The Rise and Fall of Brands

[rukawa]

I think it was Buffett who popularized the idea of investing in companies with very strong brands like Coke. But, Buffettistians tend to forget the reason Buffett even wanted to find companies with large moats...he was trying to resist the iron law of competition that inexorably destroys the competitive advantages of all companies in the long run.

 

My view is that the rise of the brand name was caused by the scarce advertising spots possible with broadcast television technology and the scarce shelf-space of large chain stores. But brand names are dying due to the Internet, Cable Cutting and the infinite Shelf Space of e-commerce companies like Amazon. You no longer need huge advertising budgets to reach large numbers of people...think Angry Birds. And online reviews enable you to determine quality without a brand name to assist you. In this world, are brand names like Coke, Pepsi and Sony valuable anymore? How long is the life of a brand name?

[Liberty]

I think you forget another scarce resource in your theory: Mindshare/attention.

[LC]

Following your theory, the more niche brands will retain value better as they attract less competition. Also, the best value proposition will win out (versus the highest ad spend).

[rukawa]

I think you forget another scarce resource in your theory: Mindshare/attention.

 

Good point. There does seem to be some kind of acceleration of Fads. They are born and die quicker. Not sure why....

[Palantir]

Why do you say that Buffett popularized the idea of investing in brands? Yeah he has made a few famous bets on KO, but apart from that, it has not been a cornerstone of his philosophy. I think this idea is mistakenly attributed to him, and in some cases is used as a justification arbitrarily...."its brand is an economic moat".

[jschembs]

Why do you say that Buffett popularized the idea of investing in brands? Yeah he has made a few famous bets on KO, but apart from that, it has not been a cornerstone of his philosophy. I think this idea is mistakenly attributed to him, and in some cases is used as a justification arbitrarily...."its brand is an economic moat".

 

Good point; his more recent investments seem to be in industries whose moats come from regulatory protection rather than brand affection.

[Liberty]

I think you forget another scarce resource in your theory: Mindshare/attention.

 

Good point. There does seem to be some kind of acceleration of Fads. They are born and die quicker. Not sure why....

 

What I meant is that even if the internet removes shelf space limitations and you can now have 10,000 cola brands, most people won't keep track of many. They just don't have the attention/mindspace. They want to find a few things they like and trust, and then will probably stick to them. Brands are mental shortcuts; you know what you're going to get.

 

Right now, where I'm seeing most of the change is in niche things (the long tail). If you really like some obscure thing and you're the only one in your town, you used to be on your own. Nobody would open a store just for you. But now, all the people who are into that obscure thing across the country and world can band together, and as a bloc they are worth feeding and can keep the niche thriving. So lots of niches are now commercially viable that weren't.

 

But for the big, mass-market stuff that reaches lots of people everywhere (detergent, cars, cola, diapers, common foods, smartphones, etc), I think there will always be big dominant brands at the top, and no-name/store brand type stuff for more price-sensitive people.

[Haasje]

I don't think a brand is a competitive advantage but more like an asset.

 

Sometimes there is a competitive advantage enjoyed by a company with a brand that enables high ROI investments into the brand or otherwise powers it.

[rukawa]

Why do you say that Buffett popularized the idea of investing in brands? Yeah he has made a few famous bets on KO, but apart from that, it has not been a cornerstone of his philosophy. I think this idea is mistakenly attributed to him, and in some cases is used as a justification arbitrarily...."its brand is an economic moat".

 

Because that is where I picked the idea up from. It needed be a cornerstone of his philosophy for him to have popularized it. He has talked directly about brand names several times and has made several investments along these lines include Coke, See's Candies, Heinz, Gillette, Dairy Queen, American Express and Fruit of the Loom. I would say investing in brand names is as associated with Buffett as ten baggers is associated with Peter Lynch or Net-Nets is associated with Benjamin Graham. Whether these ideas are a cornerstone of their philosphies is a separate question.

[Palantir]

That's not a very long or particularly illustrious list. He invested in Heinz because he got a good deal, he invested in Coke because it is a great business, same with Gillette and its razor-blade model. FTL is not a particularly notable brand. See's Candies is a good example, but there are not many, however, it continue to be attributed to him.

