Pricing is fundamental to the management of a firm’s future financial success. The relationship between price and volume is well understood. All other things being equal, higher prices reduce volume. This does not mean that the price premium commanded by a brand necessarily reduces sales volume. Effective branding strengthens consumers’ brand preference, which has the effect of pushing the demand curve upward and to the right, as shown in Figure 1. This means that the consumer will pay more for the brand even at the lower end of the price/demand curve than would be the case for a comparable unbranded product. This change in the demand curve is what creates the strategic pricing advantage of a brand. The firm uses the change in the demand curve (shown by the curve that is upward and to the right in Figure 1) to capture greater volume, to increase the price (and margins), or some combination of higher volume and increased price that corresponds to at a point along the branded demand curve.

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A closer look at the improved brand demand curve is helpful for illustrating the array of strategic choices available to the firm that pursues an effective branding strategy. The new brand-driven demand curve, which is illustrated in Figure 2, creates a region of pricing latitude bounded at the top end by the maximum feasible premium price and at the bottom end by the maximum feasible volume that may be achieved by a low price. For most brands, the optimal price, as defined by the price that maximizes flow for the firm, is not the top or the bottom of the curve. Rather, the optimal prices are likely somewhere in the middle. In addition, the optimal price may vary over time. These facts produce important strategic options.

The firm might pursue a pure premium pricing strategy that seeks to maximize cash flow through the capture of large margins. However, a modest reduction in price might dramatically increase sales volume. The result might be an overall increase in cash flow, even with modestly lower margins. The optimal price for any brand is really an empirical question and can be addressed with market research. And, the effect of price is not just the result of taking share from competitors.

The strategic implications of the branded demand curve become even more interesting, and potentially more profitable, when costs of production and marketing are considered. If there are economies of scale in production and/or marketing, greater sales volume may be associated with reductions in costs, and a concomitant increase in margins. When the firm has a portfolio of products that share production, marketing, or distribution costs, the cost effects can become even more important.

But wait! There’s more. The same strategic pricing decisions associated with a branded demand curve also flow to members of the distribution channel(s). The firm’s branded demand curve also applies to channel members, who will have greater pricing latitude themselves. This, in turn, gives the marketer greater influence in the distribution channel because the brand is accompanied by strategic opportunities, assuming they are understood by the marketer and the channel member. And there are implications for managing adjustments to price over time, including temporary reductions (or increases) in price related to trade and consumer promotions.

Branding is not just about making consumers feel good about a product. It’s not just about the ability to charge a price premium. Rather, it is about creating strategic opportunities for the firm. Realization of these opportunities requires an understanding of the influence of branding on pricing and demand. It is also why effective branding is not just about marketing communication; it is about influencing the demand curve through strategic pricing decisions.

Contributed to Branding Strategy Insider by Dr. David Stewart, Emeritus Professor of Marketing and Business Law, Loyola Marymount University, Author, Financial Dimensions Of Marketing Decisions.

At The Blake Project, we help clients worldwide, in all stages of development, define and articulate what makes them competitive and valuable at critical moments of change. Please email us to learn how we can help you compete differently.

Branding Strategy Insider is a service of The Blake Project: A strategic brand consultancy specializing in Brand Research, Brand Strategy, Brand Growth and Brand Education

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Accounting standards in the United States prescribe that brands only appear on the balance sheet as the result of a purchase transaction. As a result, most brands, such as Coca-Cola or Procter and Gamble’s Crest do not appear anywhere on the balance sheet. Brands that do appear on the balance sheet as the result of a purchase transaction can never increase in value on the balance sheet; their value can only change through a reduction in value or write-down. This is how accounting treats brands even if revenue and margins, and future discounted cash flows increase dramatically. Thus, the value of a brand created by a firm is not reflected on the balance sheet, and a brand that is acquired and placed on the balance sheet can only go down in value. Given this state of affairs, it is perhaps not surprising that brands and branding are poorly understood, even by experienced managers. This could be just a case of out-of-sight, out-of-mind, except the costs of brand building and maintenance are always highly visible and easy targets for cuts. It also does not help that much of the return on investment in brands occurs in the future, rather than immediately (though there are also immediate measurable outcomes as well).

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Of course, many savvy investors do understand the value of brands. The consulting firm, Brand Finance, has tracked the financial value of thousands of brands over time. In one historical analysis Brand Finance found that companies with the strongest brands generated twice the average return of  all S&P 500 firms. Similarly, the marketing research firm, Kantar, tracks the value of the top 100 brands through their BrandZ methodology and has consistently found that stronger brands out-perform the S&P 500. The Marketing Accountability Standards Board has directly addressed the financial value of brands and has developed best practices for both reporting the financial return on brands and for brand management.

