Let’s start with definitions. Are we talking impacting brand value or brand equity?
This might help: “Brand equity and brand value are measures that estimate how much a brand is worth. The difference between the two is that brand value refers to the financial asset that the company records on its balance sheet, while brand equity refers to the importance of the brand to a customer of the company.” https://bizfluent.com/info-8535356-difference-brand-equity-brand-value.html
So brand value should increase the value of your business, but for smaller brands it’s unlikely that your brand is going to feature on your balance sheet. But I would argue that even for small brands, improved brand equity will increase your margin and decrease your advertising costs.
Valuing big brands can be a difficult and complex job. But we are used to the philosophy at least: None of the world’s greatest brands have tangible assets that come anywhere near explaining their market capitalisation. The only explanation is their brand value. Coca Cola is no. 6 on Forbes Most Valuable Brands valued at $57.3bn. But it owns next to nothing tangible – not even its own bottling plants.
But for smaller brands this all gets tricky. The best you will do when selling a smaller business is get some credit for ‘goodwill’ – perhaps best defined a long time ago as “The probability that existing customers will come back to you”. It would be a brave accountant who (above and beyond a value for goodwill or any other intangible assets) tried to put a serious value on the brand of a smaller business.
And as for equity, well there’s only one way to find out; market research – are you moving the dial on awareness and consideration over time? But even if you do some market research on your customers or target customers, it is practically unheard of for smaller brands to track brand equity.
So does it matter? When it comes to measuring progress with brand value and brand equity, should smaller businesses even bother in trying to build them? Unfortunately this is a difficult thing to empirically determine.
Let’s look at the pros and cons of focusing on building brand equity (for now) for smaller brands.
The case against trying to build brand equity
- You don’t need to worry about brand purpose. No one will buy your brand because of why you do what you do – they’ll only buy it because of what it does.
- You don’t’ need to worry too much about your brand identity. If you’re not investing to promote awareness and consideration of your brand, it doesn’t matter what it looks like. Clear market positioning, clever creative devices, consistent messaging and visual identity? None of this matters much. You can save time and money on those things.
- You can spend at least 50% less on marketing. The rule of thumb about spending 50% of your marketing budget on building brand awareness and 50% on getting sales doesn’t apply. So you can spend all your media budget on direct response advertising like DRTV, paid search etc. and watch the sales come flooding in.
- You can save money on market research.
The case for building brand equity
So what’s the case for caring about brand equity if you are a smaller brand? Well. . .
- If you don’t love your own brand who will? If you are unconcerned about building brand equity over time, you will probably ignore the basics – reflecting on why you are doing it in the first place (Purpose), caring if that matters to others, making your brand distinct and your messages strong. If you are concerned about these things, you have the building blocks for brand love.
- You might not be able to measure your brand equity but that doesn’t mean it doesn’t have any. Awareness, consideration and reputation are a matter of wheels within wheels. Your brand may be only known to a relatively small number of people. But those close to your brand will have a view on it, positive or negative. So will your customers, and your staff.
- Brand equity lowers your marketing costs in the long term. If there’s one thing that spending several years as a digital marketer taught me it is this. It is very starkly obvious in online search. Brands that have equity get searched for by brand name. The cost per click for a term like ‘flat screen TV’ is around £2.50. Given you may need 50 clicks to convert – that £125 cost may be a lot more than the net margin on the TV. The reason that say Curry’s can afford to participate in paid search is, that for every website visit they get from a generic search term, they will get many for their own brand – the cost of the click will be nothing if it is organic, and perhaps 10p if paid for. So their brand equity – a result of historic brand awareness and consideration building – is subsidising their current cost of advertising. It’s also excluding new entrants and competitors with weak or no brand equity.
- You will get a premium. This is obviously one of the stronger arguments for building equity on big brands. But it works for all that know of your brand, however small your brand is. Apple’s customers come back and pay a premium. Your brand might not be known like Apple, but why wouldn’t your customers come back and pay a premium because they value your brand too?
So what’s the verdict? It’s difficult not to see the arguments for and against working on brand equity for smaller brands as really a case of short versus long-term thinking. Sure, you will save money on crafting your proposition and identity, and on trying to build awareness and consideration. But you’ll be doing ‘Goldfish’ marketing – looking at your PPC dashboard and going; “Ooh, a sale, ooh a sale, ooh a sale”. You will pay top dollar for every sale and it won’t get any cheaper.
On the other hand, if you and your brand – however small – are here for the long-haul, think and act like a big brand; what’s the downside? That means telling people why you do what you do, not just what you do. Relating your back story. Creating an identity that your customers are proud to be seen with. It’s an awful lot easier to get those things right while your brand is small, and up your awareness advertising later. The alternative is getting the sales first, and realising down the track that you have to go back to examine your positioning, identity, creative and messaging. Now you are a bigger brand that's going to be relatively expensive. You could have got it right when you were small.
Posted 7 February 2019 by Chris Bullick