Wednesday, August 16, 2006

"Brands Are Eclipsing Factories in Value"

The title of this entry is a quote from "A New Brand of Power," an August 7th must-read piece by Sebastian Mallaby of The Washington Post. Among other things, Mallaby speaks to the growing acceptance of the premise that strong company brands are primary drivers of enterprise value/market cap.

A particularly good nugget:
Not long ago, the value of a company consisted largely of its "book value": physical assets such as factories and equipment plus money in the bank. But today, book value accounts for only about a third of the stock market capitalization of the top 150 U.S. companies, down from three-quarters two-decades ago. In the new economy, corporate value lies in intangible assets: patents, databases, know-how and brands.

Mallaby also speaks to a phenomenon we've commented on in previous posts: the prevailing shift in brand architecture thinking away from "house of brands" (e.g., P&G's gazillion stand-alone brands without explicit connection to the parent) and towards building strong, universally leveraged parent company brands. According to Mallaby,
Ten years ago, Unilever sold its foods and detergents under 1600 brand names, according to Kevin Keller of the Tuck School of Business; now, Unilever uses fewer than 400. The world's biggest companies (Citigroup, GE, IBM, Microsoft, Toyota, Wal-Mart) sell most or even all of their products under one or two brands.

There's lots more worth reading in Mallaby's piece, but you'll have to register (at no charge) on the Post's site to read the full article.

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