Why branding is an investment and not an expense

Published in Philippine Daily Inquirer, Business Friday, December 7, 2007

The world competitiveness roadmap charted by the IMD (International Institute for Management Development) from 2007 to 2050 cites brand management as a key area of competitiveness in a world of globalization. This means that while there is a continued demand for commodity products and services, brands are more likely to generate consumer loyalty and survive hyper-competition from local and global players.

Why brands are becoming important

Time is valuable. Technology and world urbanization has led to major changes in consumers’ lifestyle that has become increasingly fast-paced, with people having little time to spare. Thus, purchase behavior is driven by what consumers know and are familiar with even before they step into the retail area. Here lies the value of brands that have over time established their names, meaning and differentiation versus other category players in the minds of consumers. Consumers at a snap are able to decide what brand of product or service to buy due largely to stored mental information thus, wasting no processing time at all.

Brands add value beyond function. As world economy improves and there are more consumers belonging to the middle class, buying motivations change from being entirely functional and driven by price to one that is more emotional where purchases are made because the product or service brings a smile to the consumers lips, is like a social badge or is a means to help a remote village in Africa. At the very least to many, brands provide the guarantee of making the right purchasing decision when faced with a multitude of choices among competitive products or services.

Competition is no longer local but global. The entry of global players in many country markets is a threat that domestic or national players can only overcome by making investments to own a place in the consumers’ minds. While local brands may have no intent to bring their product or service overseas, this does not prevent foreign competition to move into local territory. At the very least, owning a space in the customers mind guarantees the product or service provider fair play in the market.

Brands have a sustainable life span versus commodity products. There goes the saying, “out of sight, out of mind”. If consumers are not familiar with the product or service name, what it can do differently from others, or what it can do best, it is likely that consumers will not recall or remember anything about the product when the need to purchase the same arises. This is the reason why global brands like Coke, McDonald, Toyota, Honda, Nescafe, Sony, etc. continue to invest in marketing communications despite massive awareness. Global brands protect the space they have earned in the consumers’ minds over time and through one generation of users to the next.

Table of Net worth of the world’s 100 Most Valuable Brands

2007 RankBrandCountry ofOriginBrand valuein US$B
1Coca ColaUS65.32
10Mercedes BenzGermany23.56

Source: Interbrand 2007

Brands are company assets. The worth of a brand is much larger than a commodity. The net worth of a successful brand is at the very least assessed over the period or years that it is likely to generate purchases and sustained customer loyalty. Thus, the net worth of companies with more than one successful brand has much greater value over companies with several commodity or unknown products or services in its roster.

Why companies fail to brand

People at the top fail to walk the talk of branding. Branding is no easy task. It requires a culture that stems from the top where brands are treated as assets and not as expense items.

The American Marketing Association has updated its definition of brands as a set of values implied by a product, service or experience and is not only a symbol or signifier, which is usually an artifact such as a logo or logotype.

This means that when a marketer has branded a product or service as premium in its category and intended for the affluent, this should not be mere rhetoric. The company must provide the support infrastructure designed to serve the needs of those with high disposable income. Because affluent products or service demand exclusivity of use by a certain segment of the market who is willing to pay the price, all other services wanted by this discriminating target market must be met by the company.

Branding is not immediately equated to sales. Branding is a strategic mindset, process and culture. It is not a sales activity. It is the summation of the value that consumers perceive about a product or service. To establish this value and perception, companies need to invest in marketing and branding efforts and effective marketing communications to solidify the brand’s space in the minds of the consumers.

The success of the branding exercise is measured through market research. When market research is able to validate a brand’s positive position in the minds of the targeted market, market share is likely to follow. And when this position is maintained over time, market share is sustained.

Companies are overwhelmed by the expense behind brand building. Most investments are not cheap but because it is an investment, greater returns are expected in the future. If the branding exercise is effective and efficient, then the company is not wasting resources.

Burned by inefficiency. A good number of companies fail to pursue long-term branding due to a previous unhappy branding experiences. This usually happens when branding is left solely to the advertising, PR and marketing communications companies and to the inefficient hands of pseudo-marketers. Branding is the company and the marketers’ accountability, not the ad agencies. Branding is too big an investment to be left to a third party who is not fully privy to the vision, mission, directions, operations and finances of the Client organization.