What is the Value of a Brand?

What’s the value of a brand? This question should grip everyone in business in the 21st Century. Because without an effective brand, it’s difficult to market or sell products effectively, especially in the 21st Century.

You can’t just guess or wonder what’s the value of investing into a brand. You need to know that it’s valuable. If you don’t value your personal brand or know the dollar value, for what it could potentially produce for you… well you won’t invest into your brand. Without having the foresight or incentive to build an effective brand you simply won’t create one.

People (in general) think branding is a function of being great at selling, but really, it’s a measure of goodwill or intangible value you bring prior to the first business meeting or sales encounter. The first encounter with the prospective person that (you could be) working with, or prior to selling a product or service. You have to demonstrate intangibles, and the best method for doing this, at least in the 21st Century, is via content or a media-attached model to your personal brand, or on behalf of your company.

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Don’t take shortcuts

Most people (in general) are dependent on an association with luxury goods or services than building their own effective brand. It’s why, people who take shortcuts look good, but when people dig deeply enough, they realize the person is idiotic, fake, pretentious, and so forth. The association with borrowing a more valuable brand to “look the part” doesn’t always substantiate your market or value position, which is why it’s more important to build a brand than “borrow brands” from other successful companies.

People won’t recognize you the individual, but they will recognize the Ferrari. They’re not looking at you, but rather the car, or the associated items. You’re marketing Ferrari for them, but you sure as heck aren’t a meaningful owner of Ferrari’s stock (which would cost a princely sum of $2B just to be a 10% owner of Ferrari stock because the company is currently valued at $20B). With $2B you could buy an NFL Football Team, but you can always borrow some other company’s brand for the low cost of $350K, and market the Ferrari for them, so you look good in association (which has become common practice among various Internet gurus).

So, when you think you’re marketing yourself you’re wrong, you’re marketing someone else’s product for them, and when you depend on the products of other people, you’re really piggy-backing off of someone else’s brand.

When Steve Jobs walks around, he doesn’t wear brands associated with other companies, but rather he bought a turtleneck and a plain pair of jeans. Why? Because, he was too busy marketing his own products, i.e.  his own brand. He wasn’t trying to associate himself with luxury, because instead he was creating a luxury category for consumer devices (Apple’s brand is valued at $170B), and he also owned a meaningful percentage of it prior to departing to the afterlife.

What about Howard Schultz the founder of Starbucks? Same deal, he didn’t go about associating himself with other high-end brands. Instead, he just created a high-end brand in the Coffee Segment. Starbucks’ brand was estimated to be worth $44 Billion or 2x the value of Ferrari. He doesn’t need to market some other brand or piggyback off of someone else’s product to look good. He’s sitting on top of and built a brand that’s worth way more than Ferrari’s entire company stock.

There are countless examples of people who confuse their brand positioning for someone else. It just doesn’t work that way, which is why you have to differentiate between brand building or borrowing the credibility of some other company’s product or brand to “look the part.”

When people create highly valued business franchises it’s almost always a function of them creating the intangibles from thin air, and then associating that brand or imagery with a generic product or service. This is where people create lasting value with their associated intangibles, because it’s representative of something more than just a generic product or service.

I’ve never seen anyone get richer than the company who sits on the unique trademarks and intellectual property associated with the brand by borrowing or piggybacking off of the brand. What you need to realize, is that you’re not in the business of marketing someone else’s product or service, you’re in the business of marketing you, and your company. You’re not ever going to market yourself effectively if you’re marketing someone else’s product on their behalf, because they make you “look good.” It’s too confusing, and people aren’t buying you, they’re buying your association with someone else’s brand and intellectual property, which are the two things you do not own.

Really successful people don’t piggyback off of the successful brands of other people. Instead they create their own unique brand. They’re too busy marketing themselves, because they aren’t dumb enough to confuse prospective customers with various other associations that’s not relatable to the company they own, or their own personal brand.

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So, why do people value brands so much?

Well, it’s very simple, brands have value because they command the respect of the customer. It’s like the earlier Ferrari example, people want to buy Ferrari, because of its association with luxury and quality. So, when buying the brand, they gain the added self-esteem that it brings with ownership of the car. However, you have to be very careful not to mistake the value of that brand with your own company or personal brand.

Hence, the value of your personal brand depends heavily upon what it brings you, and what it brings your intended customer or audience. When you build a brand, you’re embarking on a journey to improve trust, and to reassure them of the quality and value you offer when marketing your service or product. This by extension establishes credibility, and it drives the customer engagement without needing to sell aggressively, because people recognize that you can deliver on the intended business outcome, or the features described in the product marketing.

When you build a brand, it’s very simple, the value you derive from that brand is revenue. When you effectively position your brand it tends to have a predictable business outcome, i.e. sales and follow-on sales, because not only have you built an effective brand, but the quality associated with the product is so compelling that they comeback to purchase the same product or service over and over again. Hence, the brand you build leads to a sales outcome, and with those sales you can continue to fund your business, and growth of your branding efforts.

