A brand is an identity that customers associate with a company or its products and services. A brand is therefore similar in some ways to the family name for an individual.
The English term brand comes from the old Germanic word brennen, "to burn." From this, branding at first referred to the practice of burning the owner's distinctive symbol into the hides of animals. As a result, animals carried a brand for life—indelible proof of ownership. In business today, of course, brand and branding are marketing terms. Branding is essentially the process of "burning" an identity into companies, products and services, a process better known as building a brand identity.
Brand owners know that brand identity is successfully established in customer minds when customers display an automatic reflex-like association linking the following together:
- The brand name.
- A specific product, service, or company.
- Attributes such as desirability, reliability, popularity, superior design, high quality, or exclusiveness.
Companies pursue branding for themselves and their products because successful branding helps achieve several kinds of business objectives:
- Firstly, successful branding enhances competitive advantage. The brand itself becomes one reason for choosing the firm's products over competing products.
- Secondly, strong branding enables the firm to charge premium prices for its products. This branding benefit is brand equity. And brand equity, in turn, enables the firm to earn higher margins than competitors with weaker brands.
- Thirdly, successful branding strengthens customer demand and customer loyalty.
It should not be no surprise, therefore, to find that many firms position branding as a high priority objective in key business strategies. Branding objectives are central in in the firm's high level competitive strategy, as well as lower level strategies for marketing, products, pricing, and sales. (See the article Business Strategy for more on these strategies).
Explaining Brand in Context
This article further defines, explains and illustrates the term brand and in context with related terms and concepts, including the following:
- Defining brand and branding.
- Who is responsible for branding? Where do branding objectives come from?
- How do firms establish a brand?
- Why measure branding success?
- Who conducts research on brands and branding.? Where do they find branding data?
- Market research: How do marketers measure branding?
- Brand equity is a valuable asset. But, is brand equity a Balance sheet asset?
- For a complete introduction to competitive strategy, see Business Strategy.
- For more on pricing strategies and customer demand, see Pricing.
In private industry, branding objectives and branding activities begin, ultimately, with those responsible for the company's high level generic business strategy. The essential purpose of the strategy, after all, is to set the firm's high level business objectives and then explain specifically how the firm plans to reach them.
In competitive industries, the high level business strategy is rightly called a high level competitive strategy. In this context, the firm defines and sets branding objectives to help explain how the firm will meet several kinds of strategic business objectives.
Firstly, Product, Service, and Branding Objectives Explain How the Firm Differentiates Itself
The competitive strategy describes how the firm differentiates itself and its products from competitors. Companies may choose, for instance to differentiate on attributes such as these:
- Product quality and reliability.
- Product features and capabilities.
- Superior design and aesthetics.
- Exclusiveness and privileged status
- Desirability and popularity.
- Low cost or value for money.
Many different differentiation strategies are possible, of course, even for firms in the same industry selling similar products or services. Southwest Airlines (in the US) and Ryan Air (in Europe), for instance, have strategies and brands based on providing low cost transportation. The strategy for Singapore Airlines focuses instead on brand image for luxury service and exclusiveness. Other carriers, such as British Air, Lufthansa, and Qantas also brand with a focus on in-cabin service and comfort, while de-emphasizing exclusiveness. In any case, branding ensures that customers have in mind a unique image for each airline.
Competitive strategies use differentiation objectives to show in concrete terms exactly how a firm expects customers to distinguish itself from competitors. A complete high level strategy can present several kinds of differentiation objectives:
Differentiate with Product Objectives
The competitive strategy defines and targets product objectives in terms of product attributes such as product quality, reliability, capabilities, features, or design aesthetics. Low cost production can also serve as a product objective. When actual production reaches these objectives, the basis for differentiation is real.
Differentiate with Service Objectives
Service objectives may refer to customer service for products (above) or the service itself may be the product. The competitive strategy may target differentiation attributes that include service delivery that is fast, effective, comprehensive, courteous, inexpensive, or guaranteed for a long time period. When actual operation reaches these objectives, the basis for differentiation is real.
