Why invest in branding?

Say you’re the Chief Executive Officer at a big company and want to convince the board of directors to invest $100 million in production capacity. You will probably get asked what the return on investment would be, so you prepare in advance. Based on past projects and benchmarks, combined with other available information, your team calculates potential revenue, subtracts production cost and projects it over time to estimate how much money you expect to make with the new capacity (and when). The business case is soon ready for you to present.

Right before the board meeting, the Chief Marketing Officer comes with the proposal to invest another $100 million in branding. Not marketing, branding. You look at him in silence for a few seconds, contemplate firing him, then dismiss him with a tentative laugh. For now. Who comes up with such a joke? You need serious people in your organization.

You would be right, and wrong. You need people that are as serious about branding as they are about production. Your CMO may not have been wrong to ask for the money, but he was wrong to not bring the business case along.

Or maybe he was wrong about the money too? Leading the branding effort shouldn’t be his job, it should be yours. Branding should be a CEO’s job, because it influences every dollar that production capacity will deliver in the future. Without good branding, those estimations may be over-optimistic at the least.

But how much should you invest in branding, and what does it bring? To get towards an answer let’s look at the mechanics of how branding creates value.

Recognition comes easily in one-on-one relationships and in small communities. Humans are biologically wired to recognize other humans, by their faces[ii], body shapes, movements and sounds. This process works less well for animals and objects. Primeval “branders” decided to facilitate recognition of their property – Old Norse cattle owners “brandr-ed” their cows, ancient Chinese potters signed their ceramics, emperors stamped coins with their faces and created uniforms for their troops. Fast forward to today, there are countless more touch points by which entities can be recognized, yet the way our brains work hasn’t changed much at all[iii]. Just as we recognize faces by certain simplified traits, we look for information shortcuts to recognize entities behind products and services.

Early branders only needed a symbol to stick to their products. If you want to do good branding today, a visual symbol (say, a logo) will likely not be enough. Branding is everything you do with the intention of being recognized[iv]. Would a swoosh do? What about painting everything red? Spreading the same perfume in the stores, always using a playful tone of voice, a familiar, jaunty jingle – or all of the above?

In order to determine what signals to send to which buyers with which touch points, to optimize the way you help them with orientation in the marketplace, you need a brand strategy.

Recognition alone is not enough though, and if your brand strategy only deals with sensorial elements, you’re not addressing the whole process of getting to a transaction. Buyers can recognize multiple sellers promising them all kinds of benefits – but whom do they choose? And why?

These inputs and their influence on purchase vary by industry and type of transaction. For first-time or one-time purchases – a new fitness subscription you want people to try out, or souvenirs in a tourist shop (where buyers are not expected to return) – observation and decoding of signals may be enough to build enough trust to trigger a transaction. If your business is built on serving a constant stream of new customers, branding for sensory and short-term memory[viii] can help you attract more. Recognition may not be as important in these cases. An entirely generic tourist souvenir shop placed at the perfect spot next to a tourist attraction can be successful without a name, logo, visual identity or any other elements to distinguish it from other souvenir shops elsewhere.

If your business relies on returning customers, you want to find an anchor in buyers’ working and long-term memory. You want buyers to know it was you who sent the right signals, to remember it was you who delivered on promises previous times, you want them to talk about you to other prospects. For that, they need to recognize you.

Thus recognition – the primary objective of branding – serves to bind experiences into buyers’ long-term memory and, if the experiences are positive, build trust towards sellers. As a seller, you should invest in knowledge, skills and capabilities necessary to create, orchestrate and produce touch points that send trust-building messages to the buyers. Branding will help you bind these messages to your entity (rather than competitors), ensuring that trust is built over time.

And still, recognition and trust are often not enough. A buyer can recognize and trust that more than one seller delivers on needs. Rolls-Royce and GE can be trusted to deliver good jet engines, Samsung and Apple can be trusted to deliver good mobile phones. Runkeeper and Runtastic can be trusted to deliver a good fitness service. But how does one choose? Buyers can flip a coin – or choose the option they like more.

As a consumer, professional buyer, supplier, or job seeker, I trust that Apple and Samsung, Siemens and GE, Runtastic and Runkeeper (the list goes on) to deliver products and services of a similar quality. Yet I am equally likely to develop a preference based on affinity. Am I an “Apple person” or an “Android person”? What does buying from Siemens say about me, vs. buying from GE? Am I Runtastic or a Runkeeper? For some of these associations I may also be willing to pay more – or less.

The higher the affinity the buyer has for a certain seller, the higher the chances for repeat transactions, and for higher price premiums to be obtained.

Investing in branding

Branding is everything you do with the intention to be recognized, and recognition binds trust and affinity. Therefore, to estimate investment requirements for a good brand strategy, one would have to:

1. Identify all touch points the seller can influence for buyer recognition
2. Assess their impact on purchase – e.g. through market research – and prioritize
3. Estimate the cost to create and implement the brand strategy, including:- Brand strategy creation cost – for own team, potentially with consultant aid- Internal training on brand strategy for all employees (functions to prioritize could be strategy, product development, design, marketing, sales, human resources and customer service)- Impact test for “branded” experiences on purchase– via market research or prototyping exercises

At first read, it seems to be a simple equation, however its elements aren’t easy to quantify. This stacks the cards up against branding professionals. If they have a hard time calculating the return on investment for their advice, their remuneration must be based on hourly rates – which makes the investment in creating even a most sophisticated and original brand strategy low compared to what benefits it can create if implemented well. But this is advantageous for companies who see the opportunity to invest in a good brand strategy and execution.

The more your product developers and service designers understand both their buyers’ behavior as well as your own brand strategy and address them in their work, the more efficient and effective your organization will operate, and the less testing investment will be required to calibrate (and the less Uncertain Johns you’ll encounter). Everyone in business – and life – does some branding but not everyone does it well. What makes a brand strategy and execution good? That’s for a follow-up conversation.