Uniquely Positioned: Strong Brands as a Competitive Advantage

High-quality brands are valuable intangible assets that can have a significant impact on a business’ growth outlook and future value

What makes for a great brand?

The current investment landscape is rich with examples of businesses that have developed iconic brand identities that are likely to last for years to come. However, powerful branding goes beyond a catchy company name or fancy logo: it helps businesses to differentiate themselves from competitors and, ultimately, aims to increase profitability by building long-lasting relationships with their customers.

In today’s increasingly competitive marketplace, many consumers want to be associated with what a brand represents and stands for, and in turn, what it says about them as individuals. Among other things (see Figure 1), leading brands successfully create products and services which are perceived to be more valuable than alternatives with a similar functionality. In addition, brands that convey a sense of authenticity and meaning, rather than simply selling a product, can build strong share of mind and a loyal community of ambassadors. This carves out what we believe is a unique position in the marketplace.

Figure 1: Characteristics of a strong brand

The digital economy: Going direct-to-consumer (DTC)

The emergence of new technologies (such as the advent of the internet, smartphones, artificial intelligence, and big data) effectively changed the dynamics of how businesses grow and develop a great brand. Prior to these disruptive technologies, the model of creating and sustaining branded goods endured for many decades because of a symbiotic relationship between those companies making goods, those advertising them, and those selling them. While this model previously raised high barriers to entry for new competitors, these barriers have been eroded in today’s digital economy and given way to more direct ways for businesses of all sizes to connect and interact directly with consumers.

Technology has shifted some of the economic power from business producers to more interconnected “global” consumers.

Furthermore, the digital landscape not only allows consumers access to almost any product from anywhere in the world with the touch of their smartphone, but also facilitates the process of building brand trust. In today’s digital world, a brand’s audience has its own audience. This means that a brand’s message, product reviews, and shared customer experiences can all be communicated at near frictionless speed and through many online mediums. The emergence of these technologies has shifted some of the economic power from business producers to more interconnected “global” consumers.

In turn, we believe that today’s leading brands increasingly recognize the importance of creating direct-to-consumer (DTC) sales channels in three ways:

  1. DTC allows businesses to transact directly with customers (both digitally or physically) without the need of intermediaries such as wholesalers and distributors. This offers an opportunity to build meaningful relationships with clients.
  2. A DTC connection provides businesses with valuable information about its customers. Each data point that a company gains presents an opportunity to enhance the customer experience.
  3. Notable brands can turn data into insights. These insights can empower more authentic and organic ways to go beyond traditional advertising campaigns in order to boost consumer demand. Those who mistake direct-to-consumer (DTC) sales channels as simply another means of distribution miss the bigger opportunity.

Yeti: “Built for the wild”

In our opinion, businesses like Yeti, a leading manufacturer of outdoor goods, understand that the hallmark of a great brand is having a strong connection with its customer base. Yeti attracts a passionate following due to its innovative products which embody high performance, superb quality, sustainability, and a rugged, authentic outdoor lifestyle. Yet, Yeti’s brand goes beyond camping essentials: it is built around a community of outdoor enthusiasts and its slogan, ‘built for the wild,’ intends to say as much about its target audience as it does about Yeti’s products.

Over the past few years, Yeti has also successfully transitioned from selling its products mostly through retailers to going DTC through both brick-and-mortar and online stores. Diversifying its sales channels has helped the company not only improve its profit margins (by cutting out retailers from the equation), but also by gathering valuable client analytics.

Customer loyalty is very difficult to achieve and as equally difficult to maintain. To quote investor Warren Buffett, “It takes years to build a reputation and five minutes to ruin it.” Creating a great product with a successful brand is one way a business can differentiate itself from competitors. Ultimately, products may come and go, but as history has demonstrated, great brands tend to outlast their competition. This is precisely why we believe that being uniquely positioned, one of five characteristics that we require in any business we invest in, is an essential attribute that leads to long-term success.

Important Disclosures
This information is provided for illustrative purposes only. Opinions and views expressed constitute the judgment of Polen Capital as of July 2021 may involve a number of assumptions and estimates which are not guaranteed, and are subject to change without notice or update. Although the information and any opinions or views given have been obtained from or based on sources believed to be reliable, no warranty or representation is made as to their correctness, completeness or accuracy. Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice, including any forward-looking estimates or statements which are based on certain expectations and assumptions. The views and strategies described may not be suitable for all clients. This document does not identify all the risks (direct or indirect) or other considerations which might be material to you when entering any financial transaction.

This information should not be construed as a recommendation to purchase, hold or sell any particular security. Holdings are subject to change. There is no assurance that any securities discussed herein will be in the portfolio at the time you review this post or that any securities sold have not been repurchased. The securities discussed do not necessarily represent the entire portfolio. It should not be assumed that any of the securities, transactions or holdings discussed were or will prove to be profitable or that any investment recommendations we make in the future will equal the investment performance of the securities discussed herein. For a complete list of Polen Capital’s past specific recommendations for the last year, please contact [email protected]. Past performance does not guarantee future results and profitable results cannot be guaranteed.