Branding Objectives Make Differentiation Work
Product and service differentiation may be real, but they have value in the marketplace only when customers automatically associate differentiation attributes with specific products, services, and companies. Consequently, to make differentiation work, competitive strategies must also define and set targets for branding objectives.
High level strategies typically define and target branding objectives in terms of tangible branding metrics. These are branding attributes they can measure objectively by surveying customers and observing customer buying behavior. Branding metrics for this purpose usually include brand recognition, brand recall, brand association, and brand loyalty. (Sections below define and explain these terms).
Secondly, Branding Objectives Help Explain How the Firm Achieves Acceptable Margins
The heart of the high level competitive strategy is the firm's business model. Models for this purpose have the structure of a simple pro-forma Income statement. As a result, the business model reveals future margins—gross margin, operating margin, and profit margin. When developing or proposing strategy, the firm builds a quantitative example of the model using the firm's actual cost structure, pricing model, tax liabilities and estimated sales revenues. In this way, the quantitative model provides a "reality check" for strategy developers. The model shows, in other words, whether or not a proposed strategy leads to acceptable margins.
Branding objectives play a key role in making sales revenue estimates for the pro forma business model. In order to project revenues, the firm must estimate (1) unit sales and (2) selling price.
- Projected unit sales, in turn, depend on the firms expected market share, competitive win rate, and customer demand. The firm sets quantitative targets for all of these, assuming that the firm meets its branding objectives for differentiation (previous section).
- Projected sales revenues also depend on expected selling price and customer demand. These, in turn, depend on the firm's ability to reach target levels for brand equity (the ability to charge premium prices).
Branding is the process of establishing a successful brand. In some cases, a company's own marketing department creates brand names and brand images as a marketing activity. In other cases, companies hire brand and image consultants specifically to create brand names and images. And, in still other cases, company marketers simply try to establish the existing company name as the brand.
Sometimes, of course, company name and product family name both add branding impact for products. Familiar examples of company and product names working together this way include "Microsoft Windows" and "Apple iPhone."
Success with a New Brand Name.
For a new brand name, owners typically start the branding process by pursuing two objectives. They will focus on:
- Firstly, establishing brand awareness.
Brand awareness is achieved when:
- Customers recognize the brand as a name they have seen before. They may even recall the name when asked for names the leading brands.
- They know something about the product and its uses. And, they know something about the company.
- Customers also know some qualities supposedly associated with the brand.
- Secondly, establishing high levels of positive sentiment for the brand.
When brand name and image evoke positive emotions, the brand achieves brand franchise or brand love.
Achieving Brand Awareness Through Promotion
Companies typically pursue brand awareness through informative promotion, such as traditional advertising. All of the traditional media are candidates for this purpose, including broadcast media, internet promotion, print media, direct mail, billboards, and public posters. They also pursue brand awareness by sponsoring popular events—entertainment events or sporting events. And, they can pursue brand awareness by sponsoring community organizations, recreational facilities (such as parks or playgrounds), or cultural resources (such as museums). And, they can pursue brand awareness by offering and promoting special sales events.
In addition, marketers also try to catch the attention of writers and speakers whom they do not pay for promotion. These may include professional critics, industry analysts, product reviewers, trade press reporters, and even news reporters. Brand owners sometimes refer to positive reviews from these sources as "free advertising."
Branding for Positive Emotional Response (Positive Affect)
If the brand itself is to evoke positive affect—good feelings—customers must first associate the feeling with the brand in their own minds.
- Branded products that are well received with high customer satisfaction will naturally build the association over time.
- Marketers, however, will attempt to accelerate and strengthen association through promotion meant specifically for that purpose.
Most people have seen commercial advertisements that carry very little factual information, but which show branded products with attractive people who are having fun, being admired, winning sports events, or otherwise enjoying themselves. And, some brands are well known for using ads that feature cute animals, young children, or celebrities—all of which tend to evoke warm feelings.
