Branding benefits

Before we go further into the interesting subject of branding, let's take a look at the benefits that branding brings to companies and their implications for luxury brands.

Brands are assets to the companies that own them. This asset comes in an intangible form and results in added financial and social benefits for businesses. To get a clear picture of the asset worth of brands for companies, let's take a look at the following illustration.

In 2006, Interbrand placed a brand value of US$17.6 billion on Louis Vuitton, making it the most valuable brand in the luxury goods industry and the seventeenth most valuable brand in any product category in the world. This figure is exclusively attributable to the brand and excludes the company's assets, earnings and revenues. This means that if Louis Vuitton ever decides to sell its brand (which is highly unlikely, by the way), its brand name and associations alone could fetch the company more than its book price (its balance sheet worth). The case is similar with other 'highly valued' luxury fashion brands like Gucci, Armani and Rolex. In some cases, companies with strong brands are sold at up to 600 per cent of their balance sheet worth.

The average company is valued by the stock-market at twice its net assets, but companies with strong brands are valued at from 4-20 times their actual physical assets. This additional valuation is often a result of recognition of the intangible value assets of the brand and confidence in the long-term future earning potential of the companies due to their brands. The large amount of money companies with strong brands amass during mergers and acquisitions is also evidence of the importance of branding as an asset. For example, in March 2006 French cosmetics company L'Oreal offered to buy British brand Body Shop for a price 34 per cent higher than its worth, as a result of its brand value. Also, American high-end sportswear brand Tommy Hilfiger was recently acquired by British investment company Apax for $1.6 billion, a figure several times more than the company's physical worth. In the non-luxury fashion category, Nike bought sportswear company Converse for $305 million, a figure that far exceeded its book value. These indicators show the importance of branding to any company that wants to make substantial long-term financial returns.

A quick look at Table 5.1, which represents the most valuable luxury brands in the world, according to Interbrand, previews the significance of the business of branding. The values shown are solely attributable to the brands and exclude the company's assets and earnings.

Table 5.1 The Global Luxury Brand Value Scoreboard (2004-06)

Brand name

Ranking

Brand value,

Brand value,

Brand value,

Country

2006

2005

2004

of origin

(US$ billion)

(US$ billion)

(US$ billion)

Louis Vuitton

1

17,606

16,077

6,60

France

Gucci

2

7,158

6,619

4,70

Italy

Chanel

3

5,156

4,778

4,416

France

Rolex

4

4,237

3,906

3,720

Switzerland

Herm├Ęs

5

3,854

3,540

3,376

France

Tiffany & Co.

6

3,819

3,618

3,638

USA

Cartier

7

3,360

3,050

2,749

France

Bvlgari

8

2,875

2,715

-

Italy

Prada

9

2,874

2,760

2,568

Italy

Armani

10

2,783

2,677

2,613

Italy

Burberry

11

2,783

-

-

Britain

Source: www.interbrand.com

Source: www.interbrand.com

You might wonder how branding has gained so much prominence in the luxury fashion business and for how long the concept of branding has been around. The answer to this can be found in Chapter 2 of this book.

In addition to being an asset to owners, brands also have invaluable benefits for consumers. Branding helps consumers identify the source of a product and reassures them that their purchase decision is the right one, making their buying process easier. A brand is also a symbolic device that signals quality, precision, craftsmanship and several other associations that make it unique. As a result of this, consumers are reassured that what they're buying is the most suitable for their needs. This results in a relationship of trust between the consumer and the brand. For strong brands that maintain their promise of value, the relationship is often sustained through brand loyalty. Luxury brands are also highly beneficial to consumers through the fulfilment of functional and emotional needs. These needs are identified through brand promises and brand perceptions. Branding also reduces the risk of disappointment with products and services for consumers.

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Responses

  • silke
    Who benefits from associations like louis vuitton?
    8 years ago
  • judith jones
    What are the benefits of branding for chanel?
    7 years ago

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