The power of branding

Although not widely accepted to be included on the balance sheet, a company’s brand names are often the most valuable assets the organisation has, reflected in the large price premiums that are paid in takeovers for companies which have a valuable brand portfolio. This article gives an overview of what brands do and how they affect our everyday lives.

Think about your own spending habits and what and why you buy when out shopping. It is likely that you will often favour a shirt with a well-known logo or tomato ketchup from Heinz. What does a brand possess then to make you behave in this way? Brands are said to do the following:

1. They act as a form of product differentiation.
2. Branding leads to more acceptability of manufacturers goods by wholesalers and retailers.
3. It reduces the importance of price differentials between goods.
4. It facilitates self-selection in the self-serve supermarkets of today and makes it easier for the manufacturer to obtain display space in shops and stores.
5. Other products can be added to the brand range to capitalise on the existing goodwill — brand extension strategy.

1 They act as a form of product differentiation
The brand removes anonymity and adds value to your purchase. By displaying a brand on your clothing you are letting people know that you aspire or subscribe to a certain lifestyle, eg Polo Ralph Lauren.

2 Branding leads to more acceptability of manufacturers goods by wholesalers and retailers
Brands make it easier for the retailer to sell the good because of the inherent goodwill built into them and hence many new product launches are coupled with strong brand investment.

3 It reduces the importance of price differentials between goods
People will often quite happily pay up to ten times the price over non-branded variety for a branded pair of running shoes. The reason people are happy to do this is that the brand adds prestige to the purchase and therefore the customer is willing to pay for this.

4 It facilitates self-selection in the self-serve supermarkets of today and makes it easier for the manufacturer to obtain display space in shops and stores.
Consumers will tend to buy products which they trust, and it’s the investment in the brand name which provides this trust.

5 Other products can be added to the brand range to capitalise on the existing goodwill – brand extension strategy
Most modern day product launches involve brand extension strategies, eg Mars ice cream from the chocolate bar, Persil washing up liquid from the laundry detergent, as it is considered an easier way of guaranteeing success. The downside of this of course is if the new products are associated with some bad publicity, this could have a knock on effect on the whole brand portfolio.

Therefore next time you are out shopping be aware that you are a potential victim of a very powerful marketing tool – branding, and that the price premium of the brand does not necessarily correlate to an improved quality product.