Branding used to be thought of as a nice-to-do part of marketing. A company might do some brand marketing if they had enough budget for it. But today, there is no question that brands are valuable business assets, and that branding is an essential component of marketing. In fact, it is the foundation for everything else!
In today's world, when so many products and services have been commoditized, having a compelling brand is more important than ever. A successful brand connects with its audience and strongly influences their buying decisions. That is why name-brand products sell for more than store brands. Strong brands lead to additional sales and revenue the company would otherwise never get, both in the B-to-C and B-to-B worlds.
Branding is an investment in the company's future, and it is an investment with a high return. While consumer brands are the ones that get the most attention, the importance of branding in the B-to-B world cannot be underestimated. And, it is just as important to small companies as it is to the Fortune 500, whether they provide services, sell products, or both.
Quantifiable Branding ROI
Quantifiable Branding ROI
It is even possible to put a dollar value on a brand. Franz Fleischli, a managing director of the valuation and appraisals firm The Mentor Group, states, "While the perception may have been that the value of a brand is difficult to quantify, there is clear confirmation that brands have real value in that more and more lenders are willing to lend against them based upon our valuations."
Business Week publishes an annual ranking of the 100 most valuable global brands, compiled by Interbrand Corp. Their approach to calculating the value of the brands they rate is this: first, they calculate what portion of a company's revenues can be credited directly to the brand rather than to tangibles. Then they project earnings and sales out five years based on analysts' figures and subtract the value of other intangibles such as patents. Using those calculations they rank the value of global brands. Their top 5 for 2005, by the way, were Coca-cola, Microsoft,
Not everyone is going to do such in-depth calculations, but there are at least two other directly quantifiable returns on branding investment that are much simpler:
- Name-brand price advantage – Branding can increase the perceived value of a product or service, and that translates into higher prices and margins. Take, for example, the difference between the retail price of a six-pack of Coke and the store brand. That difference is easily computed and is part of the calculations of the brand's valuation.
- Higher Company Valuation – Investors in public companies tend to value well-branded companies higher. According to an article in CFO Magazine , "Corporate brand plays a real role in stock performance" of approximately 5 to 7 percent.
Not Everything That Counts Can Be Counted
Many of the benefits a company gets from its branding investment are less tangible … but very real nonetheless. While these benefits may be difficult to quantify, they do contribute to the calculable returns above. As Einstein said, "Not everything that can be counted counts, and not everything that counts can be counted."
Here are 18 additional benefits well-branded companies, products, and services enjoy, even if they are more difficult to directly quantify:
1. Top of mind – The best ROI a brand can enjoy comes from owning the top-of-mind position. People think first of the brand that most resonates with them. Unless another brand presents a compelling reason to buy instead, the first one gets the business.
2. Familiarity – When people contemplate purchasing a product or service, known brands make the selection easier, even if they don't occupy the top-of-mind position. We all like to deal with people and things that are familiar to us. And, with so much choice in most areas, familiar brands can shortcut the decision process.
3. Trust – Having a trusted name (a known brand) is critically important for many types of businesses, especially, perhaps, financial services, legal services, security-related businesses, mission-critical technologies, and medicine, to name a few. With a trusted name brand, a company is in the running. Without it, it's not.
4. New product/service opportunity – A company can often expand its offerings under its brand umbrella. This extends the feeling of familiarity and trust toward the new product or service, making it easier to sell. (One has to beware of the pitfalls of line extension, though!)
5. Emotional connection – People makes buying decisions emotionally, then justify them rationally (everyone but you, of course). If people feel a positive emotional connection to a brand, they are MUCH more likely to buy the product or service.
6. Decreased price sensitivity and higher margins – People happily pay a premium for designer labels, prestige names, and leading brands.
7. Being in the running – A company without a known brand may never even be considered as an option when people are trying to decide what product or service to choose.
8. Reduced sales cycle – If a company's or product's brand is unknown, its sales people have to establish a trusting relationship with prospects before they will buy. The recognized brand is well down the curve already.
9. Increased inbound inquiries – The number of inbound inquiries increases, requiring less lead generation.
10. Loyalty – As John Kenneth Galbraith said, "Faced with the choice between changing one's mind and proving there is no reason to do so, almost everyone gets busy on the proof." Brands we connect with give us reason to be loyal and not change our minds.
11. CYA advantage – As the old saying goes, “Nobody ever got fired for choosing IBM .” Choosing the known brand is safer, even when it is more expensive.
12. More ink – Brand-name companies and products get more coverage in the press and more attention from analysts. This effect multiplies, because each exposure increases the brand awareness.
13. Decrease in lost opportunity cost – With a weak brand, there is a very real lost opportunity cost that the company will never really know about: business they never have a chance at.
14. Forgiveness – If we buy a brand-X product and it doesn't work well or correctly, we immediately label that now-known brand as one that equates to poor quality. On the other hand, if we buy a product whose brand name we equate with good quality and the product has a problem, we tend to feel that we just got a bad one. (This forgiveness is extremely limited though. Additional bad experiences change our perception of the brand, and very quickly.)
15. Attract better employees – Job seekers are also attracted to well-known brands; leading-brand companies get their pick of the litter. Companies with weaker brands have to spend more on recruiting.
16. Increased employee morale – Employees like being part of a winning team. They also connect emotionally with brands, and enjoy being associated with a top brand. This can also lead to…
17. Reduced employee turnover and reduced recruiting, hiring and training expense.
And, finally,
And, finally,
18. The do-they-make-it advantage – When people are looking for something and are not sure who makes it, they often consider which of the brands known to them might. They will then investigate, for example, visiting the company's Web site, to see if it does, in fact, provide that product or service. This can result in additional sales and revenue the company would otherwise not have received.
As you can see, branding is an essential investment that pays real returns. But what does it take to establish a strong, compelling brand? As the Business Week Top 100 Brands article (July 2005) states, "The names [in our ranking] that gained the most in value focus ruthlessly on every detail of their brands, honing simple, cohesive identities that are consistent in every product, in every market around the world, and in every contact with consumers." That is a great lesson for companies of all sizes that want to grow and prosper.