Strong Brands Make Economic Sense

Top-rated brands invariably capture larger market share. In part, their sheer size feeds their growth. This is why branding is such a hot topic today. Strong brands are incredibly valuable and profitable, and once at the top of the list, they tend to remain there. It all comes down to making a customer eager and happy to pay over a hundred dollars for a white cotton T-shirt with the costly German brand "Escada" printed on it in small rhinestones, compared to an identical unbranded T-shirt that might seem overpriced at $14.95.

The following statistics are pulled from a variety of sources, and they all point to the same conclusion: strong brands make economic sense.

Customers pay higher prices and get more involved with brands they love.

• Harley-Davidson's branding has created HOG (Harley Owners Group), a club with 750,000 members, many who have the HOG brand tattooed on their bodies! They pay $40 annually to have a strong taste of the Harley-Davidson experience. ^[33]

• Customers will pay 19 percent more for a leading brand name as compared to a weak brand. ^[34]

• Eighteen percent of a consumer's decision to purchase is determined by brand issues. ^[35]

• Once consumers buy a branded product or service, they become more aware of the brand's advertising. This, in turn, leads to more sales. That first buy is critical for the brand. ^[36]

  Strong brands impact stock prices and profitability.

• Strong brands command stock prices between 5 and 7 percent higher than weak brands. ^[37]

• Tangible assets of a typical organization today are evaluated to comprise a mere 25 percent of the value of an organization. This is a big switch from thirty years ago. John Murphy, a UK branding guru, points out that tangible assets used to make up 80 percent of the value of a company, though he admits that valuing brand equity is "an altogether imprecise science." During the 1990s, brand assets (patent rights, intellectual property, copyright and other trademarks) were valued at 75 percent. ^[38] In the late 1990s, the book value of Coca-Cola (the number one brand in the world) was less than 10 percent of its total value. In other words, 90 percent of Coca-Cola's value is intangible, most of it coming from the brand itself. ^[39]

• Investors, too, are becoming much more concerned about this issue, placing increased emphasis on strategies around intangible values, such as brand and customer loyalty. In a series of studies of UK institutional investors through the 1990s, Brand Finance, a leading independent brand valuation agency, found that the importance placed on branding increases every year. And over 70 percent of investors demand more information from companies regarding their brand strength and values. ^[40]

  Strong brands have more loyal customers and staff.

• Companies with customer loyalty rates that are above average enjoy a price-to-earnings ratio twice that of competitors'. ^[41] Perhaps because of this, customer loyalty is the highest ranking topic that CEOs think and worry about. ^[42]

• More employees stay with a company when the company lives its brand internally, and this impacts profit margins. Frederick Reich-held found that fast-food stores with lower employee turnover (the average in the fast-food industry is 100 percent!) have profit margins 50 percent higher when compared to stores with 150 percent staff turnover. ^[43]

• "Strong brands more easily leverage selling efforts into sales success" is an idea supported by a study on institutional brand perceptions and marketing effectiveness. For money managers who are affiliated with branded financial institutions, this makes prospects more likely to become clients. ^[44]

• Even though some in-store brands are taking market share away from the big national brands, study after study reveals that consumers trust branded FMCG products more than they trust private store brands. For example, in data that crosses national lines, consumers indicate that they trust branded pet foods by over 50 percent when compared to private store brands. ^[45]

• A brand that is number one in its category is trusted at significantly higher degrees than the second, third, or smaller brands in a product category. Consumers also believe that the top-ranked brand—regardless of the product or service—cares more about its customers, stands for family values, and produces wholesome products. ^[46]

• Brand leaders have disproportionately higher brand preference and loyalty than that achieved by the weaker brands. For example, a brand with twice the brand recognition will typically command three to four times the brand preference and loyalty of competitors. ^[47]

If all or even a portion of the above statistics are accurate—and the people who have created them will certainly attest to the robust nature of their brand research—then integrated brand development is a strategic driver that organizations cannot ignore. In short, magnifying the strength of brands with aligned customer service delivery is a solid business decision.

^[33]Harley-Davidson Web site, http://www.harleydavidson.com.

^[34]D. Court, "Uncovering the Value of Brands," The McKinsey Quarterly 4 (1996): 176–178.

^[35]Court, "Uncovering the Value of Brands."

^[36]G. Tellis, "Advertising Exposure, Loyalty and Brand Purchase: A Two-Stage Model of Choice," Journal of Marketing Research 25: 134–144.

^[37]Corporate Branding, LLC, http://www.corebrand.com.

^[38]Colin Lewis, "Murphy's Law Is Art of Measuring Brands," Birmingham Post, February 26, 2001, and "Brand New Day for Marketing Research," Birmingham Post, February 12, 2001.

^[39]Desmet et al., "The End of Voodoo Brand Management," The McKinsey Quarterly 2 (1998): 106–117.

^[40]Brand Finance, http://www.brandfinance.com.

^[41]Satmetrix Systems 2001 research. Referred to in Shaun Smith and John Wheeler, Managing Customer Experience (London: Prentice Hall, 2002): 27.

^[42]Melissa Berman, "The CEO Challenge: Top Marketplace and Management Issues, 2001," The Conference Board (January 2001), http://www.conference-board.org.

^[43]Frederick Reichheld, The Loyalty Effect (Cambridge, Mass.: Harvard Business School Press, 1996).

^[44]Research conducted by Eager Manager Advisory Services, July 2000. As reported in Tom Kellerhals, "Intellectual Capital," Financial Service Marketing 3, no. 5 (July 2001): 40.

^[45]Kirkland, the big Costco store brand, is steadily eating away at big Procter & Gamble brands. Wal-Mart's OI'Roy dog food has surpasssed Nestle's Purina as the world's top-selling dog food. Boyle, "Power Shift."

^[46]As reported in T. Ambler, "Do Brands Benefit Consumers?" International Journal of Advertising 16, no. 3 (1997).

^[47]Ambler, "Do Brands Benefit Consumers?"