How Does Branding Work?

Perhaps the most distinctive skill of professional marketers is their ability to create, maintain, enhance, and pro­tect brands, whether established brands such as Mercedes, Sony, and Nike or new ones like Pure Leaf Teas, Taste Nirvana Coconut Waters, and Alexia All Natural Foods. Some of the hottest brands in recent years have emerged online. Consider the runaway success of Tumblr and Instagram.³

TUMBLR Founded by technical wizard and high-school dropout David Karp, Tumblr is a multimedia platform that allows users to post images, videos, and music in the form of a personal blog and, as the company’s motto says, “to follow the world’s creators.” A combination of publishing platform and social network, Tumblr allows users to express them­selves publicly and then follow the feedback on their posts and other people’s on a convenient dashboard. Boasting more than 200 million blogs as of October 2014, the site is seen as a must-have for creative types, with most users between 18 and 24. Formally launched in February 2007, Tumblr was purchased by Yahoo! for approximately $1.1 billion in cash in June 2013 with the hope of making it commercially more successful. Advertisers can create their own blogs for free but have to pay to participate in two popular Tumblr modules: Spotlight (an accounts-to-follow suggestion) and the Radar (editor’s picks).

INSTAGRAM Launched in October 2010 by Stanford grads Kevin Systrom and Mike Krieger, Instagram is known for its photo-sharing app that uses filters to make photos from smart-phone cameras look more professional and allows them to be easily uploaded and shared across multiple platforms simultaneously. These highly valued benefits led the brand to quickly attract more than 100 million users, including some top brands such as Nike, MTV, Starbucks, Burberry, and Gucci. Instagram’s name was chosen because it combines the concept of “instant” with the notion of connecting with people via a “telegram.” Its success led Facebook to acquire it in April 2012 for approximately $1 billion in stock and cash.

A controversial change in its terms of service in December 2012 led users to think Instagram could sell their photos for use in advertising. In the face of an uproar about a violation of privacy, the founders quickly reverted to the original terms.

The American Marketing Association defines a brand as “a name, term, sign, symbol, or design, or a combina­tion of them, intended to identify the goods or services of one seller or group of sellers and to differentiate them from those of competitors.” A brand is thus a product or service whose dimensions differentiate it in some way from other products or services designed to satisfy the same need. These differences may be functional, rational, or tangible—related to product performance of the brand. They may also be more symbolic, emotional, or intan­gible—related to what the brand represents or means in a more abstract sense.

Branding has been around for centuries as a means to distinguish the goods of one producer from those of another.⁴ Medieval guilds in Europe required that craftspeople put trademarks on their products to protect themselves and their customers against inferior quality. In the fine arts, branding began with artists signing their works. Brands today play a number of important roles that improve consumers’ lives and enhance the financial value of firms.

1. THE ROLE OF BRANDS

Brands identify the maker of a product and allow consumers to assign responsibility for its performance to that maker or distributor. Brands perform a number of functions for both consumers and firms.

BRANDS’ ROLE FOR CONSUMERS A brand is a promise between the firm and the consumer. It is a means to set consumers’ expectations and reduce their risk. In return for customer loyalty, the firm promises to reliably deliver a predictably positive experience and set of desirable benefits with its products and services. A brand may even be “predictably unpredictable” if that is what consumers expect, but the key is that it fulfills or exceeds customer expectations in satisfying their needs and wants.

Consumers may evaluate the identical product differently depending on how it is branded.⁵ They learn about brands through past experiences with the product and its marketing program, finding out which brands satisfy their needs and which do not. As consumers’ lives become more rushed and complicated, a brand’s ability to sim­plify decision making and reduce risk becomes invaluable.⁶

Brands can also take on personal meaning to consumers and become an important part of their identity.⁷ They can express who consumers are or who they would like to be. For some consumers, brands can even take on human-like characteristics.⁸ Brand relationships, like any relationship, are not cast in stone, and marketers must be sensitive to all the words and actions that might strengthen or weaken consumer ties.⁹

BRANDS’ ROLE FOR FIRMS Brands also perform valuable functions for firms.¹⁰ First, they simplify product handling by helping organize inventory and accounting records. A brand also offers the firm legal protection for unique features or aspects of the product.¹¹ The brand name can be protected through registered trademarks, manufacturing processes can be protected through patents, and packaging can be protected through copyrights and proprietary designs. These intellectual property rights ensure that the firm can safely invest in the brand and reap the benefits of a valuable asset.

