A brand with strong mental connections and responses can charge a higher price for the same volume as a competitor. That higher price can be cashed in to deliver an improved margin for the business or reinvested in the brand for future success. Investments might include more money being spent on innovation or brand-building advertising.
Alternatively, a strong brand can achieve a greater volume of sales at the same price. This makes it more attractive to distribution channels and creates efficiencies of scale in operations (sourcing raw materials, production, shipping etc.).
In other words, strong branding shifts the demand curve for the brand. Most brands sell less if they raise their price. However, marketing that builds the brand enables it to charge more, or sell more at the existing price, and so generate more profit.
Branding can be considered a good investment if it generates more profit than the cost of the activity.
Marketers face a challenge when making the case for brand-building investments. The financial upside often takes a long time to accrue. Take a new brand, for example. Early on, branding investment typically shows only a small return – less than the cost of the activity. The big payback occurs once the brand has become a serious contender with more established brands. It can take years of sustained activity to achieve this.
When you factor in the long-term effects of brand-building, the return on investment can be high. As a rule of thumb, the long-term return on investment from advertising is more than double the return seen within the first 12 months on average (Binet and Field, 2013). It is often five or more times greater than the return seen within the first three months.
The Brand Value Growth Matrix shows how advertising amplifies the growth strong brands achieve. The matrix was developed by the author and Peter Walshe, former Global BRANDZ Director at Kantar Millward Brown. It compares the value of brands between 2006 and 2015.
Brands with clearly defined identities, assessed by combining measures of distinctiveness and differentiation, grow more than other brands. However, brands with clear identities that promote themselves using strong advertising are the real winners. These brands grew by 168% over ten years. This compares to growth in the MSCI World Index of 71% over the same period. Strong brands deliver good returns; strong brands with great advertising deliver exceptional returns.
The commercial benefit of building a strong brand goes way beyond sales of the brand’s initial product range. The success of the personal care brand Dove shows how success with a single product in one market can be a springboard for success across multiple product categories and geographies.
Having a strong brand can also help a company attract the best talent and inspire employees to stay with the company and work productively. Marketing commentators often struggle to explain how Apple has developed such innovative products. One reason is that the world’s best designers are keen to learn from the people they most admire. They want to work with people like Steve Jobs and Jony Ive, so they apply for a job at Apple. The ability to attract and motivate high-caliber employees goes a long way to explain Apple’s success. Apple produces great products thanks to its talented employees and how they work together. The best of the best work on high-priority developments, and the environment allows them to create the optimum user experience.
Contributed to Branding Strategy Insider by: Dan White, author of The Soft Skills Book, The Smart Marketing Book and The Smart Branding Book
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