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Why brands matter

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Why read this? : We explore why brands matter. Learn from our examples how branding helps you charge more, get more space and connect better with customers. Read this to learn the long-term benefits of building brilliant brands.

Brands are part of the holy trinity of marketing.

Along with customers and activation, you’re not marketing if you’re not building your brand. 

However, not everyone buys into this.

Particularly those who control the purse strings and decide how much to invest in brand-building.

Three-Brains logo on brand design background

Marketers often find themselves having to show decision-makers and finance teams why brands matter. To show why branding delivers such a strong bang for its buck. That’s why this week we explore how you persuade the sceptics that brands matter. 

Why brands matter

There’s much evidence to show strong brands drive overall company performance. For example, look at the graph from this historic Brand Z study from Kantar Millward Brown.

It tracks the market value performance of “Strong Brands” against the average of the S&P 500 and MSCI. (A global weighted average of all stocks).

You can see that strong brands deliver superior value and shareholder return over a longer time. 

2007 to 2017 Line Grab showing Brand Z Strong brands grew 124.9%, S&P500 brands grew 82.1% and MSCI brands grew 34.9%

According to this, the return on $1 invested in a ‘strong brand’ company would be almost 4x higher than that invested in the ‘average’ company.

This extra return from strong brands is driven by :-

  • pricing – the higher price customers pay for a strong brand based on its differentiated positioning.
  • space – strong brands occupy more space e.g. physical space in-store or virtual space in an online shop. 
  • customer connection – strong brands have higher brand awareness, consideration, trial and loyalty rates.

Why brands matter - pricing

If brands didn’t exist, customers would see all products as interchangeable commodities. They’d all be priced similarly and customers would buy the cheapest every time.

And in a way, most products are interchangeable in terms of what they do.

Any bottle of water will quench your thirst. Any kitchen towel will wipe up spills. And any car will get you from A to B. There’s an argument that similar products should all be the same price.

Front on image of the bonnet and grille of a black Audi car

But that’s clearly not how customers look at products. It’s not how most categories work. Brands use branding to differentiate themselves. To offer extra benefits and justify charging more than competitors. There are many ways to do this. For example, you tell stories about your premium ingredients or materials. Improve your design style. Run creative advertising campaigns. Get endorsements from key influencers.

Unless you follow a cost leadership competitive strategy, these differentiation points help you establish and own a specific positioning in your category

This helps you find more loyal customers who buy into your brand. They don’t choose on price. Instead, they choose based on specific, relevant benefits and a shared purpose and values. These customers happily pay a premium as they perceive the brand offers them something beyond basic functionality.

Take cars, for example. Audi is owned by Volkswagen. Underneath the exteriors, their cars share many of the same parts. Yet Audi customers and Volkswagen customers are very different. Audi buyers pay more for their cars as they believe the Audi brand offers them something more. 

You also see this price difference from branding in more everyday categories. Let’s look at some examples from online grocery.

Example : Kitchen towels

(source : Woolworths online)

All products in the kitchen towels category have similar functional benefits. They’re made from similar materials. Every product cleans up kitchen spills and is made from paper.

It’s also a category where there’s no strong emotional attachment to products. You stick them in the bin after you use them.

So you’d assume prices for all the products in this category would be similar. 

But look closer, and that’s clearly not the case. Look at the differences in price per 100 sheets. From $0.85 (Woolworths Essentials pack) up to $2.44 (Handee Ultra). Handee costs almost 3x as much per sheet as the Essentials product. Yet it does exactly the same task.

Handee buyers pay that because of the brand’s strength. It makes customers feel OK paying more for it.

Even if you ignore the own-label product, the next cheapest is $1.79 per 100 sheets. So you still pay a 30%+ premium on Handee versus that.

Handee customers clearly believe it does something more than just clean up spills. Maybe it lasts longer? Somehow soaks up spills better? Maybe even that it’s better for the environment? Whatever the extra perceived benefit, it means that Handee makes more from every sale than its competitors. That profit and loss benefit is a big argument for why brands matter. Strong brands earn more from every sale. 

Example : Bottled water

(source : Coles online) 

Let’s look at an even more striking example, bottled water. This time in Coles.

Among these 12 products, the cheapest is the Frantelle at $0.76 per 1L. But you could pay a whopping $8.33 per 1L if you fancied the Voss Artesian Still water.

Functionally, these are the same product. Water. Good old H2O. They do the same thing. Thirst relief.

Screengrab of Coles online bottled water page showing 12 different bottled waters to choose from

But the power of the Voss brand drives a more than 10x price premium over the cheapest alternative. They won’t sell as many bottles. But they make 10x more on every bottle they sell. 

You see this play out in almost every category. Strong brands charge a premium as they know their customers are willing to pay it.

It doesn’t necessarily mean strong brands are always the most expensive. Strong brands can also play in the middle of the price range. For example, Kleenex. Evian in bottled water. But there’s a consistent pattern. Strong brands usually charge more and are more profitable per unit sold.

These strong brands find positioning that takes them beyond functional benefits and price. They use these to attract customers willing to pay for something more. 

Strong brands’ profit and loss are healthier. They’ve less need to run price discounts and promotions to drive sales. They know loyal customers will buy the brand no matter the price. Any price promotion is only ever to drive trial by new customers and hit short-term sales objectives. Long-term, strong brands don’t rely on price which is another argument for why brands matter.

