Diran Afarian's Blog

What’s the value of a brand? Why does a consumer pay more for a Rolls Royce than a Mercedes, or more for a Mercedes than a Toyota, or more for a Toyota than a Nissan, and so on. Most people will respond, “well it’s a better car!” So how did it get to become a better car? (If it is really a better car, I’m not really convinced that this would be the main reason). Some might say, “It’s more prestigious”, sure I can go along with that. But no matter what, the Brand is very important to a company. As Henry Crowell, one of the founders of Quaker Oates, once said to his partner, “…You can keep the company, if I can keep the name…”

When I was teaching marketing at California State Polytechnic University, I wanted to drive this point home with my students. Brand management is one of the most lucrative segments of an established company. Companies usually guard the image of their Brand very carefully. They are very defensive as to how their Brand is used or represented, because it has direct repercussions, “Losing the edge!”, starting from scratch, or worse, starting from behind scratch. Audi knows this very well. 

We all know and encounter brands every day. Yet, as lay people, we don’t really analyze and understand that a brand has a real monetary value for a company, because it drives decisions, and gives the owner of the brand a competitive edge or advantage.

A Brand pushes people to make decisions based on the fundamental principles of marketing, without a concious effort. A brand, that has been established as a quality brand, will not only encourage the consumer to buy the product; but it will encourage them to pay more for an equivalent product, and be more confident about the quality.

As an example, if there were two identical stereo systems, one with a “no-name” brand, and one with the “Sony” brand, I will go out on a limb and say, if both of these systems had the same features, dimensions and color along with the same exact price, the Sony would command a 100% market share for that product. What if the Sony system was 10% higher in price? Then there would be some consumers that jump to the other side, right? Probably not too many though. What if it was 20% or 30% premium? Depends on the product or market, right? There will be a point at which the price premium will force 50% of the consumers to opt out of buying the Sony ad buy the no-name brand. This “Premium on price“, multiplied by the “number of product sales potential“ is one part of the equation when calculating the value of the Brand.

The value of the brand also increases by evaluating the savings that the Brand owner enjoys because it is easier to promote a new version of the product. Another advantage or savings comes from the spillover of the promotion effort reduction to ancilliary products. Let’s look at an example.

Apple introduced the IPod and it took off as a rocket amid a market of hundreds of MP3 players that had been in that space for a long time. No one can dispute that the “iPod” is a Brand, and it has real value as a Brand. Because of the original iPod, subsequent versions like the iPod Nano, or the iPod shuffle, enjoyed promotion with a lot less budget thrown into marketing. Now with the new iPhone, the same phenomenon is spilling over. So the value to Apple is not only the value of how much more they can sell the iPod over the competing MP3 devices only, but where else it can save and/or enhance in the company’s bottom line. 

Many companies have a different name than their brands. For instance, if I ask people where can I get a “Big Mac”, most people will know the company that owns the brand and say, “McDonalds”. If I ask “who makes Windows” most people will think of Microsoft, even though companies like Anderson Windows, and Pella make real windows that go on houses. If I utter the words, “Search Engine”, most people will say “Google”, although a few years back they would have said “Yahoo”, of course in the case of Yahoo!, it would be an example of a brand that lost its luster as well as market share.

Some companies have brands that are bigger than their names, we can call these Genericized Brands or a Genericized Trademarks, in some cases, where a consumer might use the brand interchangeably for any company’s equivalent product without regard to the original company that established the brand. Examples of this would be Kleenex, Q-Tips, Xerox, Walkman, etc. When someone says, “Can you give me a Kleenex?” It shoul really be, “Can you give me a tissue?”, or “I will xerox it and send it to you”. I think you get the idea.

If you are working on a product, whether it is a large company or one that you are starting, work on wstablishing and owning a brand. Remember, Googling someone might have meant something different before the year 2000. The Google Brand established that.