable of appreciating in value.

Thanks to Mr. Kupper, our latest addition to the Laws of Branding.

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A struggling Chinese manufacturer [and] the remnants of a failed British automaker…plan to pool their resources to rescue the iconic MG sports car from the automotive junkyard. This and more from the Los Angeles Times:

A consortium led by Nanjing Automobile Group announced a $2-billion plan Wednesday to construct a state-of-the art production facility in China, reopen a shuttered MG factory in England and open an assembly plant and a distribution center in the small town of Ardmore, Oklahoma…

In particular, experts lauded Nanjing’s decision to base its expansion on a globally recognized brand, because Chinese companies generally are stronger in manufacturing than in innovation and sales…

The acquisition of the MG brand name and tooling — combined with the low-cost advantages of manufacturing cars and parts in China — will give MG Motors North America Inc. an advantage in the competitive U.S. market, said Duke Hale, president and chief executive…

“Our competition, they’re going to bring cars specifically and exclusively designed in China,” Hale told reporters Wednesday at a news conference in Oklahoma. “We’ve got cars with European styling, European engineering, European flair and, oh, by the way, the big bonanza: a brand name called MG.”

In a classic example of the Law of Borrowed Equity, Nanjing and perhaps as importantly, China as a nation brand, stand to reap the benefits to their reputation among American consumers if they get the product right, when new MGs begin to roll off the Oklahoma assembly line in 2008.

The New York Times offers this powerful example of emotions still associated with the MG brand, an automotive badge absent from the U.S. market since 1980:

“It’s the first sports car that I remember as a child,” said Paul Fucito, who grew up around the corner from an MG dealership in New Jersey and remembers its closing.

Mr. Fucito, 34, a spokesman for George Washington University, has never lost hope that he will one day own an MG, although the company’s bankruptcy last year raised doubts for him about the chances of that happening. He participates in several online forums devoted to the brand and fantasizes about a new MG, painted British racing green, with wire wheels and chrome accents.

“It’s been that dream car that I’ve always wanted,” he said.

If the built-in equity of a decades-old brand can evoke similar feelings across a mass market, MG’s return to America can be hugely successful. To evoke the emotion and demonstrate the compelling difference needed to throw sales ahead of projections, MG should listen to this advice.

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We are fans.

Mark Ritson brings a pull no punches quality to his writing on brands and brand strategy that we appreciate. His latest offers an example of the tension between brand promise and business profit:

The British Airways pilot sounded calm, but he urgently needed a decision. Shortly after taking off from LAX one of the four engines on his Boeing 747, had exploded. With 5000 miles to fly and 351 passengers on board, should he return to Los Angeles or continue the flight to Heathrow?

Senior BA managers on the ground faced a crossroads. If they considered BA’s brand values, the direction was clear: the airline that defined itself as ‘reliable’ and ‘reassuring’ would obviously advise the pilot to turn the plane around and head back to LA. But if the management team started to look at the financial implications, the decision became more difficult.

Turning the plane around would cost the airline upward of £100,000 in reimbursement costs. Should they take the brand path or the profit path?

At 29,000 ft somewhere over Northern California the pilot’s radio crackled into life and his orders were conveyed. Continue on to London. The pilot was probably not surprised. In 15 engine failures since 2001, BA had made the same decision. For all the fine identity work, advertising and PR, when a pile of money is put on the table, brand values cease to be relevant.

A brand promise is little more than words on a wall. It is how those words are embraced and lived daily which says much more to consumers, and employees, about the values of a company and its leadership.

In contrast to British Airways, look at a company that takes its brand promise seriously, such as Johnson & Johnson. The Johnson & Johnson brand promise is a one-page credo, written over 60 years ago.

Look at any one of Johnson & Johnson’s business crises — Tylenol laced with cyanide in 1982, Zomax, a pain medicine withdrawn from the market in 1983 after patients died from using it, and counterfeit versions of the anemia drug Procrit in 2003. In each case, J&J executives credit the company’s brand promise with guiding their decision making. Rather than simply talking about it, Johnson & Johnson lives their brand.

Whether Johnson & Johnson, or British Airways, the brand of any organization is only as good as those who lead it.

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In a story on the importance of building brand equity in the Middle East, a Hewlett-Packard marketing manager recently offered this insight on the secret of branding success:

HP aims to understand its target market. When formulating branding or marketing activity we want to understand problems customers may face and then show, through our corporate communications, how those problems can be solved with HP products. This is absolutely vital in any successful marketing activity.

So very true.

H-P’s manager identifies one of the basics of great branding; find the problem of your market. What is the pain point your customer must resolve? The distress they encounter in searching for a remedy? And what exactly is the solution you uniquely provide? Understand the answers, and begin to build the formidable competitive advantage available through branding.

Without an understanding of this pain point, your brand will flounder and perhaps fail. Examples? The MG, Song, Montgomery Ward, Polaroid.

Read the entire interview of H-P’s and other corporate marketing managers in Channel Middle East.

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From the Business Times of Malaysia, in a story on the importance of CEO leadership in brand building:

…CEOs are part of a company’s brand equity… A dull CEO will give the company a dull image and a vibrant CEO will invariably give the company a vibrant image.

While CEO leadership is crucial to building the value of any brand, whether a CEO is dull or vibrant is NOT a factor.

Why? Hewlett-Packard offers a good example. The H-P Board of Directors would likely tell you their “dull” CEO, compared to what many would characterize as his vibrant predecessor, seems to be doing quite well, thank you. The financial markets agree, according to The Wall Street Journal.

As H-P’s CEO demonstrates, focus, rather than vibrancy, is the the most important attribute for brand success.

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Three B-school professors from Stanford, Korea University, and Yonsei University, developed a method of calculating brand equity growth based on investment in brand strategy.

According to this report from Stanford University, the three correctly point to a mistake commonly made among those confusing branding with, for example, the corporate sales function: “Having a better product or a larger sales force is not brand equity.”

The report goes on to say:

Simple brand awareness is one source of brand equity. “If you can get your name to pop up in people’s minds when they think of the product category, you’ve won a big part of the battle.”

Exactly.

Which is why in ANY branding or rebranding project it is crucial to focus on the brand tip of the spear, as discussed previously on these pages. Only through awareness is it possible to engage a prospect in conversation.

Great brand strategy in and of itself creates awareness without, for example, advertising. Skeptical? Just ask Amazon. Or Google. Or Flickr. As each will tell you, brand awareness, and profit growth, IS mighty sexy.

You can read more in “An Approach to the Measurement, Analysis, and Prediction of Brand Equity and its Sources,” published in the September 2005 issue of Management Science.

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