In the language of experimental psychology, these ads try to build a conditioned emotional response to the brand name or brand image. One famous example from the early 1970s is Coca Cola's ad series featuring the song "I'd like to teach the world to sing in perfect harmony."
Company strategists and marketers take a keen interest in measuring the progress and success of branding efforts for two reasons:
Firstly, Companies Spend Heavily on Branding Efforts
Branding efforts, after all, typically account for a large part of the company marketing budget. And, marketing budgets in turn account for a large part of overall spending in many companies.
Gartner Group1 and Vital Design2 analysts, for instance, estimate that technology companies on average spend about 10-12% of their sales revenues on marketing. Some companies, such as Oracle, spend as much as 20% of revenues on marketing. And a few others spend much more: Twitter spends 44% of revenues on marketing, while Salesforce spends 53%.
Note especially that branding objectives and branding activities are center stage throughout each of the traditional four P's in marketing—promotion, product, placement, and pricing. It is reasonable to conclude, therefore, that much of this spending is rightly seen as the firm's investment in branding.
Management and owners naturally ask: "Are we earning acceptable returns on our branding investments?
Secondly, Branding Strengthens Brand Equity, Competitive Advantage, and Customer Demand.
Management and owners also take a keen interest in measuring branding success because branding contributes to meeting several of the firm's high priority business objectives;
- Successful branding can result in brand equity for products and service. This means that the firm can charge premium prices for products and services, compared to competitors with weaker brands, or to unbranded products.
With brand equity, customers are in effect paying something just for the brand itself. And, brand equity has value because it translates directly into higher sales revenues and higher margins.
Fort this reason, successful branding contributes to meeting the firm's objectives for margins and profits.
- Successful branding can strengthen competitive advantage. With strong branding, the brand itself becomes part of the reason customers choose one firm's products over competitors.
As a result, successful branding contributes to meeting the firm's objectives for competitive win rate and market share.
- Successful branding can strengthen customer demand. From the customer viewpoint, the brand itself has value that adds to overall product value.
In this way, successful branding contributes to meeting the firm's objectives for unit sales and sales revenues.
What do Success Metrics Say to Management and Owners?
Branding metrics are one factor that analysts use when setting targets for the firm's objectives in brand equity, competitive wins, margins, and sales revenues. In this way, meeting branding objectives becomes a requirement for reaching the higher level strategic objectives.
- When progress towards branding objectives is weak, management has an early warning that success with the higher level objectives may be at risk.
- Conversely, when progress towards branding objectives is "on target," the message to management—absent other problems—is that progress towards the higher level objectives is also on target.
Brand owners normally maintain some level of ongoing brand research by their own marketing specialists. Often, however, they hire third party consultants or firms specializing in this kind of market research for actual customer contact and branding measurement. They use outsiders for this purpose because they know that third parties can be more objective than brand owners researching their own brands.
Working with customers, for instance, outside researchers may not even tell customers which company sponsors the study. This practice is based on a belief that sponsor anonymity leads to more objective, unbiased customer responses.
How Do Brand Researchers Obtain Branding Data?
Researchers typically use several different methods for obtaining customer branding data. These may include one or more of the following:
Direct Customer Surveys.
Researchers can interview customers directly or present them with survey questionnaires. Those selected for this purpose may include customers who are:
- Shopping at the business site, either before or after purchase.
- Shopping online, immediately after they make an online purchase.
- Members of the target market reached by telephone or email surveys.
The challenge with this approach, of course, is to select customer groups that represent a statistically valid sample of the overall market. One problem in this regard is that survey participation is—and must always be—voluntary. Often, the majority of customers who choose to participate in surveys are those who already have strong positive or strong negative opinions about the brand owner.
Online Search Queries and Click-Through Rate
Search engine consultancies and the search engine providers themselves provide statistical summaries of online search queries.
- Summaries may include the number of searches in a designated time period for key words that are brand names, such as Nikon, Armani, or Mercedes Benz.
