A well-defined brand increases profitability in several ways
August 9, 2019 By per Mike
Many company owners go about their business without thinking much about brand. They either ignore it altogether, hand it off to marketing (or maybe a talented graphic designer), or make strategic decisions based on an incomplete understanding of what brand really means. If one of these describes you, Lindsay Pedersen says you could be making a big financial faux pas: A strong brand can be a huge moneymaker.
“Your company’s brand may not be a dedicated line item on your P&L, but your profit will absolutely increase based on the strength of your brand,” says Pedersen, author of Forging an Ironclad Brand: A Leader’s Guide (Lioncrest Publishing, April 2019, ISBN: 978-1-544-51386-7). “It’s too bad so many leaders think brand is ‘squishy’ or insubstantial, because it serves a very pragmatic economic purpose.”
In fact, she points out, a recent study found that 87 per cent of business value among the S&P 500 is intangible value, including brand equity. Another study valued S&P 500 companies’ intangible assets at 74 per cent, with brand comprising 20 per cent of that.
So, what exactly is brand? While Pedersen admits the concept can be tough to pin down, she defines it as “the interconnected web of what our business means and how we deliver that meaning, all made possible by our special position in our customer’s universe.”
Pedersen says brand should be a company’s North Star. Every decision you make should be filtered through it. Forging what she calls an ironclad brand lets you occupy the single best position in the hearts and minds of your customers. When you pinpoint this optimal position, you’ll be able to create value, maximize scale, and lead with purpose.
That said, here are six ways a strong brand creates immediate value:
It creates a high “willingness-to-pay” factor, which translates directly to better margins. In a recent study, strong brands on average commanded a 13 per cent price premium over weak brands. Look to your own purchasing behavior. When you love a brand, aren’t you willing to pay more for it than for an alternative brand? Renowned brands like Apple, Mercedes-Benz, and Williams-Sonoma – or niche brands like Lululemon, Campagnolo, and Vitamix – are examples.
It commands attention and makes it easy for customers to choose you.Consider the infinite stimuli competing for your customers’ attention. To break through and secure a place in their minds – and their wallets – you need to make it easy for them to notice you. The solution is not to shout the most loudly – most lack the marketing budget to shout loudly enough. The solution instead is bracing clarity. Be crystal clear about what your business is and why that matters to customers. This way the customer’s mind has to do less work to grasp your offering.
It enables you to hit that sweet spot between old and new that persuades people to buy. Wharton School marketing professor Jonah Berger writes in his book Invisible Influence that people like a blend of similarity and difference. When it’s the right blend, he refers to it as “optimally distinct.” For a brand position to be compelling to customers, it should be similar enough to something a customer already knows so that the person will feel its “warm glow of familiarity,” as Berger has called it – yet it should be different enough that it stirs the customer’s curiosity and desire to be different themselves.
“When selling something new, it helps to piggyback it on top of something else the customer already understands,” notes Pedersen. “This is why automobiles were positioned as ‘horseless carriages.’ It’s also why Airbnb referenced the familiar B&B idea, with its associations of belonging and safety and psychological comfort, when trying to persuade people to embrace the dramatically new idea of sleeping in non-hotel beds they find on the Internet.”
It sets the groundwork for customer loyalty. Your brand strategy enables you to focus on what matters to the target customer – on that which produces customer desire for your business. Once customers have found it easy to see you and buy you, and those customers value your big benefit, they will love your business. In this way, great brands deepen and lengthen your customer relationships, increasing customer lifetime value. Brands set the conditions for loyal customers who come back again and again because you singularly bring significant value.
“Starbucks brings a big benefit – good coffee, uplifting third-place space, human connection, consistency across locations,” notes Pedersen. “This fills a deep need and delivers meaningful value, which spurs loyalty. It makes somebody a customer not just once, but countless times.”
It “digs a moat” around your business. A great brand is good defence. It protects what you have, helping you to survive and defend, as well as thrive and grow. If you have built a powerful brand, your competitors cannot credibly copy it, and this un-copy-ability protects your business’s long-term value. Pretty much everything else can be copied, given enough time. Patents expire; features obsolesce. But it is hard to copy an emotional territory that your brand occupies in the mind of your customer.
“A strong brand is the only truly sustainable competitive advantage,” notes Pedersen. “Consider that Brooks Brothers has been around since 1818, DuPont since 1802, and Jim Beam since 1795 – and our country (U.S.A.) goes back to only 1776!”
