Is a Brand Actually Worth Anything?

Posted by: Rod Kurtz on April 17, 2009

If we take the word "brand" at its original meaning (the trademark or distinctive name identifying a product), it seems fair to assume that brands can acquire some intrinsic value. Let’s see how this assumption holds up to logical scrutiny.

The value of a brand (brand equity) is a relative measure. You can only value one brand relative to another. Also, when products are not identical in every way, brand value is likely to be incalculable. Let’s imagine a case of true product parity. If two products were in fact identical, what is the theoretical value of each brand? That’s right; nothing. In an efficient market, customers will not be prepared to pay a premium for a product when there’s a truly identical alternative. If customers are currently paying a premium for a product when there’s an identical alternative, that brand equity is a temporary phenomenon, reflective only of market inefficiency. As share traders know, this kind of arbitrage opportunity tends not to last long.

This line of reasoning illustrates that a brand has no long-term intrinsic value. It also highlights that the premium a customer is prepared to pay for one product over another is directly proportional to the degree of differentiation of that product.

It’s time us marketers faced up to reality. If we are operating in the best interests of our organizations, we are not building brands; we are making sales. In the long run, the most successful products will always be the better products (those that provide customers with the greatest value). The fact is that business growth has little to do with brand equity today. And, if anything, its significance will reduce as time passes and markets become more efficient.

Justin Roff Marsh
President
Ballistix
Chicago

Reader Comments

Karl Winkler

April 17, 2009 12:03 PM

I don't agree with much of what Marsh says, and I think there are plenty of examples contradicting him. One of his assumptions is "market efficiency" so how does he explain irrational exuberance or the state we're in now where people hold onto their money even though it's probably a great time to invest? Perhaps for certain "pure commodities" he is correct. But there are plenty of products and product types that do not follow his model.

Why does Coca-Cola sell "Coke" for a premium price over the generec equivalent?

An example I observed many years ago in the professional audio industry was that Audio Techica was not able to sell a condenser tube studio microphone at all, mostly because they were Audio Technica. They tried selling it for $1699, and eventually they had to lower the price because nobody would buy them. The equivalent microphone, essentially, from Neumann sold for $1999 and was one of the hottest selling microphones of it's time. Feature and specification wise the two products were nearly identical. Only the brand made the difference.

I think initially, brand doesn't matter as much, say, if two unknown companies come out with nearly identical products. But if one company eventually establishes a good reputation while the other does not, the company with the good reputation (thus brand equity) has many more sales opportunities than the one without the reputation. Sure, the company with the good reputation can be ruined with a string of bad products - look at Mercedes vs. BMW. BMW did a better job of holding up their quality in recent years, thus have sold more cars in the US than Mercedes in the last 10 years. And why are people willing to pay 10K more for a BMW 3-series when it can be argued that Honda and Toyota offer essentially equivalent cars (such as the Accura TD)? Much of this is due to brand.

I DO agree that it is important to generate sales, thus I'm not a big fan of pure "branding marketing" where the only thing sold is the brand. But at the same time, I want to make sure that whatever marketing work I do keeps the brand in mind, rather than just simply "selling a product". In my industry, we are not generally selling commodities, and we are not "just any company". Mantaining a positive and relevant brand image does make it possible for sales now and in the future, where ignoring the brand and simply selling products does not do so to the same degree.

People have impressions, right or wrong, about brands. Mostly, it is the cumulative experience with the company and brand, not just with a single product, that determines how people feel about a company. A "good" company can make mistakes and is forgiven, while a "bad" company is skewered for every mistake.

In many cases, it can be shown that the brand alone imparts many times the value of the pure commodity alone. Take couture fashion items, like purses or shoes, for example.

nica faustino | www.legalvideonetwork.co.uk

April 19, 2009 12:17 PM

WOW! Interesting insight, which I honestly couldn't disagree more!

People buy from people, or recommended products by people, or "trusted" products by others. In my opinion, the latter is where "brand" makes the difference to sales.

Look at the Legal market, and wonder Why billions of dollars are spent with the top 10, top 50 law firms worldwide? Are they really much better than the smaller firms?! or they built a brand that is recognized and trusted!?!?

Look at the Fortune 500, and ask your friends, neighboors, even those you dont't know. There is a chance they have an idea what these companies do, thus will check them out if/when they are in need of a similar product, solution, assistance.

Brand is at the heart! of a successful business in my opinion.

Thomas Perpere

April 20, 2009 6:15 AM

Nonsense ! Then why have several brands been able to charge premium for decades witout any eroding market share when products are extremely similar if not identical tot he competition?

Look at the examples ok Coke (which is by the way not the better product judging by consumer tests), beer (very little differentiation in the product, but tremendous differences in brand building activities), or any luxury company. People pay extra for a branded product, there is no denying that.

Certainly, strong brand identity is not the solution to all problems. You still need a sound management of costs, good distribution networks and strong salesmanship, etc... But because of the close emotional / personal ties that it creates witht he consumer, brand equity is a key differentiator between products (especially when they are identical) and will result in increased sales. You'd better recognize that before you make any recommendations to your clients !

Amy G.

April 20, 2009 3:20 PM

Coca-cola offers superior products w/ a superior taste and quality...that's why they earn a premium. I can think of countless products in the grocery store where the private label has the same quality level as the big brand product...and for those products, I'll go for whatever is cheapest. When it comes down to it, my loyalty is to my wallet and my tastebuds. Find me a Safeway brand cherry cola w/ zero calories that's delicious and I'd switchover in a heartbeat. I agree w/ the author that in the end, product superiority is the key to success.

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