It’s why certain companies don’t emphasize selling, but rather, they tell a story with their advertising. It’s why some advertisers don’t hard sell, or even describe features relating to the product. Instead, they simply film a memorable moment and then they plaster their signature corporate brand on top of the commercial.

It’s what happens when you watch the Budweiser commercials, where they emphasize the value of the social activity, and then reference their brand with that associated social activity.

The same could be said for Geico commercials, they always keep it fun and lighthearted, so when you go and buy the car insurance, it’s not a matter of whether you trust them, but rather you simply like the company, which is why you buy the car insurance from Geico.

Sure, Geico doesn’t have the cheapest insurance premiums, but who cares? You like them, which is why you buy their car insurance.

Personal branding is an intangible asset, it’s not easy to reference the value for intangibles, because the value of being likeable or trusted is difficult to measure, but when you measure the effects of effective branding the effect becomes more noticeable from those who have personal brand, and those who do not. Those who have personal brands can market services and products associated with their name whereas those who do not have to put in more effort to pitch, present, or prospectively sell or win customers in perhaps unwinnable circumstances.

Branding makes it easier to generate revenue with any product or service you launch. When there’s a certain name association with what you do, the effective brand is able to sell more effectively than the person who is an unknown commodity. If you’re not branding yourself as knowledgeable or having expertise then you have to work that much harder to establish trust in the relationship, and you then have to go through the perfunctory activity of even explaining who you are, and then you have to use more energy than necessary to make a persuasive enough sales argument to close the sale.

I.E., the difference between the sales representative at Bank of America, and the sales rep at Northwest Community Bank is quite simple. One company invested a lot more into their intangibles over time, and the other did not. When people open an account at Bank of America it’s a more recognizable brand, and it’s why people will entrust more money to a big bank, as opposed to a smaller community bank despite the argument in favor of Community Banks due to various fee reductions and better mortgage rates. Despite the “practical” factors for why you should open a bank account at a Credit Union the vast majority of consumers prefer banking at the major banks anyway.

Now, why hasn’t this changed? Despite all the calamity, and disaster and scandal reported by the news? Because, they spend more on branding, and so the sales associates at the major banks don’t even have to work as hard to open accounts at their branches, because people trust the bank before they ever walk into the bank. It’s really that simple. When you sell behind an established brand you notice a remarkable difference in the sales encounter then when you start cold and have to establish relationship and trust.

The branding efforts of these larger institutions makes it easier for the front-line associates to sell, and sell effectively, because they have an embedded advantage when compared to the countless other banks that don’t have that competitive advantage.

It’s why you have to build a brand, it’s why you have to establish trust, because if you’re not willing to do this then you’re only making it more difficult when you eventually land on the sales encounter where it’s important to establish a meaningful amount of rapport to generate the sale. Businesses operate because they generate revenue, and when they’re not building an effective brand to sustain the front-line sales organization… the entire company suffers.

It’s why most people no matter how well-meaning, or how intentionally they work will never establish an effective foothold with their product or service, because they waste or exhaust so much energy trying to breakthrough the psychological distrust or they have to exhaust more activity to improve likeability. When you have to climb out of the “unknown lemon” scenario, you might as well attempt sumo wrestling in a mud-pit, and see how effective that it is, or attempt football on a wet field to see how much your performance degrades. Selling without a brand is much like the prior scenarios.

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So, what is your brand worth and have you built one effectively?

Valuing a brand is a bit subjective, but it borrows some theories from finance. There’s the conventional life time value analysis, which estimates the total amount of revenue each acquired customer will bring to the business, and then there’s the enterprise value approach whereby a publicly traded stock prices-in the future potential of earnings and cashflow, which by extension means the estimated value contribution the brand would have on future cash flow and earnings reflected in the stock price.

Now, the enterprise value approach, or really the difference between what the stock price is worth, and it’s total book value is the amount investors are willing to price the company at based on its future revenue and earnings.

This is where branding adds value, and it’s why hot garbage marketers are able to earn a quick sales but fail to retain enterprise value.

Meaning, if the company’s balance sheet reflects $300M in value, but the stock market prices the company at $1.2B, it means that the intangibles are worth $900M. Why is it valued like this? Because, investors price in the impact of future sales and earnings into the business. What drives this value estimation? The forecasted revenue and earnings growth from the company’s internal efforts to acquire more customers relative to the amount they spend. This means that investors will pay a growth premium, for the perceived value of future sales. Where do future sales derive from? The quality of the products paired with the value of the brand.

When you believe the stock market prices the value of companies effectively due to the pricing discovery of markets in general (certainly not in the short-term but definitely in the long-run) the value of those intangibles is reasonably priced-in when measured over years.

