The Value of Global Brands

Globalization, technology, increasing product parity and communication overload have increased the focus and attention on the power of brands to break through the clutter. They are the international business currency of the 21st Century. Brands transcend national borders and languages in their universal appeal and recognition. They are bought and sold for huge amounts of money; billions of dollars are spent building them. People are loyal to them.

Brands have become big business. According to the Wall Street Journal, three Federal Reserve economists have estimated that, by the late 1990s, some $250 billion of all corporate spending was devoted to brand building. That's about 2.5% of the US GDP spent trying to win the attention and trust of consumers - “an investment that can quickly be squandered if a product fails to perform as expected”, commented the Journal.

That a product will “perform as expected” is the basic requirement of all successful brands. If a product does not perform as expected, no matter how well marketed, all attempts at brand building will be wasted.

Recent events concerning Chinese exports have underscored the value of brands and the assumed quality they represent. In the view of the Wall Street Journal, China is just one or two fresh controversies away from a full-blown crisis of confidence, thanks to scandals over tainted pet food, toothpaste and toy exports. In an article headlined “Yes Logo” the Journal said: “China had better quickly upgrade its understanding of the real source of consumer safety in a mass consumption society: an accounting mystery known as intangible capital.”

“Intangible capital doesn't appear on company balance sheets, but it accounts for one-third to one-half the stock-market value of the Fortune 500 -- i.e., what's left after subtracting buildings, machines, resource rights and other elements of tangible capital. One particularly important form of intangible capital is brand equity.”

At its most basic, brand equity can be said to be the margin of trust attached to a product beyond the features and functional benefits that people are often willing to pay a premium for. This is especially true of global brands.

This was borne out by a Harvard Business School research project carried out to find out how people in different countries value global brands*. A detailed analysis revealed that consumers all over the world watch the fierce battles that transnational companies wage over quality and are impressed by the victors. A focus-group participant in Russia said: "The more people who buy [a] brand…the better quality it is." A Spanish consumer agreed: "I like [global] brands because they usually offer more quality and better guarantees than other products."

That perception often serves as a rationale for global brands to charge premiums. Global brands "are expensive, but the price is reasonable when you think of the quality," pointed out a Thai participant. Consumers also believe that transnational companies compete by trying to develop new products and breakthrough technologies faster than rivals. Global brands "are very dynamic, always upgrading themselves," said an Indian. An Australian added that global brands "are more exciting because they come up with new products all the time, whereas you know what you'll get with local ones."

That's a significant shift. Until recently, people's perceptions about quality for value and technological prowess were tied to the nations from which products originated. "Made in the USA" was once important; so were Japanese quality and Italian design in some industries. Increasingly, however, a company's global stature indicates whether it excels on quality.

In these times of intellectual piracy, brand counterfeiting and tainted products, brand equity is a critically important concept.

So, how does a company that makes great products also build brand equity?

Contact Grant Marketing for a free consultation »

Content of article compiled by Alan Brew. Alan has more than 20 years of executive experience with some of the world's leading branding companies, including Landor Associates, Siegel and Gale, and Enterprise IG.

*HBS conducted a qualitative study in forty-one countries to identify the key characteristics that people associate with global brands. Then they surveyed 1,800 people in twelve nations to measure the relative importance of those dimensions when consumers buy products.