- They may also report the number of "views" or click-throughs resulting from search engine responses.
- Search summaries may also log search phrases that reveal reasons for asking about specific brands. Marketers will want to know how many people search with phrases like these: "Where can I buy the latest Nikon camera?" Or, "Where is nearest repair shop for my 1990 Mercedes Benz ?"
Search summaries of this kind can serve as a very good measure of overall brand awareness—at least for the population of active internet users in geographical areas served by the major search engines.
Beyond this, however, brand owners are well aware that market information they can extract from search summaries has limits. This is because search providers, in the current legal climate, are very sensitive to user concerns about online privacy.
- Firstly, the major search engines allow searchers to use a so-called "Secure search." This means that the individual searcher's identity and demographic details are hidden from the search provider. Secure search, in fact, is becoming the default search mode with the major search providers and the major browsers.
- Secondly, even when they do have detailed demographic information about individual searchers, the major providers will not sell or otherwise make that information available to the public.
The focus group study is the best known qualitative approach for the study of branding. This is a facilitated and directed discussion with customer groups. Brand owners sponsor focus group studies in order to assess customer attitudes—likes and dislikes—about their companies and their products and services. Often, the sponsors are also interested in learning customer attitudes towards their competitors.
A typical focus group study may have these characteristics:
- The focus group provider invites about 10 to 20 customers to participate in a discussion. The provider confirms first that invitations go only to customers in the sponsor's market. Participants must belong to the sponsor's market, but they do not have to be customers of the sponsor.
- Participants learn in advance the nature of the product or service they will discuss. They may be told, for instance, that they will discuss their attitudes about "Courier delivery services."
- They also know from the start some or all of the brands or companies they will discuss. Participants may be told, for example, they will discuss "FedEx, United Parcel Service, and "DHL." They are not told, however, which of these sponsors the focus group study.
- Participants meet around a boardroom-style table for a 1-2 hour discussion. A skilled facilitator leads the discussion, structured so as to bring out customer likes and dislikes for each of the companies in view.
- Sponsor company representatives observe and record the discussion from behind a one-way mirror. Participants know, of course, they are being observed and recorded. But they never see or hear the observers and they do not know the sponsor's identity.
Test Marketing Studies
Brand owners who are close to launching a new product may first conduct a test market study of the brand and product. The primary purpose is to assess the competitive strength of the brand owner's products against competitors. They will use what they learn about their own strengths and weaknesses, and about competitors strengths and weaknesses, to adjust or "fine tune" their own branding messages.
Test marketing usually involves new products just before launch into well established markets. New mobile phones, laundry detergents, and personal care products, for instance, are well known test-market subjects.
A typical test market study has these characteristics:
- The test market itself covers a small geographical area—one city or a part of a city. The city of Auckland, New Zealand, for instance, is a popular test market for mobile phone providers. In large cities such as London, New York, or Tokyo, the test market may cover only a single borough, or even a just a few neighborhoods.
- Brand owners choose certain test markets because their demographics match those of larger markets they will ultimately target. Auckland is an ideal test market because its demographic profile is very similar to that of larger markets in Europe, Asia, and the Americas.
- The new product is actually sold and promoted in the test market for a test-marketing period. Note that selling and promotion are restricted entirely to the test market. During this period, the test market population continues to receive marketing messages from competitors, but also brand owner messages for the new product.
- During the test marketing period, brand owners carefully track product unit sales, sales revenues, competitive win rate, and market share. They may supplement this information by inviting test market customers to participate in focus group studies (qualitative research).
Branding Always Refers to a Specific Market
Measures of branding and branding success have meaning only with respect to known markets. Any statement that a company has branded itself or its products is meaningless unless the statement refers to, or implies, a specific market.
Market research on branding therefore must begin by identifying and describing the target market. In statistical terms, this is known as defining the population of interest. To usefully support branding research, moreover, market descriptions should be detailed and specific. Consequently, the market definition may have to specify many factors, including gender, age, business industry, occupation, geographic location, economic status, health, education, experience, special interests or still other characteristics.
