5 Reasons Why Branding is Important
And why it’s worth the investment
Companies like numbers. Whether it be prices, sales, or profits, they’re all quantifiable. But there’s one crucial part of a company that cannot be measured: branding.
Oddly, branding isn’t really a thing. You can’t touch it, see it, or measure it. In short, it’s intangible. As a result, few companies monitor it to the same degree they might monitor a financial statement.
Nonetheless, it’s what allows certain brands such as Coca-Cola, Nike, or Starbucks to be head and shoulders above the competition.
What even is branding?
Unlike most business terms, branding doesn’t have a clear definition. Some claim it’s the name, others the design, but truthfully, there is no one-size-fits-all.
Here’s a loose definition that embodies what I think a brand is:
“A brand is the way a company, organization, or individual is perceived by those who experience it. More than simply a name, term, design, or symbol, a brand is the recognizable feeling a product or business evokes.” -Brian Lischer
As such, it’s more about your perception than any one specific answer. When it comes to iconic brands, I associate Apple with design, Ferrari with speed, and Hermès with elegance.
Why is branding important?
1. Discovery
In the tech-enabled world we live in, most goods are easily accessible. As a result, customers have an abundance of options. Whether it be gadgets, food, or clothes, we can easily find alternatives with a similar price range.
So, how do you get customers to notice your product over everyone else’s? That’s where branding makes you stand out. While there are other options such as creating promotions, they’re not sustainable long-term solution in the same way investing in your brand are.
Now, a strong brand isn’t built in a day. It’s the repetition of quality and reliability that earns you a customer’s trust. That’s why successful companies like Amazon obsess over having the best customer service possible.
2. Retention
Once you have a strong brand, customers often prefer your products over a new brand’s — even if the new brand offers a better product.
That’s because of friction. From the customer’s viewpoint, there’s considerable friction in changing operating systems, getting used to new sizings, or providing new account details.
Similarly, if you create a new range of products, it almost guarantees your customers will gamble a purchase because they trust your brand.
In the long run, having a strong retention rate is what consolidates your market position. If your branding is right, odds are customers will stick with you.
3. Mark-ups
It may sound irrational, but for the same product, people are willing to pay extra merely because it’s sold by a brand they like.
To illustrate, take a Pepsi, a Coke, and an unbranded Coke alternative. In a glass, it’s not very obvious as to which is what. Yet most people are very adamant about not buying the unbranded one. As the saying goes:
“People don’t buy products, they buy brands.”
In parallel, it’s no surprise that brands like Apple, Nike, and Starbucks constantly up their prices. They’re able to charge mark-ups because of their brand value. The feelings these brands evoke on customers are what keeps them coming — regardless of the higher prices.
From a financial viewpoint, this is wonderful for companies. For the same number of products sold, they get more revenue, better margins, and ultimately, higher profits.
4. Attracting Talent
People don’t want to work for a brand with a bad reputation. That’s why large corporations are willing to spend millions on PR.
This doesn't just apply to employees, but also to other stakeholders. Whether it be governments, investors, or suppliers, nobody wants their reputation tarnished by working with the wrong brand.
On the flip side, having a strong brand gives you an edge when recruiting. If the brand reputation boosts the resume of candidates, you shouldn’t have any problem hiring — even if you don’t pay the most in the market.
Similarly, suppliers are willing to charge less if a brand enhances its reputation. For example, if an unknown supplier works with Apple, that signals they’re trustworthy, or else Apple wouldn’t be working with them.
5. Company value
Lastly, there’s company value. In financial terms, it’s called goodwill. It’s defined as an intangible asset that takes into account a company’s brand.
For example, if one company were to be acquired by another, goodwill would be the portion of the sale price that is higher than what is reflected in the financial statements. Basically, the part that cannot be easily quantified — i.e. the brand.
In a potential sale, your company would have a much higher value than what the financial statements dictate.
Top Takeaways
- Branding is hugely important, yet often overlooked merely because it’s hard to quantify.
- Though you may not see short-term gains, branding is what makes a company sustainable in the long-run.
- Overall, having a strong brand cuts costs from recruiting, PR, and supplier goods.
In most companies, you can always replace products, suppliers, or even employees, but when it comes to the brand, there’s no going back.
