What’s a brand? Why do they matter?
Ask anyone how to define brand, and you’ll get a different answer. Some people will talk about logo and identity, others the product or service, some will say that brand is all about feeling. And technically, while all of those answers are correct, they fall short of the big picture.
At Block Club, we define brand as a series of associations, or all of the things you think of when you see a brand name, mark, or symbol.
When you see Target’s bullseye logo, you might associate it with stylish products at a fair price. When you see Walmart’s logo with its trademark yellow spokes, you might associate it with everyday low prices. The retailers carry many of the same products, but thoughtful brand building over many years has created a set of associations that are entrenched in the minds of their target audiences.
As an exercise, think about the positive and negative associations that come to mind for any pair of archrival competitors: Apple and Google, Uber and Lyft, McDonald’s and Burger King, Coke and Pepsi. In our hometown of Buffalo, when I teach brand and brand strategy to groups of business leaders, I always like to bring up local grocery rivals Wegmans and Tops. When you’re able to think about branding at a local level, with businesses that people interact with on a daily basis or several times a week, brand associations can be quite personal. People will have strong opinions about why their brand is superior, how it makes them feel, and the associations they make just by hearing the name. The same can be said about the brand they don’t like and all of the negative associations they make. The debate in the classroom can be fierce!
In all these pairs, the archrivals are selling very similar products or services, yet a strong brand can help a company build an army of loyal customers and evangelists. McDonald’s brand isn’t its golden arches and Apple’s brand isn’t its apple with a bite mark, it’s the associations we connect to them. Before reading further, now’s a good time to stop and ask yourself what associations your customers make with your company? What’s your brand?
Perception and Profit Margins
Customers have a very difficult time separating brand from a product or service, so brands heavily impact the way that customers view products and services. A strong brand with positive associations is likely to launch a more successful and more profitable product compared with a company without a strong brand launching the same product at the same time.
The Kellogg School ran a simple study with three groups of MBA students a few years ago. The first group was asked what they would expect to pay for a pair of good-quality 18-karat-gold earrings with two 0.3-carat diamonds. The second group was asked how much they would pay for the same earrings, but this time the words “from Tiffany” were added to the question. The third group was asked the same question, but this time “from Tiffany” was replaced with “from Walmart.”
The results clearly illustrate the power of brand. The average price for the unbranded earrings was $550. With Tiffany branding, the average price increased to $873, a jump of nearly 60 percent. The massive increase was due solely to the addition of the Tiffany brand. With the Walmart branding, the price came crashing down to $81, a decline of 85 percent from the unbranded earrings and a whopping decrease of 91 percent from the Tiffany-branded earrings.
Since the presence of a well-known brand with positive associations will dramatically affect how people view a product or service, you can think of a brand like a prism. How people regard a branded product is shaped both by the actual product attributes and by the brand. The brand can either elevate or diminish the product. If a premium brand name like Tiffany is placed on a product, customers will likely view the products as high quality, exclusive, and expensive. If a discount name like Walmart is placed on a product, customers might view the product as low quality and cheap. Brand can play a major role in increasing (or decreasing) profit margins.
Differentiating Products and Services
Rival companies are always copying each other, bringing products and services to market that are largely the same. When customers realize that offerings from rivals are similar, they start to focus on price and play competitors off each other. Think about the last car you purchased. Let’s say you were buying a Ford Escape. The savvy buyer calls multiple dealers who are all selling the same car and ultimately buys it from the dealer who gives them the best price. The Ford dealers without a strong brand can only sell on price, and it’s a race to the bottom, drastically reducing profit margins and hurting the bottom line of the dealership.
If your product is a commodity because it lacks a strong brand, there’s nothing to differentiate it from your competitors’ product. It’s difficult for customers to price shop when a unique brand is involved. As the earrings study shows, with a distinctive and valuable brand, people will pay more.
Attracting and Retaining Talent
In boom times with low rates of unemployment, companies often struggle to attract and retain top talent. Brand has a big role to play in helping companies win the war on talent, as the best people often want to work for the best brands. A post I wrote last year talks about the power of building what we call an employer brand, or the way your company is perceived by potential employees.
A team at the London Business School recently studied the impact of brand on staffing. The results showed that at companies with strong brands, employees accepted lower salaries than their counterparts at comparable companies with less desirable brands. The study found that employees are eager to work for companies with strong brands and are therefore more flexible when it comes to salary, which is typically the sticking point in many pre-hire negotiations.
Brands are incredibly powerful. A strong brand can increase profit margins, differentiate your products and services, and attract and retain the best employees. But building a strong brand is an arduous task, under constant attack and always facing three frustrating challenges: cash, consistency, and clutter, or the Three C’s of Branding. More on that here.