MASB observes that there are five factors that contribute to the measurable financial value of a brand: volume, margin, mix, cost, and optionality. These are not just indicators of value; the represent tools for the management of a brand’s financial performance.

Brand preference can translate into greater sales volume and more revenue as consumer preferences are translated into more purchases and greater market share. However, strong preference also often means that a brand can command a price premium, require less price promotion to incentivize purchase, and can be more resistant to competitors’ price discounts. Such pricing effects also increase revenue. The relationship between volume and price also gives the firm the flexibility to trade off higher volumes for greater margins and generate higher sales volume and market share by reducing margins. Such flexibility can be an especially useful management tool in highly competitive markets and in cases of economic downturns.

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Mix is also a useful management tool and refers to the ability to serve customers with different tastes and different preferred price points. A portfolio of brands provides the means to migrate consumers from one product to another within the portfolio. Thus, younger, price-sensitive consumers may be moved to higher quality and higher margin products as they become more affluent. Similarly, a lower-priced product provides a place for consumers to trade down to in the face of economic downturns or just a change in preference for a lower-priced, more functional product.

While branding is often associated with higher costs, e.g., more advertising, more expensive product or service, and greater distribution support, among others, effective branding can influence a variety of costs, including may non-marketing expenditures. A strong brand may provide a platform for R&D efforts and product improvements that are less expensive than creation of a new-to-the-world product. Reminder advertising and distribution support is less expensive than advertising and obtaining distribution for a new-to-the-world product. Strong brands can have a positive effect on lenders and investors, which can reduce the firm’s cost of capital. Pride in a brand can even translate into more effective and efficient employee recruitment and retention and reduce the associated costs of recruiting.

Finally, a brand can create options for the firm to exploit. Such “optionality” refers to opportunities to leverage the brand for new opportunities through brand or line extensions. Such options can be especially important drivers of revenue growth in some businesses. For example, Disney routinely leverages its film properties through merchandising deals, new rides at its amusement parks, and tie-ins with its hotel and cruise offerings. Similarly, Apple has created a highly integrated eco-system that ties hardware, software, content (such as music), and even retailing together. Such options, even when not yet realized, have real value but are often overlooked in discussions of brand management.

Given such power to influence the financial health of the firm, it is surprising that most discussions of brand management primarily revolve around marketing communication. Communication is important, of course, but branding is more than slick advertising. It is a way to do business, and a very profitable way to do business if done well. Marketers who focus on the creation and maintenance of brands would enhance their contributions and credibility by communicating to CEO’s and CFO’s how branding contributes to financial performance, increases financial leverage, and provides tools for financial management.

Contributed to Branding Strategy Insider by Dr. David Stewart, Emeritus Professor of Marketing and Business Law, Loyola Marymount University, Author, Financial Dimensions Of Marketing Decisions.

At The Blake Project, we help clients worldwide, in all stages of development, define and articulate what makes them competitive and valuable at critical moments of change. Please email us to learn how we can help you compete differently.

Branding Strategy Insider is a service of The Blake Project: A strategic brand consultancy specializing in Brand Research, Brand Strategy, Brand Growth and Brand Education

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Good positioning, which is only partially under the control of the brand marketer, carries a variety of benefits for the brand: (1) greater recognition and memorability by consumers, (2) a reason to buy, that is, the value provided by the product, and (3) a clear basis for choice over competitive offerings. Such consumer centric benefits are often associated with greater frequency of consideration of the brand by consumers, greater market share in the relevant market, greater consumer loyalty as measured by repeat purchase, greater willingness among consumers to pay a price premium, and greater financial return for the firm. If you have ever seen an ad and asked what exactly they are advertising, you have seen an example of poor positioning. Hence, the critiques of Jaguar advertising: no car is shown or implied; it looks like rather common ads for fashion or cosmetic products; no reason to buy or even identification of what to buy; different from what?

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The world changes and such changes often include changes in consumer needs, lifestyles, and values, changes in technology, and changes in competitors’ offerings. What was once of value, or a point of differentiation may become less so. Thus, changes in a positioning statement of a brand, repositioning, is often required in response to such changes. There are a number of signals that repositioning might be necessary: a downward trend in sales, eroding margins and/or market share, failure to capture new customers, especially those just entering the market, technology that creates new or better benefits, and loss of differentiation as a result of changes in competitors or competitive offerings, among others.

It is important to differentiate repositioning from rebranding and brand extension. Repositioning involves changing a brand’s message, image, or associations in ways that retain the core identity of the brand. Thus, Crest successfully repositioned itself by differentiating itself as the toothpaste for fighting cavities, a value proposition supported by endorsement of the American Dental Association. More recently, Old Spice changed its image by appealing to younger consumers with its “be like a man” message, while still retaining its associations with an attractive scent, ships, and other elements of its brand. The new positioning did not alienate older users, but did provide reasons for new customers to try the product.