The challenge for market researchers, then, is to measure customer opinions, knowledge, and buying behaviors in a customer sample that accurately represents this population
Four Steps in Measuring Branding Qualities: Recognition (Franchise), Recall, Association, and Loyalty
Marketers in fact use several different market percentages to measure brand awareness and other branding qualities. They may report, for instance, the percentage of the market that:
- Recognizes the brand. This is brand recognition and brand franchise.
- Recalls the brand from memory. This is brand recall.
- Associates the brand with marketing themes or specific products and their uses. This is brand association.
- Shows brand loyalty. The percentage of customers who buy the brand a second time, or more.
Note especially that recognition, recall, and association are all considered measures of brand awareness. Brand loyalty, on the other hand, is the desired result of achieving brand awareness and brand love.
Step 1. Measure Brand Recognition and Brand Franchise
A brand with brand awareness is widely known in its market and customers automatically associate it with particular products and services. Brand awareness refers to the ability of those in the market to recognize the brand.
Brand recognition is usually considered as the first measure of brand awareness. The brand recognition metric is the percentage of the market that passes one of these recognition tests:
- The market researcher may test brand awareness by showing the customer a simple list of airline names or logos to the customer: British Air, Air Canada, American Airlines, Iberia, Alitalia, Qantas, Japan Air, and Lufthansa. The research then asks: "Which of these do you recognize?" or, "Which of these are you familiar with?"
- Researchers can also test recognition by presenting customer groups with brand names and simply asking which products or services they associate with each n
Researchers present such questions to all members of a test group. Note especially that sample responses have meaning only if the test group represents a statistically valid sample from the population of interest (all individuals in market). That is why branding research must begin with detailed description of the target market.
For a statistically valid sample, theory states that the percentage of sample participants who demonstrate brand recognition can be taken as the best possible estimate of recognition proportion in the population.
Step 2. Measure Brand Recall
The concept brand recall represents a stronger form of brand awareness. This refers to customers ability to recall the brand name when asked for the names of leading brands in a market.
- To test brand recall, the researcher could simply say: "List for me all of the airlines you can recall."
Again, with a statistically valid sample, the percentage of sample participants who demonstrate brand recall can be taken as the best possible estimate of the recall proportion in the population.
Step 3. Measure Brand Association
Association is another variety of brand awareness that refers to a more or less automatic customer response to a specific marketing theme. Presentation of the theme evokes the brand. Themes may have to do with comaraderie, relaxation, prestige, desirability, for instance. Marketers communicate themes and associations primarily through graphic images and audio-video messages.
- The researcher may test brand association, for instance, by asking "Which airline comes to mind when you hear 'Fly the Friendly Skies' ?"
With a statistically valid sample, the percentage of sample participants who make the correct association can be taken as the best possible estimate of the brand association proportion in the market.
Brand Franchise and Brand Love as Brand Awareness
Researchers may also try to determine which brand names and symbols evoke high positive sentiment for products or services. Those that evoke positive emotions are said to have achieved brand franchise or brand love. Note especially that brand love and brand franchise refer to customer feelings about a brand, while brand awareness refers to what they know about it.
As indicated above, achieving brand love (or brand franchise) is usually a very high priority for marketers. Marketers work and spend seriously to achieve brand love, but nevertheless, measuring brand love directly is a challenge. in the last few years, several researchers presented methods and metrics for measuring brand love,3 but these have yet to see widespread use.
Instead, market researches they normally leave the measurement of brand love to indirect means. Success in achieving brand love is normally inferred from progress towards the business objectives that benefit from brand love: firstly brand loyalty, but also brand equity, competitive win rate, market share, and sales revenues.
Step 4. Measure Brand Loyalty.