A credible brand signals a certain level of quality so satisfied buyers can easily choose the product again.¹² Brand loyalty provides predictability and security of demand for the firm, and it creates barriers to entry that make it difficult for other firms to enter the market. Loyalty also can translate into customer willingness to pay a higher price—often even 20 percent to 25 percent more than competing brands.¹³

Although competitors may duplicate manufacturing processes and product designs, they cannot easily match lasting impressions left in the minds of individuals and organizations by years of favorable product experiences and marketing activity. In this sense, branding can be a powerful means to secure a competitive advantage.¹⁴ Sometimes marketers don’t see the real importance of brand loyalty until they change a crucial element of the brand, as the classic tale of New Coke illustrates.¹⁵

COCA-COLA Battered by a nationwide series of taste-test challenges from sweeter-tasting Pepsi-Cola, Coca-Cola decided in 1985 to replace its old formula with a sweeter variation, dubbed New Coke. The company spent $4 million on market research, and blind taste tests showed Coke drinkers preferred the new, sweeter formula. But the launch of New Coke provoked a national uproar. Market researchers had measured the taste but failed to adequately measure the emotional attachment consumers had to Coca-Cola. There were angry letters, formal protests, and even lawsuit threats to force the retention of “The Real Thing.” Ten weeks later, the company reintroduced its century-old formula as “Classic Coke.” Efforts to resuscitate New Coke eventually failed, and the brand disappeared around 1992. Ironically, the failed in­troduction of New Coke actually ended up giving the old formula measurably stronger status in the marketplace, with more favorable attitudes and greater sales as a result.

For better or worse, branding effects are pervasive.¹⁶ One research study that provoked much debate about the effects of marketing on children showed that preschoolers felt identical food items—even carrots, milk, and apple juice—tasted better when wrapped in McDonald’s familiar packaging than when in unmarked wrappers.¹⁷

To firms, brands represent enormously valuable pieces of legal property that can influence consumer behavior, be bought and sold, and provide their owner the security of sustained future revenues.¹⁸ Companies have paid dearly for brands in mergers or acquisitions, often justifying the price premium on the basis of the extra profits ex­pected and the difficulty and expense of creating similar brands from scratch.¹⁹ Wall Street believes strong brands result in better earnings and profit performance for firms, which, in turn, create greater value for shareholders.²⁰

2. THE SCOPE OF BRANDING

How do you “brand” a product? Although firms provide the impetus to brand creation through marketing pro­grams and other activities, ultimately a brand resides in the minds and hearts of consumers. It is a perceptual entity rooted in reality but reflecting the perceptions and idiosyncrasies of consumers.

Branding is the process of endowing products and services with the power of a brand. It’s all about creating differences between products. Marketers need to teach consumers “who” the product is—by giving it a name and other brand elements to identify it—as well as what the product does and why consumers should care. Branding creates mental structures that help consumers organize their knowledge about products and services in a way that clarifies their decision making and, in the process, provides value to the firm.

For branding strategies to be successful and brand value to be created, consumers must be convinced there are meaningful differences among brands in the product or service category. Brand differences often relate to at­tributes or benefits of the product itself. Gillette, Merck, and 3M have led their product categories for decades, due in part to continual innovation. Other brands create competitive advantages through nonproduct-related means. Gucci, Chanel, and Louis Vuitton have become category leaders by understanding consumer motivations and de­sires and creating relevant and appealing images around their stylish products.

Successful brands are seen as genuine, real, and authentic in what they sell as well as who they are. A successful brand makes itself an indispensable part of its customers’ lives. Once a faded preppy afterthought, J.Crew tripled its revenue to $2.2 billion from 2002 to 2012 by becoming a highly creative force in fashion. By constantly introducing new styles—but retaining a cohesive look—the brand enjoys intense loyalty, numerous fan blogs, and high-profile celebrity supporters like Michelle Obama and Anna Wintour.²¹

Marketers can apply branding virtually anywhere a consumer has a choice. It’s possible to brand a physical good (Ford Focus automobile or Lipitor cholesterol medication), a service (Singapore Airlines or Blue Cross and Blue Shield medical insurance), a store (Nordstrom or Dick’s Sporting Goods), a person (actress Angelina Jolie or tennis player Roger Federer), a place (the city of Sydney or the country of Ireland), an organization (U2 or the American Automobile Association), or an idea (abortion rights or free trade).²²

Branding has become of great importance in sports, arts, and entertainment. One of the world’s top sports brands comes from Madrid, Spain.²³

REAL MADRID For the first time since Forbes magazine began its ranking in 2004, Real Madrid surpassed Manchester United in 2013 to become the world’s most valuable team in soccer—or football as it is known as outside the United States—with an estimated value of $3.3 billion. Also known by fans as “Los Merengues,” the iconic but floundering club began to thrive when the billionaire construction tycoon Florentine Perez took over in 2000. Perez’s strategy was to at­tract some of the very top players in the game, brand names in their own right, such as David Beckham, Zinedine Zidane, and, later on, Cristiano Ronaldo and Kaka. Success on the pitch allowed Perez to develop three distinct and lucrative lines of business: broadcast rights (worth $250 million annually), sponsorship and endorsement revenue (worth $240 million annu­ally), and match-day revenue (worth $160 million annually). Real Madrid is truly a global brand and derives 65 percent of its revenue abroad. Sponsorship includes high-profile deals with Adidas, Emirates Airlines, and Spanish banking group BBVA.

Source: Kotler Philip T., Keller Kevin Lane (2015), Marketing Management, Pearson; 15th Edition.