The Crisis is Over : Households Spend on Brands

Written by | Thursday, June 19th, 2014
Arif Budiman

The marketing consultancy Millward Brown has published its annual list of the world’s most valuable brands called BrandZ. According to BrandZ, top global brands for 2014 added 310 billion USD and have reached 2.9 billion trillion USD in brand value, which is a 12 percent increase compared to last year. This year’s growth was driven mostly by resurgent brands originating in North America or Europe, where economies are getting back on a healthy track. In contrast, BRIC markets and other emerging countries which used to drive a lot of brand value in previous years, have slowed down. The fact that the number of brands from emerging markets has decreased in favour of traditional Western brands signals a piecemeal return of confidence in the markets and consumers. What does it then say about Europe?
The first thing worth noticing is the fact that European top brands are still divided between UK brands and continental Europe brands. This might seem as a mere matter of definition or division but in my opinion the reason behind this is much more profound. Economies of the UK and continental Europe do differ in some intrinsic characteristics. The UK economy is more innovation-driven which might be a result of a deeper connection to the US economy, compared to the rest of Europe. The understanding for marketing and branding might be therefore stronger. In contrast, continental Europe seems to be more “traditional” and “old-fashioned” when it comes to innovativeness and American-style “ideas” that change the world. As a result, no European brand made it to the top 10.
The most successful European brand is the German technology firm – SAP, which logged the nineteenth position with brand value of almost 36.5 billion USD. Many other successful brands from continental Europe also come from Germany, with cars and telecoms being the flagships of the entire list. BMW, Mercedes-Benz, and Deutsche Telekom are along with SAP forming the backbone of the non-UK brand list. The success of car makers is especially relevant as it heralds the comeback of the entire car industry.
When the news of the fall of the Lehman Brothers hit the world in 2008, car industry was among the first preys of the subsequent crisis. Being a major employer in many advanced countries, governments tried to stimulate demand for cars and thus save the jobs. Now, almost 6 years later, sales are closely approaching pre-crisis levels. Millward Brown’s study reveals that the brand value of the car industry improved by 17 percent after it had already risen by 5 percent in 2013. What is more, unlike in other categories, the middle-class models of cars came back strongly suggesting that economic confidence of the middle class income groups is getting stronger. Yet, despite positive results and outlook to the future, the overall development in the sector is being hurt by overcapacity which in turns impacts margins. Although overcapacity was partly addressed by the downsizing during the crisis, current capacity still exceeds demand.
Another signal that the crisis is over is a rocket rise in the category of luxury goods. The category went up by 16 percent following a 6-percent rise in the previous year. Stunning results of the industry were driven mainly by newly wealthy people across emerging markets, mainly China. A luxury consumer is also getting younger, which, in combination with the importance of social media, is believed to become a source of increasing profits. This is very important as most luxury brands do come from Europe. Louis Vuitton, Hermes, or Burberry have successfully positioned themselves in Top100 even against the tough competition coming from technology brands. Although luxury brands have focused on the emerging markets for a while, their focus might come back soon to their native Europe. As people gain confidence in the economy, they also turn back to luxury as consumers no longer buy only for utility but also for pleasure and decoration. Therefore, even Europe and the United States can provide these brands with an untapped potential.
Overall, brands based in continental Europe went up by 19 percent in brand equity and value, which is more than any other world’s region. This came after a rather meek growth in brand value in the previous year, when Europe marked only a 5-percent growth. The signals are clear. Households spend more on brands, return to luxury, and think about cars again, while companies start increasing their budgets on advertising, branding, and market research. The crisis is over. Yet, Europe should not rest on its laurels. The motto for post-crisis years should be more innovative thinking, R&D, and ideas, or otherwise the old continent can easily fall prey to dynamic and innovative thinking from the emerging world.

Article Categories:
ECONOMY & TRADE

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