Brands are the most important thing for business people and it in facts makes them very excited. That’s because brands are conceptual. They allow us to dream, to think of things other than logistics and pricing and firing people. Reflecting on brands help us escape from the drudgery of work.
However, it’s important to remember that brands are quantifiable financial assets, just like buildings, machinery and oil wells. Moreover, they are incredibly valuable assets, often accounting for more than half the value of a business, so we need to take them very seriously. Here’s four things you should know about brand value and how to increase it.
- A Brand is a Promise
Usually when people think about brands they think about logos and marketing slogans, but a brand is so much more than that. Brand value is the value of promises made and kept.
When using a particular brand you know and trust, you have certain expectations. You value these companies as a consumer you believe in and value their promises. Advertising might introduce promises to us or remind us of them later, but brands become valuable by delivering on them.
Moreover, brands extend far beyond consumers. A branding firm would make promises to investors that they will make wise decisions and pay back loans. They make promises to employees and suppliers that they will deal with them fairly; to communities that they will be good citizens and so on.
Steve Jobs once showed up at a city hall council meeting himself to make these kinds of promises and, as companies from Nike to Microsoft have learned, when they break these covenants there is a real price to pay. Promises broken, even implicit ones, diminish enterprise value, sometimes drastically.
- Brands Have Tangible Value
There is a reason that companies spend billions every year to make promises and go to such great lengths to keep them: MONEY.
An easy way to evaluate how much a company’s reputation is worth is to look at the relationship of market capitalisation to the book value of shareholders equity, which represents the liquidation value of the company’s assets.
Even at a quick glance it tells you that a brand is an enormously valuable thing ($279 billion for Apple) and successful brands can make up to 80% of the total market value of the company. Further, brands are long-term propositions, with some of the most valuable brands over a century old.
You can also see that the value of a brand is independent of the industry it competes in. Apple’s brand is worth a lot, while RIM’s is worth very little. A retail brand like Wal-Mart can be much more valuable than sexy media brands like the ones that Time Warner owns, but not as much as Viacom’s brands. Company performance, not product category, is determinant.
- Tracking Brands
To use a sports analogy, it tells you the score, but not whether you should take that shot from midfield. A good place to start when tracking brands is with awareness, sales and advocacy.
Using all three metrics, we can evaluate conversions. Here’s a simple hypothetical example postulating two brands with equal market share:
Research shows that brand promotion itself can affect how consumers experience products. Some brands have a mystique, others target particular fertile segments, still others attract a cult following.
- Emotions Build Brands
While brands are financial entities, they are built through emotions and they are like a little yellow highlighter in our brains. They’re powerful because they bypass the rational center in our forebrains and go straight to embedding themselves in our brain’s synaptic pathways.
Decision-making tends to be driven by emotions rather than rationality. Great brands are built through emotional associations.
Content inspired by: Digital Tonto