In contrast, rebranding involves changes to the whole identity of a product. It may involve changing the brand’s look and feel, name, logo, associations, or even use. Listerine began life as a surgical antiseptic and was even advertised as a dandruff rinse before establishing its contemporary identity as a mouthwash. Rebranding often involves abandoning the original brand name and any who may still find the brand attractive. It is often done in response to negative associations with the brand. One the other hand, Apple has been a master at evolving its brand identity overtime, starting out as a computer hardware company but evolving into an umbrella for a wide range of digital products and content. Updates of existing elements of the brand, such as logos and fonts, are typically referred to as a brand refresh because they do not change the core identity of the brand. Finally, brand extensions represent efforts to extend product or service offerings into new, different categories. Thus, Crest has expanded from the name of a toothpaste to an umbrella brand for a host of dental hygiene products. Brand extensions almost always involve some repositioning of the original brand because they change how consumers think about the brand, the value or benefit(s) offered, and the points of differentiation.

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It is important for brand managers to understand and clearly articulate what they are trying to accomplish and how they hope to influence consumers regardless of whether the issue is repositioning, rebranding, refreshing, or extending a brand. An especially important consideration is the degree to which any change in current positioning influences current customers even if the intention is to attract new customers. Relevant changes in customer behavior are not just whether existing customers and new customers will buy, but also how often they buy, and what price premium they will pay, if any.

Any change in strategy and positioning needs to include an analysis of the target customers, new and existing, the effect of the change on some relevant behavior, such as purchase or price paid, and the financial implications of the change and resulting market response. Whatever the strategy there needs to be a clear and strong value proposition and a differentiating message. Effects of any change are measurable in advance and the costs of such measurement are modest relative to what is at risk. Change is inevitable; response to change is a choice. In the words of Steve Jobs: “Innovation is the ability to see change as an opportunity, not a threat.”

Contributed to Branding Strategy Insider by Dr. David Stewart, Emeritus Professor of Marketing and Business Law, Loyola Marymount University, Author, Financial Dimensions Of Marketing Decisions.

At The Blake Project, we help clients from around the world, in all stages of development, define and articulate what makes them competitive and valuable at critical moments of change. Please email us to learn how we can help you compete differently.

Branding Strategy Insider is a service of The Blake Project: A strategic brand consultancy specializing in Brand Research, Brand Strategy, Brand Growth and Brand Education

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It has been said that consumers do not buy drill bits they buy holes. In fact, consumers don’t really buy holes either. They buy entertainment services that happen to require a hole in the wall for wiring. The hole, like the drill bit that is used to make it, is just a means to a larger end.

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A great many software products, bought as products, are really substitutes for services. Kiosks replace fast food order takers. Consumers and companies replace bookkeepers with financial management software. Printers are replaced with desktop publishing. Travel agents disappear as web sites offer similar services and the always available ATM machines replace the not always friendly or available bank teller.

So how is it helpful to think about products as substitutes for services?

First, such a view shifts thinking from technology to customer experience. Technology is important, but it is incomplete without translation into a route for consumers to achieve their goals. If we are to replace the services of a bank teller with a machine, for example, what services must the machine deliver for the customer to perceive the service experience to be complete, and how might the new technology improve the experience?

Second, a service perspective assures that the human elements involved in product purchase and use are considered as a part of product design. People are the users of products at the end of the day. If there were a service provider present as the consumer used and consumed the product what would this service provider say and do? How might thinking about this hypothetical service provider alter the design of the product, the usage instructions, and other products bundled with the product? How might the product improve upon the service experience through standardization and improvements in quality while replacing or at least causing the consumer not to miss the human element of a transaction and consumption experience?

Third, thinking about products as services forces an examination of customer goals that drive purchase. What is required by the customer to achieve these goals? If the service sought by the customer is a printed page, what is necessary to produce this experience? The answer is not just a printer, and a service provider would know this and provide all the things necessary to produce the printed page desired by the customer, and this process would be invisible to the customer. In contrast, many printer products are sold without the necessary cables to connect to a computer or other device. This means the “service” experience is broken and the customer finds that the product does not deliver the desired service.

Fourth, this view of product as service has implications for branding and brand identity. If the product were a service provider, how would that server be described and what would this description communicate about the brand. The “Helping Hand” character that has been used to advertise Hamburger Helper for decades and Progressive Insurance’s energic, friendly, and bossy Flo character provide elaborate identities for their associated brand.

