Does it pay off? The value and advantages of branding.

Are strong brands crisis proof?

Many are familiar with the term branding, but few people know its value. Yet a strong brand can be very valuable in itself.

Still, it is not obvious for everyone working in executive positions or in finance whether branding is a rich man’s hobby or a necessity, especially during an economic crisis.

For designers, it can be a real challenge to show the importance of branding — and justify its costs. (You will find some help with that below.)

In this article, you will find answers to the following questions:

• Is it worth investing in branding?
• Why is it good if you have a brand? Why do you need it? What is it, anyway?
• As a chief executive, why should you see branding as a long-term investment (and not as an option)?
• As a designer, how can you sell this idea to executives?
• And what’s in it for you — whether you are a designer or a chief executive?

What branding means

Here is a strong claim: branding is the best investment you can make.

I’ll explain, but first let’s see what the term ‘brand’ means exactly.

When they hear the term, most people think about

• the brand name
• the logo
• the visual identity
• marketing
• typography
• colours
• etc.

And they are not wrong.

Branding is creating a positive image of the company (and its products or services) in the mind of existing and prospective customers, using elements like the logo, design, the mission, consistent communication and all components of marketing.

Effective branding helps you distinguish yourself from competitors and build a loyal customer base.

If you would like to read more about branding, check out this article.

What is the no. 1. asset of a business?

Some think it is their equipment, capital or patents.

While these were the most valuable assets once, since Marty Neumeier (ZAG) we know this is not true anymore…

Nowadays equipment, capital and patents cannot provide considerable competitive advantage to companies, even though they are still important.

Why? It is now the target audience, not chief executives, who are in control. The audience decides which products or services it favours in a given situation.

This means branding is a long-term investment to make the target audience choose you.

Why should you invest in branding?

Just to mention the key advantages:

• People have relationships with others and with brands based on emotions, just consider Apple;
• Purchase decisions are usually emotional (we find objective arguments to rationalise them afterwards), and the main goal of branding is to incite feelings in potential clients;
• The target audience is more likely to choose the product or service of a strong brand over the competitors;
• You can attract more customers at a lower cost;
• A prominent brand may, in itself, justify higher prices;
• Employees are more attracted to stronger brands and are more likely to stay on board.

Well-built brands grow and develop faster and make more profit — mostly because of what I’ve described above.

Undoubtedly, branding is one of the most profitable investments there is, as globally intangible assets (including the brand itself) account for 90% of the total assets of S&P 500 companies.

Of course, in and of itself this doesn’t mean much, but if you consider that the value of the brand represents, on average, 20% of the total market value of a company, you can see how important branding is.

Measuring brand value

The results of UX projects like a landing page are relatively easy to measure. (Open rate, scroll depth, clickthrough rate, etc.)

For branding, as it is less specific, it is somewhat more difficult.

However, it doesn’t mean that we cannot measure the value of branding.

Every year, Interbrand publishes the global list of the 100 most valuable brands.

Apple was ranked first again last year, with USD 408 million. (Important: this is not the worth of the whole company, just the Apple brand.)

While the calculation of brand value is complex, there are basically 3 key aspects considered:

• financial performance
• purchase decision performance
• competitiveness

‘Sure, but this is Apple, and I have a small business in [insert your conutry])…’

This is a legitimate objection, but you can scale these values for the Hungarian market. Every business has its own market and own competitors.

SMEs should not compete with Apple, Google or some other giant, but with their own competitors.

At the end of the day, what matters is whether the value of your brand is higher than that of your competition.

But how can you calculate brand value?

6 methods for measuring brand value

Determining brand value is not easy since the term brand itself has several definitions.

Kotler and Keller say that brand value is directly related to the perception and thinking of prospective and existing customers. It reflects the direct and indirect brand experience, i.e. everything they have seen, heard, learned, thought and felt over time.

This means that everything is considered brand value that consumers associate with the brand or that influences consumer behaviour.

These may include

• trademark, logo and tagline;
• visual elements;
• marketing and advertising strategies;
• digital assets;
• customer retention and satisfaction rates;
• engagement level on social media.

