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Brand is to business what reputation is to person. Every business has a brand, even if they don’t want one. A brand, just like a reputation, can either be an asset or a liability. Businesses invest millions of dollars on advertising campaigns to establish positive brands (assets) that encourage people to buy. The brand is the bridge between the company and the customer. The brand makes the connection, sustains the relationship, and delivers the real value. Although a rose is still a rose by any other name, the same cannot be said about a brand. A Brand is unique -even more valuable, at times, then the products or services that they represent.
Tangible assets like computers and inventories are easy to quantify. But how does your business measure intangible assets like brands? Every successful brand is built on a central and very compelling set of values that resonate with its customers. When customers relate strongly to a brand, they will pay a premium for it, even if cheaper alternatives exist. How much is that worth to a company? In this article we’ll discuss quantitative and qualitative ways to measure your brand.
Most retailers use a simple accounting equation to measure brand value called the “Brand Value Margin.” Here’s how they calculate it:
Brand Value Margin = Price of Brand Product A – Price of the Generic (Low-Cost Leader) Brand
By benchmarking against the generic brand, you’ll have a quick snapshot of the premium that your brand yields. Almost every industry has a readily identifiable LOW-COST LEADER. It’s the company with the lowest cost per item. Low-cost leaders don’t do a whole lot of advertising or sophisticated marketing campaigns to win people over. They are high volume sales, low margin, and cheap input (labor and materials) businesses. Wal-Mart is the low cost leader in retail industry. Wawa is the low-cost leader in the Philadelphia coffee market. A 16-oz cup of Wawa coffee cost $1.35. At Starbucks, I pay $1.90 for a 16oz Pike Place Roast coffee. Starbucks has a Brand Value Margin of $0.55 cents per 16oz cup. This means that given all of Starbuck’s branding efforts, their brand ultimately yields a $0.55 price premium.
The Classic Brand Formula is a qualitative measure which clearly identifies the type of brand and its three components.
Brand Type = Category + Target Market + Competitive Advantage (Point-of-Difference).
There are three types of brands. Experience brands seek to establish a product or service as a pleasurable or desirable event. Disney World is probably the most well-crafted experience brand in the world. Disney World is a fairy-tale destination location. People come from all over the world to experience the legend of Walt Disney. Customer service focused company are experience brand. Leading customer service companies like Zappos.com seek to enhance the customer experience by far exceeding expectations.
Image brands appeal to your idea of self-worth and identity. Image brands typically use celebrities to associate their products with athleticism, beauty, or some other quality. Nike is best image brand for sports. Functionally speaking, LeBron James’ basketball sneakers are absolutely no different than any generic basketball sneaker. Nevertheless, LeBron’s kicks sell for $160.00 ($101.50 more than the Adidas Commander Lite Td, the low cost leader, on Zappos.com). In 2003, LeBron James signed a 7-year $93 Million deal to Nike even before he took a shot in the NBA. In 2010, LeBron James extended the deal another 7 years for $100 Million.
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Functional brands focus on the utility value of the product. “All-In-One” is an example of functional branding. Secret Clinical Strength deodorant is a function brand. Clinical strength is branded as an antiperspirant. Their commercials depict everyday people in pressure situation, like first dates and job interviews, where sweating would be disastrous.
“Category + Target Market + Competitive Advantage” is fancy business jargon that simply shows the industry the brand competes in, the customers it serves, and its value proposition. For example, in 1998 Tony Hsieh CEO of Zappos.com realized that there were no dominate players in the Footwear e-commerce business (category identified). The mail catalog market was worth $2 Billion. If people were buying via catalog, they’d buy on-line. There were $2 Billion worth of people buying shoes without ever trying them on or actually seeing them in a store (customer identified!). For most brands, the competitive advantage is the source of its value. A competitive advantage is “whatever” you do better than everyone else in the category. Zappos’ advantage is customer service. Zappos’ call center team is super enthusiastic and helpful. If you called Zappos.com right now and asked for a product they didn’t have in stock, the reps are trained to check at least three competitors to help you get what you want right now! If you ask a Zappos.com rep for a pizza, the guy will ask you for your location, and then look up the best pizza spots in your area. TRY THEM!
What is your favorite brand? How do you feel when you interact with it? Brands humanize companies by giving them qualities we can relate to. When building a brand, it’s best to start by selecting a type. Do you want an experience, image, or functional brand? The type of brand you chose will change your business model. Use the Classic Brand Formula to focus your business around your brand. The Brand Value Margin shows the gross profit margin brand. To yield and sustain a high brand value margin, it takes thorough marketing and creativity. By analyzing your favorite brands, and noting the emotional affects they have on you, you’ll learn different ways to make emotional connections and build brand loyalty with your customer base.