The value of brands

by | 7 Jul, 2017 | General, Value of brands

That brands are valuable is not a universally-held truth. Some consider them smoke and mirrors to sustain high prices, catalysts for unnecessary consumption or vehicles of cultural homogenisation. Others think and act differently, particularly if specific brands rather than brands collectively are considered. To them, their brand is a font of understanding, a frequently-used tool, a preferred choice, perhaps part of their self-expression and often worth a premium.

How can such disparate views be reconciled? The answer may lie in what is meant by ‘brand’ and where the power lies, with the company or the individual. There is a big difference between product or logo and brand and it is based on perspective. The company controls the product and logo but the brand is the individual’s.

Brands are profoundly personal. They rest in the hearts and minds of each of us and have been formed over our lifetime by our experiences and knowledge. They shift and change continually, keeping up-to-date and are the lodestones that guide us. Jeremy Bullmore in his Brand Lecture Posh spice and Persil likens the way we each form our brands to how birds build nests, using scraps and straws from many sources. Those nests are continually under construction.

As individuals we would barely function without brands. They help us navigate markets, understand the choices we face and inform our decisions, using what Daniel Kahneman termed ‘Fast thinking’. This is particularly true in low engagement or complex categories and self-service environments, whether supermarkets or online.

Here, pack designs, whether logo or other design elements, act as heuristics (mental shortcuts) that trigger brand memory and understanding in milliseconds. Colour and shape are particularly influential, much more so than words (which are such an effort to read) and a pack or screen may feature a number of heuristics with different meanings.

Sensodyne has one set of distinctive values, instantly conveyed by on-pack heuristics, while product variants, whether toothpaste (repair, whitening or enamel protection), mouthwash or toothbrushes, have a further set of values and benefits conveyed by additional graphic elements. They work together to give a shopper a good and reliable level of product understanding without having to read a label.

We may all like to think we are super-rational, analytical beings and make well-informed decisions using on-pack or in-pack leaflet information (what Daniel Kahneman terms ‘slow thinking’) but this is not how we shop, at least not for everyday items. That level of product understanding is hard work and most of us simply don’t have the time or can’t be bothered.

Companies invest heavily to ensure heuristics are positive. Trust is an important driver of advocacy and growth and trust is driven by many factors, including being considered an innovator, current and prestigious (reputable). However a reputation for consistent good quality is the most important driver of all, so companies have a vested interest to sustain the values for which they are known.

As shoppers, we buy brands, not products. A product is a combination of ingredients. A brand comprises those ingredients but with many many added layers of additional information and intangible value derived from personal experience and preference and, yes, perhaps even emotional attachment. A long-established familiar product from a favoured supplier is likely to be more valuable to an individual than an identical product from an unknown supplier. It may engender higher levels of trust, carry lower levels of risk and have a more relevant reputation. The values may be intangible but they are real nevertheless and affect the price we’ll pay. That is the brand at work.

Brands have been described as democratic. As Andy Warhol noted, “A Coke is a Coke and no amount of money can buy you a better Coke than the one the bum on the corner of the street is drinking.” They are democratic in a wider sense too in that they help us all understand and navigate markets. Often we will know what we’ll buy before we enter the store but once inside we will use certain brands to navigate, even if we have no intention of buying them. Shoppers seeking carbonated drinks will look for Coke and shoppers for toothpaste will look for Colgate, navigating in more detail from there.

Arguably every product has an associated brand, though some are better managed than others. What matters in any assessment of value is the extent to which the brand prompts purchase, drives loyalty, stimulates endorsement, commands a higher price and engages more individuals.

The question of value immediately begs the question, “To whom?”.

To the individual, the value is unquantifiable but significant. Brand-based choices are fast, low in search costs, low in risk and deliver consistent experiences. As companies vie for our preference, wider benefits accrue in terms of wider choices with different functional and intangible attributes, stronger competition (and its associated lower prices) and ever-improving offers continually coming to market.

For companies, value derives from the number of individuals reached and the strength of their brands, the predictability of future purchase (future cash flow), the scale of any price premium and the loyalty commanded. It has been estimated that 30% of global corporate value rests in brand (Millward Brown Optimor). That value seems resistant to turmoil, with the value of the top 100 global brands growing by 19-24% between 2008 and 2013 despite the global downturn (WIPO).

In terms of value to the wider economy, studies have focused on the performance of companies with trade marks. A trade mark, as an ownable signs of origin, allows companies to capture and protect investments in reputation and is therefore considered a proxy for brands. Companies with trade marks are positively correlated with higher productivity, higher employment and higher wages (UK IPO). An EU study last year found the UK’s trade-mark intensive industries generated over €762 trillion of value added (second only to Germany), over 38% of GDP and employed over 6 million people, a 21% share of all employment (EU IPO and European Patent Office). This makes trade marks by far the most valuable of all UK intellectual property rights, generating more than double the value added and double the jobs of the next most important IP right (patents and designs respectively).

As the UK faces an independent future and as the internet and global trading multiply the choices we face, the importance and value of brands to individuals, companies and the UK economy can be expected to grow and grow.

For more on the nature of brands, see Jeremy Bullmore’s Brands Lecture
For more on fast and slow thinking, see this YouTube clip
For more on heuristics, see Rory Sutherland’s Brands Lecture (page 8)
For more on the drivers of brand trust, see this study
For more on how we use packaging, see this study
For more on the economic performance of IP-intensive industries, see this study
For more on the Brands Lecture series, see the Group’s website

Originally published in PAGB’s member e-newsletter, Spotlight (July 2017).  PAGB is the UK trade association which represents the manufacturers of branded over-the-counter medicines, self care medical devices and food supplements.