E Why Brands Are Important?

Recently, the “brand strategy and communications firm” CoreBrand came out with its 2014 report which ranks companies based on familiarity and favorability of publicly traded firms according to Beverageworld.com. The list places beverage conglomerate Coca-Cola (NYSE: KO) in the No. 1 spot and beverage/snack giant PepsiCo (NYSE: PEP) in the No. 2 spot. Coca-Cola moved to its No. 1 spot after scoring a tie with PepsiCo last year. This reaffirms the continued brand strength underlying these two companies and bodes well for investors over the long-term. Here’s why.

Why are brands so important?

Investopedia defines brands in the following way, “A distinguishing symbol, mark, logo, name, word, sentence or a combination of these items that companies use to distinguish their product from others in the market.” A brand molds a certain perception of the product in the minds of the consumer. In essence it creates an identity that consumers can get familiar with and hopefully, in time, fall in love with.

Pepsi and Coca-Cola represent nothing more than generic soda without their logos. A potato chip without the Lay’s name morphs into just another potato chip. Generally speaking, without the logos and underlying quality that gives the brand its strength, people couldn’t identify with or remember any particular product.

How valuable are brands?

Brands are valued differently according to who you ask. Accountants assign value to trademarks on a company’s balance sheet. In the most recent quarter, Coca-Cola and PepsiCo valued their trademarks at $6.8 billion and $4.4 billion respectively. Brand Z (opens a PDF) values Coca-Cola and PepsiCo at $80.7 billion and $11.5 billion respectively. Brand Z derives its findings from customer surveys and corporate financial data surrounding the brands in 2014.

Interbrand assigned values of $79 billion and $17.9 billion for Coca-Cola and PepsiCo, respectively, based on criteria that included percentage of revenue outside the brand’s home region, public availability of information and expectations of long-term profitability.  In other evidence of brand strength, Coca-Cola often leads the way in carbonated soda volume, especially in the emerging markets, serving as a buffer against further decline (table below).

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William Bias owns shares in Coca-Cola

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