The ROI of perception: How brands create tangible value

March 13, 2023
3 min read
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While many companies believe they have a solid grasp of their brand identity, in reality, only some truly integrate their brand's values and purpose into every aspect of their business. Every customer interaction with a company - whether on the website, through email or phone communication, in-store, or even through word-of-mouth conversations - impacts the customer's perception of the brand.

Despite this, marketers often need help convincing other departments that the brand encompasses more than just the logo, visual identity, and advertising campaigns.

Limiting the definition of the brand to just a marketing function is a mistake that undervalues its impact on the business. When marketers operate solely within their silo, they cannot recognize the full extent of their responsibilities, leading to other departments making decisions that damage the brand's long-term growth and profitability. This narrow view of marketing can make it more likely for other decision-makers in the organization to undervalue the importance of marketing. In reality, the brand and business strategy are inextricably linked, meaning marketing's role should be more comprehensive than ever before.

Building a strong brand is challenging and requires significant time, effort, and investment. However, it can create tangible value for a business, with the key to this value creation lying in the brand's perceived quality. By building a brand that resonates with customers, businesses can increase the perceived value of their products or services, leading to a price premium or an expansion of market share.

Let's examine the three primary ways in which brands create value:

Perceived quality drives irrational margin

Irrational margin is the difference between the perceived quality of a product or service and the cost of producing it. A strong brand can increase perceived quality by creating an emotional connection with customers, telling a compelling story, and standing for something meaningful.

This emotional connection can lead customers to pay a premium price for a product or service, driving an irrational margin.

Strong brands expand the addressable market

A brand's high perceived quality gives a business the power to prioritize expansion over profitability when entering new markets. By strategically deciding not to increase the price, a business can easily conquer market share. As it fosters an emotional connection with customers that goes beyond rational factors such as price and features, a brand can expand the addressable market for a business.

By doing this and by building awareness, a brand can reach beyond its traditional audience. It leads to gaining new customers who may not have previously considered the product or service while driving increased loyalty from existing customers.

Brands protect against commodity status

When products or services become commodities, customers focus solely on price, and profits can erode quickly. However, a strong brand can differentiate a business from its competitors and increase its resilience to market pressures.

To de-risk the business, brands build customer proximity through qualitative and quantitative data and insights. This laser focus on the customer increases the chances that brand actions, new products, and services will be a success.

Additionally, a shared purpose and values create alignment between a company's internal culture and its brand, making the business more adaptable to changing market conditions.

By avoiding commodity status, brands can establish themselves as leaders in their industries, with a loyal customer base that is less price-sensitive. This not only protects the business against market pressures but also enables it to tap into future demand and create lasting competitive advantages that can propel growth in the years to come.

Whether it's through expanding the addressable market, protecting against commoditization, or driving an irrational margin, a strong brand is a key driver of tangible value creation. In a world where every business is vying for attention, investing in brand building may be the most crucial investment a company can make. So ask yourself, what is the value of your brand? And what will it be tomorrow?

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