Finally, service-dominant logic can be useful in thinking about how to “productize” a service. One problem with services is that they are often poorly defined and subject to feature creep (of course a free car wash should be included in my auto repair!) Identification of the full complement of benefits a customer seeks from a service provider can provide more definition of the service “product”. Such definition can be a powerful tool for managing customer expectations and for more completely defining the brand experience. For example, what should define the driverless taxi that pulls up to the curb to pick up a passenger.

Thinking about the services embedded within and delivered by a product can make products better, suggest features, and identify opportunities for improvement over human delivery. It can also suggest how a service product should be defined. It is a thought experiment worth some time and effort.

Contributed to Branding Strategy Insider by Dr. David Stewart, Emeritus Professor of Marketing and Business Law, Loyola Marymount University, Author, Financial Dimensions Of Marketing Decisions.

At The Blake Project, we help clients from around the world, in all stages of development, define and articulate what makes them competitive and valuable at critical moments of change. Please email us to learn how we can help you compete differently.

Branding Strategy Insider is a service of The Blake Project: A strategic brand consultancy specializing in Brand Research, Brand Strategy, Brand Growth and Brand Education

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The Spring 2024 CMO Survey included a report on marketing responsibilities, that is, the activities for which marketing is primarily responsible in survey participants’ firms. Not surprising, high on the list are brand, digital marketing, advertising, and social media. More than 80% of the survey respondents reported that marketing was primarily responsible for these actions in their organizations. These are all activities that can contribute to building and reinforcing a brand. However, they can also be little more than incantations to the gods asking for a favorable climate. And, indeed, other data in the survey suggests that this is often what branding efforts are in many firms.

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The survey found that less than a third of the survey participants reported that marketing was primarily responsible for new products and services, only a quarter were responsible for pricing, and only four percent were primarily responsible for distribution. Such figures make clear why branding efforts often fail. Successful branding depends on a strong, differentiated offering around which compelling customer experiences and messaging can be created, on a sustainable price premium that customers regard as fair, and on the ready and convenient availability of the product. If marketing is not responsible for these activities, which are fundamental elements of a firm’s profitability, all of the branding, advertising, and digital media efforts are little more than magical incantations.

Without the ability to manage the product offering, the price, and availability of the product, marketing cannot build a brand. It most certainly cannot contribute to the firm’s profitability or stock price. Stated in other words, marketing cannot contribute to profit and loss without decision rights related to product, price, and distribution. Without such decision rights marketing is a staff function supporting the efforts of other functions in the best case. It is not a line function, which may be one reason so few people with marketing backgrounds are found on boards of directors.

Thus, there exits a paradox. Marketing is often called on to build brands but is not given the authority, resources, and P and L responsibilities that are required for successful brand building.

This state of affairs represents a significant change from the early days of the marketing discipline, which emerged early in the twentieth century in response to the need for processes and institutions for matching supply and demand as society became more urbanized and consumers became more affluent. The focus was on product, price, and distribution. Indeed, advertising was a late addition to marketing’s early responsibilities. Marketing textbooks still teach marketing as a discipline responsible for the four P’s, product, price, promotion, and place (distribution). This is clearly not how marketing is manifest in most organizations.

While it is possible to define this problem as a “marketing” problem, it is actually a problem at the firm level – it is a Board and CEO problem. Demand management is fundamental to the short- and long-term financial health of the firm. If marketing, or some other discipline, is not responsible for deliberate, coordinated management of demand, the firm is living on borrowed time. Expectations that marketing, with no decision rights related to pricing and distribution, will create and maintain product offerings that command a price premium, because customers really do value them, are unrealistic. No magician can change this fact, no matter how great their stage presence.

Successful brand building, and profitable firms, require aligning expectations and responsibilities. Responsibilities must be aligned with decision rights. However, it is also important that responsibilities and decision rights align with abilities and experience. This will happen only when marketing career development includes specific P and L responsibilities. It is time to reconceptualize the marketing function and return it to its roots in demand management. Firms and their shareholders will benefit from this change, but it cannot happen without the leadership and direction of Boards and CEO’s. It’s not about magic; it’s about management.

Contributed to Branding Strategy Insider by Dr. David Stewart, Emeritus Professor of Marketing and Business Law, Loyola Marymount University, Author, Financial Dimensions Of Marketing Decisions.

At The Blake Project, we help clients from around the world, in all stages of development, define and articulate what makes them competitive and valuable at critical moments of change. Please email us to learn how we can help you compete differently.

Branding Strategy Insider is a service of The Blake Project: A strategic brand consultancy specializing in Brand Research, Brand Strategy, Brand Growth and Brand Education

FREE Publications And Resources For Marketers