Warren Buffett and Charlie Munger have for many years evangelised the merits of high-quality companies that own global brands.
At AXIAM, we use this wisdom to guide our investment thinking. One of the reasons is that wealthy people, collectively known as the world’s 1%, prefer to buy brands they know and trust even if, and in some cases because, they command a price premium.
But does this assumption remain true in the age of the internet?
The summary of the research below shows that the wealthier you are, the more brand loyal you are.
Wealth and Brands
Only 1% of the wealthiest American’s do not pay attention to brands.
How Loyal to Brands are US Internet Users? August 2018
Source: Morning Consult “What drives brand loyalty today?” Sept 2018
Brand preference increases as consumers get wealthier. 82% of people earning between $50 000 and $100 000 per annum consider brands when purchasing. 88% of people making more than $100 000 per annum confirmed that brands influence their buying behaviour.
The BrandZ 2018 Global Top 100 brands report defines the value of brands as follows:
“Brands embody a core promise of values and benefits consistently delivered. Brands provide clarity and guidance for choices made by companies, consumers, investors and other stakeholders. Brands provide the signposts we need to navigate the consumer and B2B landscapes.“
At the heart of a brand’s value is its ability to appeal to relevant customers and potential customers.
Brands are powerful but intangible assets. While their value is difficult to precisely measure, they are impossible to dispute. Brands provide pricing power (think a $100 Single Malt Whiskey or Bottle of Perfume) enabling brand owners to generate significant cash flows and returns on capital.
Part of our AXIAM investment thesis is that the world’s population will continue to grow and the 1% will expand, meaning more wealthy consumers to make discerning and brand centred choices.
Also, the wealthier people become, the more homogeneous they become. They travel to similar places and crave similar experiences. That’s why the brands on the high streets of Tokyo, New York, London and Shanghai are all familiar. When you travel to the major cities of the world check this out for yourself.
At AXIAM, we believe the 1% of the worlds wealthiest will continue to grow. They will look for brands and spend on those brands. Contact our fund managers or sign up for our newsletter if you would like to learn more about investing your capital in the world’s great brand owning companies.