Finally, it guides strategic decision-making. When your brand is well defined, you can look to it to filter where and how you can innovate, or what categories you can expand into, with confidence in your ability to grow. In this way, it prevents you from making costly mistakes.
“If I am the CEO of Brooks Running and I’m considering areas for innovation, I look to my brand, represented by the tagline of ‘Run Happy,’” says Pedersen. “My brand is about the joy of running – not the joy of skateboarding, not the joy of sports in general, not even about running for the sake of things other than joy. This lens puts into sharp relief where I can or cannot grow, making my decisions easier and more accurate.”
Keep in mind that all of these money-making benefits hold true only if your brand is strong.
“A weak, anemic brand simply doesn’t command the same value,” says Pedersen. “Make sure yours is customer motivating, distinctive and ownable, simple and singular, and that it leverages your unique competencies. The strength of your brand is just too important to leave to chance.”
Seven layers of brand and how they fuel business
We all use the word “brand” as though everyone else’s understanding of it were the same as ours. Yet chances are it’s not, says Lindsay Pedersen, author of Forging an Ironclad Brand.
“Logo is part of brand,” she says. “TV and social media are parts of brand. Naming is part of brand. So are your product, your customer experience, and your SEO tactics. So are your font, your tagline, your business’s personality, and the colour of your employee uniforms. But none of those are, by themselves, brand.”
To make smart decisions around shaping and communicating your brand strategy, it’s important to understand all the aspects. In her book, Pedersen identifies seven layers of brand:
Brand Is what you stand for. It’s what you mean to your customer. It’s the place you occupy in his or her mind. Everything your business does either reinforces your meaning, solidifying and growing its place in the customer’s mind – or it weakens that meaning, blurring its place in the customer’s mind. If you sell shoes that enable customers to run fast, everything you do reinforces or blurs your meaning of fast shoes.
Brand Is a relationship between your business and your customer. These relationships have existed for millennia. The pre-Industrial Age, small-town butcher made a promise and faithfully fulfilled it time and time again, making his relationship with his customer ever more meaningful for both. Today, with the web and social media and the countless ways customers can communicate with a business, it’s even more important to deliver value.
There was a time when the business with the most spending power had the loudest megaphone and, therefore, the most powerful brand. Now, the customer has a megaphone, too, and once again carries clout in the relationship.
Brand is your promise and your fulfillment of that promise. When a brand has integrity, its promise is true. The business makes a promise – to deliver a scrumptious-tasting dinner, or eliminate a software system’s downtime, or make a home-buying experience more enjoyable – and delivers on that promise. It is not merely what you say you do – it is what you actually do, how you do it, and why.
As Don Knauss, previously CEO of Clorox and head of North American operations for Coke, puts it: “A brand is a promise of performance. Any transaction between two parties requires a promise of performance.”
Brand is a filter. A brand captures and guides attention. It serves as a filter for customers as they perceive your business, shaping how they see you and believe you. We humans need these filters. When faced with too much information, we use cognitive shortcuts as filters to tame sensory overload. Brand ties your business to something already in your customer’s head, making it easier for the person to engage with your business.
Brand strategy is the deliberate articulation of your business’ meaning. While brand is the meaning you stand for inside your customer’s mind, your brand strategy is the deliberate articulation of that meaning. Brand strategy distills your promise so you can make choices across your business to carry out that promise. It answers the questions: What kind of business are we, and what kind of business do we want to be? What do we want to mean to customers?
Brand strategy is about getting to self-knowledge. It’s about defining your business as its best possible self, so that it can become its most purposeful self.
Brand fuels differentiation. Consumer packaged goods leaders, like those at Clorox, Procter & Gamble, General Mills, and Nestlé, have been using the power of brand for decades because they have to. Consumer packaged goods companies are bastions of excellent brand building, because the largely undifferentiated products force brand excellence. When your products are pretty much the same as those of your competitors, you better have an outstanding brand.
A bottle of Clorox bleach contains essentially the same bleach as store-brand bleach – six per cent sodium hypochlorite, 94 per cent water. But the consumer price of Clorox bleach is often double that of store-brand bleach, and Clorox bleach still wins 65 per cent market share of the bleach category. That’s because the Clorox brand stands for something different from the others.
Brand is your north star. When every element of your business is aligned around a single brand strategy, you leverage human nature to work for you, and all parts of your business work in concert. It lights your way to creating purpose, value, and scale.
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