We are often asked about the impact of brands on financial, business performance and growth. Enough research has been conducted on this over time throughout the world that one could write and entire book on this subject. I will not do that here. But I will be a bit more detailed than I have in the past about this. The bottom line is that strong brands have a very strong positive impact on financial and other business results. Following are data points on some of the ways in which this occurs.
A recent Nielsen study demonstrated that strong brands command higher loyalty rates. Consider the lifetime value of more loyal consumers. The study also showed that strong brands generate three times more market share than brands with moderate reputations.
Millward Brown Optimor reported that its BrandZ Top Most Valuable Global Brands significantly outperformed the S&P 500 in 2013.
In another study, Feng Jui Hsu, Tsai Yi Wang and Mu Yen Chen examined the relationship between brand value and stock performance using Interbrand’s Global 100 Brands ranking. The brand portfolio outperformed the S&P index in various holding periods and generated a significantly positive risk adjusted alpha.
An earlier study (for the period 1994-200) reported by Thomas J. Madden, University of South Carolina, Frank Fehle, Barclays Global Investors and Susan Fournier, Boston University, found that firms that have strong brands create value for their shareholders by yielding larger returns with less risk than industry benchmarks.
Another study conducted by Andrea Guerrini, PhD, assistant professor at the University of Verona and Francesco Zaffin, management consultant, looked at the top 60 brands in Interbrand’s annual ranking between 2006 and 2010 and identified positive correlations between brand value and share prices primarily in the intangible product categories such as business and financial services.
Many studies have shown that strong brands command significant price premiums. Millward Brown indicates that strong brands command a price premium of 6 percent above the average. And other studies have shown that a 1 percent price increase can lead to an 8 percent operating profit increase.
An MIT Sloan School of Management working paper reports on research of a 7-year old community of 8,300 German, Austrian and Swiss hiking enthusiasts named Outdoorseiten Net (ODS). On average, they were willing pay 15.4 percent more than they normally would for a backpack that had ODS label on it.
The Licensing Letter indicates that licensed goods command, on average, a price premium of 32.9% over non-branded products in the USA. Further, it indicates that this price premium varies widely by product category.
Several studies over time have demonstrated that strong brands reduce consumer price sensitivity.
Several studies have demonstrated that country-of-origin (that is, a country’s brand, image or stereotype) affects the price people are willing to pay for otherwise identical products.
Several studies using store-level scanner data show that competitive price discounts have less impact on leading brands. Scanner data also show that when leading brands discount their prices they create significantly more switching from non-leading brands than occurs in reverse.
In 1989, A. R. Rao and K. B. Monroe reviewed 34 studies and found that brand name was a more powerful cue for quality than size or price.
Other studies have shown that strong brands are more resistant to negative consumer experiences.
A longitudinal study of 51,000 hotels in the USA, demonstrated that branded hotels have higher occupancy rates than independent hotels, especially during economic recession, during which branded hotels have higher net operating incomes than independent hotels.
Bain & Company’s discrete choice modeling analysis of 21 product categories indicates that brands shift demand curves up significantly due to commanding higher prices, generating more volume or both.
The same Bain & Company study showed that in the MP3 player category the leading brand had a 2.9 times share multiple due to its brand alone and could double its price and still achieve a share equivalent to the second brand in the category.
Numerous studies have shown that brand value is one of the primary reasons that market capitalization of a company often exceeds book value. This comes into play in mergers, acquisitions, licensing, joint ventures and financing negotiations.
Sears wrote $1.8 billion dollars worth of bonds backed entirely by its portfolio of brands.
The value of the McDonalds brand is calculated to be 71 percent of its total stock market value. For Coca Cola, this number is 64 percent.
Studies have shown that strong brands increase negotiating leverage with channel partners.
Several studies have shown that strong brands attract more capable employees and result in higher employee retention rates. This has led to a relatively new branding arena labeled “employer branding.”
A study performed by Jacob Sovina and Christopher J. Collins of Cornell University showed that strong organizational brands can provide competitive advantages in the labor market by establishing initial images of the organizations by job seekers.
According to the 2014 BrandZ Top 100 Most Valuable Global Brand ranking, Google’s brand value is $159 billion while Apple’s is $148 billion.
Given this sampling of statistics, it is imperative to manage your brand as the very valuable asset that it is. And if anyone tells you that brand management is a nonessential cost center, you can rest assured that they have hugely underestimated the financial and business impact of strong brands.
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