Why brands matter - space

Another benefit strong branding offers is it makes the brand more visible and memorable. Which means it sells more.

This enables it to get more space in selling locations. Which means it sells even more again. A positive and profitable selling loop to find yourself in.

Go down any supermarket aisle and look at how much space each brand gets. The strongest brands get the most space in-store (and online) because they’re the most in demand.

Supermarket central aisle with lots of displays and signage on view

Prime locations go to strong brands. Cadbury in the chocolate aisle, Coke in soft drinks and so on. 

The reason they get that space is because they invest in building their brands. Advertising campaigns. PR events and sponsorship. Displays and promotions at key times of the year. 

Let’s look at some more examples from online grocery to show this branding space advantage in action.

Example : Breakfast cereal

(source : Woolworths online)

This breakfast cereal example shows the first 12 products in the cereals “aisle” at Woolworths online.

We can see 8 Kellogg’s products, 3 Weet-bix products and an advert for Nestle.

There are 129 products in the total cereals category. But only 3 brands feature on this entry page. The prime location space goes to the biggest 3 brands. And one of them had to pay to appear. 

Screengrab of Woolworths breakfast cereal page showing 12 different cereals to choose from

Shopper behaviour tracking data shows most customers buy the first product that meets their needs enough (called satisficing). They don’t review all available choices. These 12 options would be enough for most people unless they already had a specific brand in mind.

As in many categories, there’s Choice Overload. When there’s too much choice, customers pick the first one that’s good enough. Or they don’t choose at all.

A well-known behavioural science research study called the “Jam experiment” showed this in action. Supermarket customers saw 2 different displays of jam at different times. One was a small selection, the other a very large selection. More people stopped to look at the larger selection. But more customers actually bought from the smaller selection. Overall sales were significantly higher when there were fewer products to choose from.

Too much choice overwhelms customers and they walk away.

Choice overload squeezes out smaller brands

It used to be thought that 7 options plus or minus 2 was the optimum range customers could handle. This is based on a famous 1950s psychology paper by Harvard Professor George A. Miller. 

However, as per our design psychology article, more recent research by Nelson Cowan showed it’s more like 4 (plus or minus 1). 

This is based on the maximum number of chunks of information people can comfortably hold in their working memory.

Man on apartment balcony holding hand in front of face to say stop

If you’re the market leader, you can use that insight with retailers to keep smaller brands out. You aim to maximise the space your brand occupies by encouraging retailers to stock fewer options on the basis that too much choice reduces sales. Your brand as the leader and only the next 3 competitor brands. 

It’s usually easier for customers to pick from the trusted / valued brands they know than spend time researching to find something better. If you’re a challenger brand, you need strong arguments to make sure you’re one of those stocked brands put in front of customers.

Example : Toothpaste

(source : Coles online)

Another example to show why brands matter in terms of space is the toothpaste category. In this example, there are only 2 choices – Colgate and Sensodyne. These brands dominate the space and stop other brands from getting in. This is down to the power of their branding.

That’s not to say other brands can’t compete against market leaders. But it’s more challenging.

As a challenger brand, you have to think of a way around the leader brand’s dominance. It’s about finding a positioning that matters more to some customers than what the leader offers. You use this to get customers out of the habit of buying the market leader and into the habit of buying you instead. This positioning strength helps make sure you get space in front of customers when they’re ready to buy.

Why brands matter - customer connections

Finally, strong brands also take up more mental space in customers’ minds. They create stronger connections with them.

Customers see these brands advertise and promote more often, and see them more often in-store and online. That makes strong brands feel like a safe choice for many buyers. 

Market leaders become market leaders by creating strong brands.

man in a blue T-shirt looking at the ceiling

Even cost leaders still invest in advertising and promotions. They spend heavily to remind customers who they are and why they should buy them.

This investment and focus on brand building means strong brands are :- 

  • more likely to be chosen the first time someone buys.
  • more likely to be chosen when that person buys again.

In other words, they sell more because they have higher awareness and create more loyal customers. 

Both of these benefit your profit and loss long term. And ultimately it’s this commercial return on all your marketing effort and investment which underpins why brands matter.

Conclusion - why brands matter

There are 3 main reasons why brands matter. 

First, they help you move away from being an interchangeable commodity.

Branding supports a differentiated positioning with your target audience and helps you charge a higher price those customers are willing to pay. You earn more per unit sold. 

Three-Brains logo on brand design background

Strong brands also demand more space in-store and online. Retailers give them more visibility in prime locations as they know those locations will drive even more sales. A beneficial selling loop.

And lastly, brands help drive stronger customer connections. They create stronger mental associations so that customers buy into what the brand stands for, and are more likely to stay loyal to it. Great for building long-term profitability.

Check out our brand development guide or our brilliant branding article for more on this. Or get in touch if you need help showing why brands matter.

Photo credits

Audi Car Bonnet : Photo by Velito on Unsplash

Supermarket : Photo by Hanson Lu on Unsplash

Hand / Stop : Photo by Nadine Shaabana on Unsplash

Man looking at ceiling : Photo by Anton Danilov on Unsplash

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