Valuing a good brand
To be successful, an organization needs to invest in its brand. But for many companies, this seems like a waste of resources, as it is hard to track the return on investment (ROI) for brand expenditures.
Another reason for the resistance in making investments in brands is that some business leaders see the value they are providing to their clients as this old-school formula that does not include brand equity:
value = benefits – costs
To make sense of how much money and time to pour into your brand, think of a simple example… if you had to chose between a Coke and a generic soda, which one would you pick? Now think how much would you pay for a Coke versus a generic grocery store brand? Multiply that percentage difference times your industry’s cost structure, to get a rough idea of what a premium brand can add to the prices for your products and services.
To further explain this using the soda example, one might believe the product benefits of a can of cola to be 75 cents. If it is in a refrigerator on a hot day, that service benefit might be an additional 25 cents. The brand equity built by Coke might be worth 50 cents. So in this example, one would value a cold generic cola at $1 and a Coke at $1.50.[cola ($0.75) + cold ($0.25) + Coke name ($0.50)] ÷ price
Now if you factor in the actual price, one can tell if the soda is a value. In this example, if the cold Coke was priced at a $1 it would be perceived as a bargain, but if it was $2 it would be expensive.
As you can see by playing with the value equation variables for your industry, a strong brand increases the overall value of your product and service offerings, or at least the perceived value, thus increasing your ROI.