 

 

Frankly, I think it is hard not to invest in brands when you are looking for great businesses, but that's just me.

[yadayada]

I saw a blind test where they put heinz beans in some brandless tin and in a Heinz tin. They all liked the Heinz tin better.

 

Personally still always pick heinz ketchup, and not another brand.

 

Also Apple? Beats? Bose?

[Dustin T]

I don't think the value or stickiness of old economy brands has changed much. I can't imagine Heinz not being dominate 50 years from now. With tech companies it's a little different. Apple was cool, nearly died, and was reborn. Myspace and blackberry are still iconic brands they enjoy great recognition but they have been supplanted.

 

There is just a rush into and then sometimes back out of the iconic brands on the cutting edge of technology. For a technology that has peaked a brand name is pretty important and can provide a good moat. For a technology that has not reached it's peak a brand is only as valuable as your latest product.

 

Nothing much has changed in the world of Coca Cola, Wrigley, or American Express in decades. Todays smart phone though we all expect to be junk in 5 years.

[thefatbaboon]

I think you forget another scarce resource in your theory: Mindshare/attention.

 

Good point. There does seem to be some kind of acceleration of Fads. They are born and die quicker. Not sure why....

 

What I meant is that even if the internet removes shelf space limitations and you can now have 10,000 cola brands, most people won't keep track of many. They just don't have the attention/mindspace. They want to find a few things they like and trust, and then will probably stick to them. Brands are mental shortcuts; you know what you're going to get.

 

Right now, where I'm seeing most of the change is in niche things (the long tail). If you really like some obscure thing and you're the only one in your town, you used to be on your own. Nobody would open a store just for you. But now, all the people who are into that obscure thing across the country and world can band together, and as a bloc they are worth feeding and can keep the niche thriving. So lots of niches are now commercially viable that weren't.

 

But for the big, mass-market stuff that reaches lots of people everywhere (detergent, cars, cola, diapers, common foods, smartphones, etc), I think there will always be big dominant brands at the top, and no-name/store brand type stuff for more price-sensitive people.

 

I live in a city and last year I started ordering my groceries and household stuff online and getting them delivered.  Originally I thought this would make me more brand insensitive.  I've found exactly the opposite.  The more choice, the smaller the online photo, the more abstract and non-tactile the selection process....the more I depend on brands.  It's further reinforced by the suggestions and "Your favorites" pages...where what I order most frequently is immediately infront of my eyes.  Click, click, click, click...done!  Agree with Liberty 100%.

 

 

[jay21]

Smart Money Buys Brand X

 

http://www.bloombergview.com/articles/2014-07-21/smart-money-buys-brand-x

[Guest longinvestor]

Smart Money Buys Brand X

 

http://www.bloombergview.com/articles/2014-07-21/smart-money-buys-brand-x

 

From the above article

If all consumers were better-informed, then, consumer markets would look very different. Total expenditures on headache remedies, for instance, would fall 13 percent, and retailer profits would rise 5 percent as people bought more in-house brands. And if people bought store brands whenever they could, they'd save as much as $44 billion.

 

It is the least informed consumers who are the most likely to waste their money. Unfortunately, many of them have little money to waste. One implication is clear: Stores ought to be doing a lot more to help people recognize their potential savings.

 

Costco - Kirkland, Sam's- Sam's Choice, Walmart - Great Value. Enuff said. The enduring brand of today and tomorrow is the unquestioned value brand. Personally, I used to pick store brand when it was compelling, now I buy premium brands if they are compelling. Seldom the case anymore. Also, I notice big retailers putting more of the store brand stuff at eye level. My back doesn't bend much these days. 

 

Traditional retail is undergoing a total makeover and consumer brands have it really tough now. Buffett has mentioned this several times in recent years. The squeeze on shelf space at gorilla retailers and disposable income of middle America makes it a one way street for the consumer brands. You deliver value, if you want to keep playing the sport, that is.

 

Heinz under 3G management is preparing for this by dramatically lowering their cost basis. I've also heard through the insider grapevine that KO is starting to get focused on the hitherto dirty word called productivity within their four walls. Extremely strong brands allowed much busywork.

 

Value is here to stay, everywhere.