Emotion trumps technical features

I think it is a trap to believe that successful brands always require differentiated product features. An over-engineered product created to have a Unique Selling Point (USP) can end up having a Useless Selling Point. That is my phrase for a product-led idea vainly looking for customers, but irrelevant to their needs.

Core category motivators are by definition the most powerful drivers for people to buy, fulfilling their strongest needs. They are usually emotional not rational. Competing products can have similar technical features, but the one with the strongest and most relevant emotional attributes will be the category leader (by share of market value). Interconnected attributes such as 'trustworthy', 'friendly', 'stylish', 'peer group approval', 'good after sales service', 'honorable and fair corporate behaviour' are examples of emotional motivators. Ironically such attributes often have a halo affect, implying product features, that are technically no different from competitors, are also better.

Think of Apple, currently rated the most valuable brand in the world. It is sometimes criticized for not being the first to market with new features or products and of copying those that are. In turn others have been accused of copying Apple's design and ideas. But it does not matter. The total brand experience and resulting emotional difference is what counts.

Disclosure: due to these thoughts I have for several years been an investor in Apple stock, but if I detect that the overall brand experience is loosing this emotional differences it will be time to sell.

Brand preference & experience encompass all stakeholders, making brand building a CEO responsibility

All those involved with a company, its products and services - customers, distributors, employees, management, suppliers, strategic partners, investors and lenders - have perceptions. These produce different beliefs and feelings, which result in more, or less, preference for your company, its products and services.

Strong brand preference results in economic benefits throughout a business. It builds an 'economic moat' (as coined by Warren Buffet).

This moat protects against the following:

  • Price-based competition, where your products or services have weak pricing power due to lack of perceived positive differentiation
  • employee and management indifference and churn, reducing quality and efficiency, as well as increasing recruitment and compensation costs
  • distributors threatening to de-list or replace you and squeeze your margins
  • suppliers and strategic partners reluctance to do business unless paid more
  • investors and lenders who are not convinced, thus increasing the cost of capital
Strong brands establish beliefs and feelings that positively differentiate, ideally so people consider your company, its products and services as irreplaceable. As Coco Chanel observed, "in order to be irreplaceable one must always be different".

Brand preference is good for the bottom line right across a business. Which is why brand building strategies cannot only be the responsibility of marketing and must be part of a CEO's responsibility.

While brand preference is driven by beliefs and feelings, these are themselves driven by the numerous ways people experience a brand; these experiences can only be effectively influenced and guided by top management policies throughout all departments and business units.

In addition to advertising, public relations (on and off-line) packaging design etc. people build up their beliefs and feeling about a brand through (1) management and staff behaviour, policies and governance, (2) actual product and service performance,  (3) Who and what the brand associated itself with (4) word-of-mouth (on and off-line). Here (4) is powerfully influenced by (1), (2) and (3).

The legendary Jeremy Bullmore, previous Chairman of JWT London, has put it thus: “People build [their perception of] brands like birds build nests, from scraps and straws they chance upon."

Definition of the word "brand"

The etymology is interesting. The verb originally meant to 'burn' and the noun was a 'torch' or 'piece of burning wood' (think of 'firebrand'). Hence the concept of a 'branding iron' to mark who owned animals (and once slaves), as well as wooden containers such as barrels of wine. Later the word came to refer to a more general mark of distinction that did not need to be burnt onto someone or something. This could be positive or negative distinction. We have all heard the expression "he was branded a liar".

Today there are many definitions of what is meant by 'brand'. Here is how I Iike to define the word:

A collection of perceptions springing from people's total experience of a company, service, product or entity*. These perceptions give distinction, either creating or subtracting value.

* e.g. a country, city, place or person

In contrast I define a 'commodity' as follows:

Something that lacks distinction and perceived value so that (in a free market) it is at the mercy of price competition.

I say 'in a free market' because obviously where there is monopoly control a 'commodity' is not at the mercy of price competition.

I also believe that highly successful brands create there own different kind of 'monopoly': a monopoly in the minds of their customers and other stakeholders.

 

 

 

The value of brands

Throughout my advertising career I constantly had to justify advertising budgets. The comment (attributed to John Wanamaker) that Half the money I spend on advertising is wasted; the trouble is I don't know which half was often banded about. This drew me into all sorts of statistical gymnastics, using econometric modelling and digging into the intricacies of multiple linear regression analysis. But, there are so many variables that affect price and market share that I found it impossible to provide a precise ROI on advertising, or any other activity that builds brands.

The valuation methodologies of companies like Interbrand, Millward Brown's BrandZ and BrandFinance are fascinating (I partnered with BrandFinance in Hong Kong a few years ago). However, their valuations vary considerably, which opens them up to criticism. And I have questions, such as how to distinguish the affect of a strong brand from monopoly control (e.g. Chinese SOEs).

But, just because something cannot be measured easily does not mean it does not exist.

IPO and M&A activity show how the perceptions people have of a product, service or corporation can price a company at several times its tangible assets. We have also all seen what happens to the market cap of a company when perceptions dramatically shift against it. This can happen due to a reputation destroying scandal or, as markets and trends change, a gradual failure to make sure the brand stays relevant and up-to-date.