Brand loyalty is the ultimate payoff for successful branding. This is the propensity of customers to buy the brand again and again. Brand loyal customers buy their brand over and over, even when other brands are more accessible or less expensive. And, loyal customers hold to their own brand, even in the face of advertising or marketing pressure from competitors to do otherwise.
Parents of very young children, for instance, tend to be extremely brand loyal when they shop for baby food or diapers. When their brand is out of stock in one place, they may travel and search until they find another source that has their brand in stock. Truly loyal customers do this instead of buying another brand. In the same way, cigarette smokers, fast food diners, and travelers who stay in branded hotel chains, also tend to be extremely brand loyal.
Providers of other kinds of products and services, however, often have difficulty creating brand loyalty. Given the freedom to do so, mobile phone users and cable television subscribers readily switch service brands when another provider offers better pricing for essentially the same service.
As a result, some service providers are well known for creating a form of involuntary brand loyalty. They enforce loyalty by requiring long term contracts with substantial penalties for early cancellation.
Defining and Measuring Brand Loyalty
Marketers measure brand loyalty in accord with several different definitions for the term.
- Marketers sometimes define brand loyalty as the average time between purchases of the branded product.
- More often, however, they define brand loyalty as the percentage of customers who buy a second time, and more. Note especially that loyal customers buy again even in the face of marketing from competing brands. And, they do so even if it means inconvenience, such as waiting to buy when the preferred brand is temporarily out of stock.
- Marketers also infer brand loyalty from the percentage of customers who say they will buy again, through direct questions or surveys.
Brand equity is the ability to charge premium prices for similar products that competitors with weaker branding must sell at lower prices. Apple, for instance, can sell a simple electrical charging cable for about US$ 39, while other sources must sell essentially the same cable for about $10. The price difference is arguably due to Apple's very strong brand equity.
The value of brand equity is apparent to everyone familiar with firms such as Coca Cola, Apple, IBM, BMW, Ericsson, Armani, Louis Vuitton, and Disney. These firms have built successful brand names over many years and, their brand names works as a powerful asset for market pricing and selling.
Do Brands and Brand Equity Appear on the Balance sheet?
There is no doubt that firms such as these see financial value in brand equity. As a result, these firms work and spend extensively to protect their own trademarks, logos, patents, copyrights, and names, from use by others, from damage, and from slander. In so doing, they confirm the aptness of referring to their brands as valuable assets.
Their undisputed value notwithstanding, however, brands do not always qualify as legitimate assets for the Balance sheet. To accountants, a Balance sheet asset is a tangible or intangible item that meets several criteria:
- Firstly, the item is acquired at measurable cost.
- Secondly, the item is in service for several years or more, with a designated useful lifespan. Owners expense the acquisition cost is expensed year to year across the lifespan through depreciation (tangible assets) or amortization (intangible assets).
- Thirdly, the item serves in operating the firms normal line of business.
Firms that use brands or branding components that meet these criteria can indeed appear on the Balance sheet as intangible assets. Brands or branding components that fail on one more of these criteria cannot.
Brand Names and Brand Components That Do Not Appear on the Balance Sheet.
Brand names belonging to the firms above fail to meet the first and second criteria for status as Balance sheet asset—at least for the brand owners themselves. Coca Cola, for instance, built the brand itself with internal efforts over many years. The company did not purchase the brand from another owner, nor did the brand come with a measurable cost. The Coca Cola brand, moreover, is not used up or expensed over a designated useful life.
Brand Names and Brand Components That Do Appear on the Balance Sheet.
Certain intangibles, however, sometimes do qualify as Balance sheet assets—including some that are arguably "brand " components.
- One firm may purchase the right to manufacture and sell products using another firm's patents, or another firm's copyrighted material.
- Or, on firm may purchase a franchise to operate a business using another firm's brand name and logo. Examples include franchise owners for restaurant firms such as McDonald's, or Domino's Pizza.
In such cases, the brand components in use are purchased at measurable cost, used for a designated number of years, and expensed annually by the purchaser. These brand components do qualify as intangible assets for the purchaser's Balance sheet.