Brand IS a competitive advantage
One of the most commonly overlooked sources of competitive advantage is brand. Branding is not just advertising, nor is it simply a catchy name for a company or product. The most important value in a brand is the value that it holds for actual customers. This value is very difficult and expensive to build – and fragile and easy to destroy. The difficulty of building and maintaining a brand is one reason why managers the world over tend to avoid spending much time or money on branding – especially in smaller companies. This is a shame, because a well-managed brand is so powerful that it can overcome almost any other competitive advantage. This one fact is the reason why larger companies with lots of managerial horsepower tend to spend a lot of time and money on branding.
What makes a brand valuable?
Brands are valuable simply because they cause customers to be inclined to purchase your product rather than someone else’s. In a way, a brand is shorthand for the things the customer can expect from your product. In products that hold little meaning for the customer, this might be worth less, but in markets where the customer invests his or her ego in the purchase of a particular brand, that meaning can be priceless. Let’s look at some examples to see where branding may or may not be important.
First of all, let’s look at some examples of brands with tremendous pull. These brands will sell well just about anywhere they show up, because the customer associates the brand with qualities they prefer. Examples include:
Interestingly, none of these brands has universal appeal, in that not every possible customer will prefer the attributes of the brand over their alternatives. For example, the Disney brand is applied to many products:
Licensed products such as clothing and toys
In each of these very different product areas, the Disney brand means something a little different. For example, in theme parks, Disney means clean, family-oriented, creatively designed, expensive and (to many) crowded. The negative elements of the Disney branding in their theme park business are inevitable – you always have to accept the negative with the positive. But the positive elements are so compelling that millions of people from around the world spend a significant portion of their income to travel to a Disney theme park.
The Apple brand has a similar story. Apple carries a number of meanings, including well designed, easy to use, less popular and expensive. As with any great brand, this brand has a lot of ego invested in it for some people. This aspect of branding is more visible in computers because it is significantly more difficult and time consuming to use a computer operating system that isn’t the most popular (in other words, Microsoft). Despite this difficulty, Apple has a hard core of fans who wouldn’t think of using another brand, given a choice. Clearly, this doesn’t translate into top market share for Apple, but it is a significant advantage that has clearly kept the Apple name alive when others have fallen by the wayside. Apple’s newer products – notable the iPod – have drawn upon the positive elements of the Apple brand. The negative elements of the Apple brand have been far less problematic for the iPod because it is competing in a new product area where niche status has not been seen as a drawback. This is an excellent example of using a brand to grow beyond the core product line.
Why branding is important in the global marketplace
In an increasingly global market, branding can serve two distinct functions that may be useful to you: first, a “local” brand gives you and entrenched customer base that is more difficult (and expensive) to displace, and second, a “global” brand can give you a foot in the door when seeking to enter new geographic areas. Be forewarned: building a “global” brand is expensive, and often a “local” brand can be just as costly. Even so, the brand can be a useful offensive tool and defensive tool when you are competing with non-local companies.
There is one reason why “local” brands can be more cost-effective, and a good tool for defending your home turf from foreign competition: brand success is built upon three critical factors:
1. Understanding the key values in the mind of your customer
2. Knowing how to put the customer’s values into your product or service
3. Effectively associating your brand with those values
Two of these factors, understanding your customer and associating your brand with values, are very much defined by culture. Thus, someone from outside your culture – and this could even be someone who speaks the same language from a different region – will find it much more difficult to get an accurate read on what your customer’s key values are, and how to convince the customer that his product or service embodies those values. This is not saying that a foreign competitor cannot do this – just that it’s a lot more expensive and difficult.
How to evaluate your brand
Objectively evaluating your brand is difficult, especially if you want to put an exact dollar number on it. Fortunately, this is usually not required for good strategic decision making. Still, it’s a good idea to have at least a general concept of the value of your brand when you are considering strategic options.
The most objective way to evaluate your brand is to measure the outcomes that occur with and without the use of your brand. Sometimes this is simple, because the way you market may well lend itself to testing different hypothesis about your brand. For example, a seminar company might test mailing brochures that feature (or don’t feature) specific brands, to find out the extent to which one of those brands is pulling in attendees at the seminars. Likewise, if you have the wherewithal, you might go so far as to test selling a “generic” version of your product in the marketplace to see if it can carry the same price as your current brand – at acceptable volumes. This is a little more difficult with retail products, as some retailers will insist on only stocking brand name products on their shelves. In addition, retail stores – especially large chains – typically demand some kind of compensation for the use of their shelf space, which makes retail brand testing quite expensive.
If testing is out of the question, you can also approximate brand value by looking at the popularity and price of competing brands with little or no brand power. If you don’t have an absolutely generic “no-name” competitor, it can be difficult to be objective about this – after all, how do you decide which competitor has the least brand power? Also, there may be some confusion about value because there are several components to the success of a brand:
Brand Sales = (Cost + Margin) * Volume
If you were to attempt a calculation of brand value, you would be faced with extracting non-brand factors which affect these three numbers. For example, cost can go up or down depending on operation skills, management, underlying cost structure, and purchasing skills. Margin may be driven by brand power, pricing skill, and power in the distribution/retail channels. And volume can be affected by both cost and margin, brand power, and distribution network, as well as underlying demand for the products or services being offered.
Even so, at the end of the day your brand gets you one of two measurable outcomes: margin or volume. Comparing your margins to the competition is one way to assess the value of your brand, if you take heed of the caveat about other factors which may change margin. Comparing volume is less likely to yield a good estimate of brand value, because you can – in many markets – drive higher volumes with no brand value at all by charging lower prices. This, by the way, is a terrible strategy to be following if you are concerned about cheaper foreign competition, because there are significant costs that you simply will not be able to beat your foreign competitors on.
So your brand isn’t that valuable – is there hope?
In some cases, companies run into a “brick wall” when they objectively evaluate their own brand. This can be caused by a number of factors, but the outcome is the same: some brands just don’t mean anything to the customer, and so do not carry any premium in the marketplace. Naturally, such brands offer little defense against inexpensive foreign competition, and companies that rely too heavily on brand power that doesn’t really exist inevitably get into hot water as foreign competition uses its compelling power – the lower price – to erode the market share of domestic competitors.
Is there a “crash course” way to build brand? Yes – but it’s inherently risky and not for the faint of heart. This is because branding is driven by the brains of our customers, not our desires. In order to build a strong, positive awareness of your brand in a hurry, you will have to do something that stands out. By “stands out” we don’t mean “is a bit better” – we mean something that is truly remarkable, or, in other words “worthy of remark”. Customers don’t make remarks about brands that are a little better – they remark on differences that they find really interesting.
An excellent example of something remarkable is the Honda Element. This is a truly distinctive design in the overcrowded sport utility vehicle market. The design is, in fact, so unusual that it almost never made it into production. Marketing people at Honda were extremely uncomfortable that the design was so different from any other brand in the SUV market that they wanted to scrap it. The designers won the fight to manufacture a small number of Elements as a “niche” product, along with a more mainstream design. By the end of the first year of production, the Element was outselling the “safe” design by five to one!
The lesson here is clear: if you are behind some savvy competitors, you should be prepared to seriously consider strategic options that make you uncomfortable. We wouldn’t recommend betting the farm on outlandish new brands – in most cases – but we would suggest that having one or two every couple of years might just push your brand into the lead by giving you a reputation for having edgy, innovative products.
Copyright 2007 by Center for Simplified Strategic Planning, Inc., Ann Arbor, Michigan – Reprint permission granted with full attribution.