For at least the past decade, the topic of “branding” has dominated marketing discussions to the point that the concept has numerous definitions and explanations. This proliferation has not necessarily increased the credibility of branding as a marketing function, but instead seems to have created confusion regarding the actual value that branding provides–if the value can even be measured. The majority of business people would likely agree that branding is important, and developing a “brand identity” for their organization should be part of their long-range planning. However, organizations operating in today’s economy are under tremendous pressure from stakeholders to focus on current financial results.
Because of this, the challenge has been to measure branding’s financial benefits to an organization from both short- and long-term perspectives. How does branding contribute to the financial health of an organization? And, if it does not contribute, does branding hold any value at all or is it just a good topic for the latest marketing guru book?
This article will provide you with insight into six financial benefits that a strong brand identity contributes to an organization. This article will also explain how brand differentiation and brand relevance can be valuable tools for increasing an organization’s operating margin.
What is brand identity anyway?
Before addressing its financial benefits, we offer this brief definition of brand identity. An organization’s brand identity represents how the company wants to be perceived in the market, what the company stands for, and most importantly, implies a promise to the company’s customers.
The value of a strong brand
Based on the research presented in his book, Building Strong Brands, Dr. David Aaker cites a number of financial and non-financial benefits to building a strong brand. AVS sifted through these benefits and discovered that six of them have direct impact on an organization’s financial performance. Each of these benefits can be measured and they are interdependent, meaning that if the first benefit can be achieved, it will assist the organization in achieving the remaining five.
Our research also showed that achieving the six benefits is a linear process. Achieving Benefit 1 will assist the organization in reaching Benefit 2, and so forth. In addition (and probably the most powerful benefit of all), when an organization has achieved all six financial benefits, it loops back to the first benefit and repeats the process like a continuum. This is a powerful process, because as an organization repeats its journey through the continuum, the brand gets stronger and stronger. Each pass through the continuum produces more financial benefit to the organization. AVS calls this process the Brand Continuum.
Here are the six financial benefits to a strong brand identity:
Benefit 1: A strong brand identity commands a price-premium. Why is someone willing to pay thousands of dollars more for a Lexus than for a Toyota? They are virtually the same product with the exception of some additional options and accessories. “You can also buy exotic cars from Jaguar, Volvo, and Range Rover. And every one of them is made by Ford–and you shouldn’t be surprised to discover that they even share parts.”
The value proposition is wrapped around the brand. The Lexus, Jaguar, Volvo, and Range Rover brands are worth more in the minds of consumers regardless of whether the product actually functions better.
Benefit 2: A price premium creates the perception of quality. This follows the age-old axiom of “you get what you pay for.” If a Lexus costs more than a comparable product, it must be because the Lexus provides better quality. Right? Not necessarily. There are plenty of lower-cost, high-quality vehicles available, yet people still pay more for what they perceive to be a better or higher-quality brand. So the axiom lives on.
Benefit 3: Perceived quality has been shown to positively affect customer usage. Consumers tend to select brands they perceive to be quality brands. This also connects to repeat buying or brand loyalty. Consumers tend to continue buying brands that reward them with a good experience versus repeating the evaluation process time after time.
Benefit 4: According to Dr. Aaker’s research, perceived quality is the single most-important contributor to a company’s return on investment (ROI), having more impact than market share, R&D, or marketing expenditures. Perceived quality contributes to profitability in part by enhancing prices and market share. Improve perceived quality and the organization’s ROI will improve.
Benefit 5: Customers relate value with quality. This is closely connected to Benefit 2. If one brand is perceived to be of higher quality than another brand, customers tend to perceive that the higher-quality brand is a better value.
Benefit 6: Perceived quality can be a point of differentiation. Smart companies are continually looking for ways to differentiate their brand from competing offers. Perceived quality can be used to differentiate, and in doing so, enable the company to loop back to Benefit 1 and charge a price premium for their strong brand.
Brand differentiation and brand relevance
Brand differentiation and brand relevance are both important on their individual merits. However, a strong brand identity is only formed when an organization blends its differentiation with relevance. McKinsey & Company defines brand differentiation as “…the ability for a brand to stand apart from its competitors. A brand should be as unique as possible. Brand health is built and maintained by offering a set of differentiating promises to consumers and delivering those promises to leverage value. Relevance is the actual and perceived importance of the brand to a large market segment. This gauges the personal appropriateness of a brand to consumers and is strongly tied to market penetration.”
Uncovering your brand’s differentiation and relevance through an unbiased brand differentiation analysis is important to distinguish your brand from competitors’ brands. Within the analysis, it is important to uncover the brand features that consumers would categorize as antes, drivers, neutrals, and fool’s gold.
Antes are features that are highly relevant to consumers but also provided by competitors. Drivers are both highly relevant to consumers and also unique from competitors. Combining both antes and drivers together forms the foundation of a strong brand identity. According to the Young & Rubicam Brand Asset Valuator, companies that increase their brand’s differentiation over competing brands have about a 50 percent higher operating margin on average versus companies that allow their brand differentiation to decrease.
In summary, investing toward building a strong brand identity is a continuous process. Today’s economy requires organizations to maximize their financial effectiveness. Working through the Brand Continuum helps ensure that a brand delivers the financial value necessary to keep an organization ahead of the competition.