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Brand Matters

May 11, 2011 • Businesses, Demand, Supply, and Markets, Developing Economies, Households, International Trade and Finance • 93 Views    No Comments

Not so long ago, an apple was just a piece of fruit and a “google’ (actually spelled googol) was 10 raised to the 100th power. Mention apple today and most of us think of iPhones and iMacs. However, Apple is not just a technology company. As with Google and Coca-Cola and McDonald’s, firms can be about more than a product. They are also an image and a message. They are a “brand.”

Ranking the most valuable brands in the world, a global brands agency, Millward Brown, said that Apple, #1 on the list, had a brand that could be valued at close to $153 billion. That total, though, is not about sales nor profit nor revenue. It represents a cash value of what Apple means to us.

Separate from what firms produce, a brand gives firms value. Directly, it adds to the firm’s assets. Also, a brand gives a firm more pricing power. As one branding executive explained, “Apple is breaking the rules in terms of its pricing model. It’s doing what luxury brands do, where the higher price the brand is, the more it seems to…reinforce the desire.” Perhaps corresponding to Apple’s #1 rank, Research in Motion’s Blackberry lost 1/5 the value of its brand and Nokia fell even further. You can read the report here to see how brand value was calculated.

Finally, the top brands list illustrates the growing financial power of developing economies. China Mobile is #9 on the most valuable brands list. In a financial institutions valuable brands list, Chinese, Russian, and Brazilian banks were among the top 20, preceding Bank of America.

The Economic Lesson

From most competitive to least competitive, the four basic competitive market structures are: perfect competition, monopolistic competition, oligopoly, monopoly.

An Economic Question: If you imagine a competitive market structure continuum, with perfect competition on the far left and monopoly on the far right, where would you place Apple? How does Apple’s “brand” affect its position and its price making capability?

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