This means brand value can be calculated with different methods.

1. Cost-based valuation (considers how much it costs to build the given brand).
2. Market-based valuation (uses the sales price or share price of brands in the given market segment to assess brand value).
3. Income-based valuation (focuses on the income the brand generates).
4. Customer decision-based valuation (examines specifically the popularity of non-branded options and options offered by other brands among customers).
5. Customer-based valuation (considers the number of existing customers, predictions about the number of future customers and the associated lifetime values).
6. NPS-based valuation ( Net Promoter Score it measures how the brand can inspire organic, word-of-mouth promotion).

All the above methods have advantages and disadvantages. It’s always a good idea to assess brand value from different aspects.

Branding is a long-term investment

To put it simply, there are two categories when it comes to the communication of a brand:

• branding
• and sales.

Sales-type communication is mostly rational (uses rational arguments), has a specific sales focus, and mostly drives results while it is running.

As opposed to this, brand-type communication is emotional (affects the emotions), and the aim is not to increase sales but to improve the brand experience. It doesn’t have spectacular results in the short term, but in the long term it drives a steady performance.

According to a study, it is best if 60% of your company’s communication is brand building and 40% is sales activation. With that, both short-term sales targets and long-term branding goals can be achieved at a good pace.

In general, we can say that brand-type communication can drive better results than sales-type communication within 6 months.

The price of branding or the ‘moratorium period of brand credit repayment’

When you establish a business, you start a brand credit moratorium period.

What does this mean?

As a business grows, the money and time you must spend on branding increases proportionately, as you need to use an increasing number of platforms for communication.

If you pay this from the start (i.e. you spend time and money on branding), you don’t have to worry about brand credit repayment.

But if you neglect it, you will have to pay interest later (see the grey area in the figure below).

The later you start, the higher the costs of branding will be.

Consider a family business that, for years, is run according to the values of the founder, the father, and there is no need to align and document these values. However, when it comes to succession, they must be organised, and it is a problem, as the target audience is committed to the values of the brand, but without recorded systems, the new management might not be able to deliver. In such cases you need to make up for years of lost time — you need to repay your brand credit.

The 4 most common misconceptions about branding

Let’s talk about these, as one of them may be preventing you from creating a brand your target audience loves.

1. ‘Branding is just a game for designers and marketing specialists’

Nowadays corporate decision-makers do have a say in the branding process, as the primary aim is to develop a brand personality that appeals to the target audience and conveys the brand values in an authentic way. This is a process business decision-makers must be a part of.

2. ‘Branding is for large corporations’

Many people think that you should wait with branding until the company has a lot of money. It is the other way round: your company will have a lot of money if you are willing to invest in branding.

Nowadays the entry threshold is much lower than it used to be. You don’t have to pay for television or radio commercials, citylight displays, etc.

Social media and online marketing are well within reach for SMEs, too.

3. ‘It isn’t worth spending on branding in times of recession’

Granted, it’s better to build your brand in a favourable economic situation. However, it’s not too late to start it in times of recession.

Stronger brands get through crises more easily, as they have a steady place in the target audience’s mind.

4. ‘I only want to do business’

It’s a tempting thought that a small or medium-sized company only needs to do business and all it needs is a logo, a couple of colours and a cool font.

In reality, a strong brand is a must if chief executives want to focus ‘only’ on business, as a well-planned brand attracts talent and valuable customers.

Summary

The rules of the game have changed, and businesses are no longer in control. It is not products that rule the market, but the brands that exist in the customers’ mind. Businesses have no control over this.

But they can influence it…

You can affect the feelings and impressions created by the brand. For this, you need a long-term plan with a series of specific steps. Like with interpersonal relations, in branding the aim is to make prospective customers like you.

The brand is the greatest asset of a business, as it

• makes customers less price sensitive,
• increases loyalty towards the company (both among customers and employees) and
• makes the company distinguishable and recognisable.

Moreover, the entry threshold is really low today, almost anyone can do it, all you need is a proper framework — for example Brand Sprint.