A Question of Value: How do brands create value?

Today we try and fill in the second stage between brand building and profit because it’s imperative that we understand the way brands build value and can clearly communicate this to the people around us.

Fortunately, there are five principle ways in which strong brands create value. Real monetary value. This week I’ll take you through each of these: Volume; Value; Growth; Efficiency; Resilience.

Volume

A strong and healthy brand will attract more people to buy, join or support you. This is because its desirable in and of itself and certainly in comparison to your competition. Your brand stands out in people’s minds when they think about your category or a particular aspect of their life in which it performs well, and so people are more likely to be drawn to you. Critically this is about creating an innate desirability so that when people move into market they are already predisposed to want to do business with you.

Of course, these days there are many obstacles in the purchase process between entering a category and the final purchase, many ways that a challenger can unseat the preferences someone has for your brand but its still the case that a desirable brand will help you navigate this minefield successfully.

In this respect a healthy brand works in your mind’s search engine coming out on top every time a customer thinks about your category or a particular need they have, something we now call mental availability.

Value

A strong brand drives value in a number of ways. Desirability is translated into a degree of pricing freedom because it makes paying a little more, more justified and also makes people reluctant to substitute your brand if they don’t have to. Stronger brands spend less time and margin on price promotion or discounting to build volume and so sell at full price for more of the time. While price rises are less likely to drive customer defection however much they might not like them.

So, over all healthier brands maintain and justify higher prices and margins because people are prepared to pay more for them.

Growth

A strong brand that is well understood and liked by people is often in a better place to extend into new products, services and categories than weaker brands. It is able to take that understanding and good will and use it to establish a foothold in or a new category. While there are a number of phenomenally strong brands at the head of the mobile network market in the UK, EE included, both Sky and Tesco have used the affection, affinity and values they have built into their brand in Entertainment and retail respectively to make serious inroads into mobile category.

And Apple provides a masterclass in the subject, pivoting their business multiple times as they take their approach to life and phenomenal customer support from category to category. Today the second largest part of their revenue after iPhone are digital services not hardware.

Of course, in an era of technological and data disruption there are many categories with highly successful businesses that have not benefited from fame and reputation created elsewhere. Virgin money does but Monzo and Starling do not.

But moving into new categories at scale is hard for a start up, they will need to spend time building up their base and their business. A brand established in one part of peoples’ lives, providing that it is sufficiently strong, will have an easier time of finding new growth in an adjacent or new category, than a business with no brand or one that is weak.

Efficiency

A strong brand creates marketing efficiency. If people find you desirable and are predisposed to buy from you. And they are more forgiving when it comes to price or actively expect you to be more expensive then the sales funnel or loop or whatever shape is popular this week, will be far smoother. And this means you will need to invest less along its stages to ensure people find and buy from you.

In 2021 Air B’n’B were able to significantly cut performance marketing spend because their brand was so powerful that this form of marketing made little to no difference. In truth they were ending up paying for sales that would naturally have come to them because of the strength of their brand. A strong and healthy brand created significant efficiencies for Air B’n’B driving down the cost of acquiring every customer.

Belonging

A strong brand attracts and helps retain talent. Any business is in a fight for talent with its competitors and other sectors. It is imperative to be able to hire the best people and keep them. Keep them without having to pay over the odds and keep them so that their loss doesn’t lead to significant recruitment costs. With employees costs a significant part of the P&L of any service organisation and the dominant cost in a professional services firm, powerful brands have an effect beyond galvanising your people with a clear sense of belonging. They make clear commercial sense outside the world of marketing and sales.

Resilience

A strong brand builds resilience and protects the business from reputational challenges. In a way it acts a bit like insulation so that the effects of problems, whether of your causing or externally driven are less damaging.

That insulation may be as simple as a bit of forgiveness when someone receives poor service or has an unusually bad experience of your product. I call this the ‘that’s very unlike’ factor, in that a when people have a poor experience they are more likely to think ‘that’s very unlike’ your business as opposed to ‘that’s bloody typical’ of your business.

But it’s also the case that strong brands help businesses bounce back after more profound crises, we saw that with Volkswagen after the diesel emissions scandal, where an almost impregnable brand helped them build back very quickly following that crisis.

Summary: A heathy brand is a business’ best friend

To be clear, a strong brand doesn’t allow businesses to do anything they want to, to Teflon coat their reputation. Although some of the platform brands are clearly able to get away with some sharp practices (from zero hours contracts to tax avoidance) because people are willing to look the other way, on the whole a healthy brand will not long survive repeated challenges.

These five factors – volume, value, efficiency, retention and resilience – are the principal reasons that a heathy brand is a business’ best friend. A healthy brand sitting out there in the minds of your customers, your soon to be customers and your customers to come, working its magic and creating a dynamo for growth.

These factors are indisputable. What is and always has been unclear is why this happens. And I think that is because people don’t really understand the way brands work. The way they are constructed, not by companies or marketers but by people. And that they live and only live, in people’s minds. It is by really understanding this rather than simply paying lip service to it, that we can better understand the way brand’s work.

In the next of our ‘Value Exchange’ series I will take you through my analysis of ‘monopolies of the mind.’