The Value of a Strong Brand
07.18.2011 / Posted in Articles, Branding
Note: This is the final article in a series on brand strategy from FrogDog. To begin from the beginning, click here.
If you’ve been reading our branding series up to this point, you probably have the general idea about how to create a brand and how to use it once you’ve created it. (If you haven’t, you might want to start with our definition of what a brand is by clicking here.)
But it does seem like a lot of work. Expensive, too. (And we won’t lie to you: Branding is expensive, whether in terms of money, time, or both.)
So why spend the money? Why go through the effort? What, then, is the actual value of a strong brand?
Higher Price Points
Charging higher prices and getting less price pressure sounds nice, right?
Yes, indeed. It’s no secret that people pay more for something they perceive has a higher value—and often the perceived value is tied to the brand. Do you buy only the store brand at the grocery? (You do realize that, in many cases, the branded item is the exact same product as the item in the generic box, right?)
A strong brand helps keep a company’s products and services from turning into commodities. People buy brands because they feel the branded items provide
- higher status (people buy brands that they feel mesh with their identities—you may feel Louis Vuitton handbags better represent who you are over comparable purses without a recognizable name or with a name that you feel isn’t “you”);
- greater quality (you don’t want the generic or off-brand antihistamine, because you believe it won’t work as well as the name brand); and
- safety (you’re not sure about the standards of that car-repair shop, so a national chain seems like a better bet).
Higher Market Value
Partly due to the ability to charge higher prices with less price pressure, a strong brand increases a company’s market value. Companies with strong brands have higher valuations and provide better shareholder returns than similar companies with weak brands. (See our article about using brands to make business decisions and its case study on Nordstrom for an example.)
And in some cases, companies have been purchased for their brands alone. Jays Potato Chips and Converse Rubber Shoe Company were purchased out of bankruptcy and held little value other than the value built into their brands. Today, the Jays brand of potato chips—much-loved throughout the Midwest—is owned and its chips are manufactured by Snyder’s of Hanover, and Converse was built into a multimillion dollar company by Footwear Acquisition before it was sold to Nike for a pretty penny in 2003.
We talk a little about how to measure brand equity in our previous article in this series on creating a brand strategy.
Robust, well managed brands also protect companies in turbulent and recessionary markets. No company is immune to a serious financial crisis, but strong brands are more likely to survive them; the companies that struggle the most are the ones with the iffiest brands.
Why? Money is more precious than before, so people want to make “safe” choices about where to spend it. Strong brands seem like safe bets for the quality and safety reasons mentioned above.
This is particularly true in business-to-business markets during rough times. For example, bad economies are known to push corporate buyers to choose Microsoft over software from a less well known competitor. Corporate employees aren’t as likely to lose their jobs if Microsoft doesn’t perform as well as expected, whereas executives are likely to question their decision to go with a smaller, less familiar vendor if software bugs crop up. Every choice must be justified, and in recessionary times, people are less willing to take risks of any kind.
And on the consumer side, people are much more inclined to buy one “good” thing in many product and service categories than something they feel could fail or disappoint in short order—per the adage, “You get what you pay for.”
Think you can enter the sportswear market and take on Nike, no problem? Think again.
Nike’s extremely strong brand in the sports apparel market makes it very difficult to compete against. New market entrants have an incredibly difficult time, especially without considerable dollars to compete long-term in the marketing game. Under Armour is the latest David against Nike’s Goliath, and it has expended untold resources over a number of years to achieve a fraction of Nike’s revenue. Under Armour still has a long way to go but has made significant progress in the fitness industry by partnering with NFL, NBA, FC St. Pauli, and USA Boxing, as well as acquiring Endomondo and MyFitnessPal to establish the world’s largest digital health and fitness community.
And consider Google’s attempt to take on Facebook with Google+. More than any other company, Google could rival the social networking giant. However, Facebook is so entrenched that even Google has its work cut out when it comes to competing in this space—and will have to spend considerable money and effort to do so.
Tough brands make it extremely painful for competitors to enter the market. In fact, a predominant brand in a category will often discourage market entrants entirely.
People Want to Work with You
People get starry eyed about working with organizations that have impressive brands. Saying that you work for or with a name-brand corporation lends caché. Who wouldn’t like to have Coca-Cola on his or her resume?
Well branded companies will find it easier to hire top-notch candidates and will find more favorable terms from suppliers and partners. A strong brand improves the company’s value proposition for internal and external stakeholders alike.
And because of the increased value of working with a name brand, companies that have them will find they are offered increased and more favorable business opportunities.
Companies want partnerships with strongly branded organizations. Highly valued brands are offered lucrative licensing deals. And companies with robust brands are more likely to see acquisition opportunities under very favorable terms.
Fair enough. Branding is a leap. It requires time and money. It takes time to return results.
But the challenging things are often the most worthwhile. And branding is definitely both.
This article is the last in a series by FrogDog about brand strategy. To begin from the beginning, click here. If you would like to be alerted about upcoming FrogDog articles and research, please sign up here.