So, when you deal with publicly traded companies, it’s obvious why some are worth more than others. Who could explain why Tesla Motors is worth so much more than General Motors despite the smaller revenue base and less tangible value? It’s because of the intangible value of Tesla Motors, because they’re not only perceived to be a more valuable brand in general, but because they have intellectual property that gives them a proprietary advantage when compared to other automakers.

Because of this, the branding and intellectual property gives Tesla a bigger edge in terms of valuation. This is why building an effective brand is important, because it (actually) means the difference between a company that’s worth $57B (Tesla) and another company valued at $49B (General Motors). Tesla produced $11B in sales in FY’18 whereas GM produced $145.6B in FY’18, so the value of Tesla is worth more than the value of General Motors by 20% more, and it produces just 7.5% the amount of sales in comparison to General Motors.

Basically, Tesla Motors is more valuable than General Motors, because people believe that the future sales and earnings will outmatch General Motors over the long-run. This is because consumers perceive more value in Tesla’s brand, but also because Tesla has more impressive technology, and perhaps more cross-sell potential. So, Tesla Inc. similar to Apple Inc. positioned itself like a technology and luxury brand whereas General Motors positioned itself for the broad market, or the entirety of the auto market with cars that are positioned at every pricing tier across so many different brands. It’s not as effective as Tesla Inc., because people can see past the gimmicky accounting numbers GM produces, and value the company (Tesla) for what it’s intangibles are likely worth.

Hence, the intangibles are more valuable than the tangibles in business, and it’s why you have to think more proactively when creating a brand.

The quick marketing types push infomercials, or various educational promotional campaigns, or something that’s really optimized for short-term conversion, but without any consideration for long-term retention.

Hence, the brand is the key to wealth creation. Without a powerful brand the intangibles of the business and I don’t mean the intangibles from an accounting standpoint… but rather the intangible value derived from the market value is mostly derived from the future expectations on sales. When a company and the various analysts covering the stock can forecast a healthy growth rate for those future sales the brand itself figures into that equation.

Meaning, the company is able to entrench itself because it has a predictable method for generating future sales, which in many cases is heavily dependent on the value of their brand paired with their intellectual property. The technology moat paired with the branding moat is where most tech companies are able to derive a massive premium on their value relative to their total book value.

It’s why the intangibles of a business are arguably more important than just the tangible assets sitting on the books, because it’s the intangibles that determines the long-term value of the enterprise.

Taking that into perspective, this tends to work on the opposite spectrum. An effective brand works for big companies. But branding also works for small companies and individuals too. Personal brands when constructed properly can lead to meaningful encounters that bridges you with various opportunities that would not have been made available to you had you not built an effective brand in the first place.

Furthermore, when dealing with non-public companies the value of the brand can still be measured, assuming you combine branding with revenue. When a small(er) business is able to brand themselves effectively they struggle less when trying to convert sales, and so their sales cycle improves by a meaningful factor. You then combine this with the presumed decay function (meaning the number of times a customer is likely to comeback and make another purchase), and the long-term value of the branding efforts can be better established, because the value of each customer acquisition might lead to future sales not tied to the initial sale.

This implies that the business can continue to scale-up, and the brand created more sales opportunities than what could have been anticipated initially, hence the company is able to anticipate the amount of revenue they can generate when compared to the amount they spent to acquire the customer.

The cost of acquiring a customer, or customer acquisition cost is the amount you spent up-front to win a customer’s business. However, the repeated visits build into a lifetime value equation, which means that the sum of the projected revenue from that new customer addition is then factored into the value of the business, which hinges entirely on the intangibles of your branding efforts and effectiveness of your sales organization.

This substantiates the reasoning behind building your own brand. It’s an intangible characteristic that gives you more leverage in every future encounter with a prospective buyer for your service or product, and because of that… you have an embedded competitive advantage that helps differentiate you from the competition.

Keep investing into your brand

The value of branding isn’t questionable, but rather… how are you going to work towards that effective brand, so you can continue to build your own business, products or services?

When you’re building your brand, is it congruent with who you are? Have you positioned yourself effectively?

There are countless variables that might determine your value, but the most likely outcome from building a large-scale brand is a guaranteed contribution to your longevity and future as a business.

If this all sounds so wishy-washy, it’s because it is. Nobody knows the exact future, and not even the public or private markets price assets correctly at all times. However, if you want a brighter future tomorrow you should invest into branding, so things get easier, the opportunities become bigger, and the friction in each encounter diminishes.

Think of this like investing into your University Degree. Education is important, or mandatory right? Well, the same could be said for your personal brand, as well.

You could become successful without a massive brand, but why would you make things more difficult than necessary? Especially, when you need every ounce of credibility when embarking on the dangerous journey of launching your own business?

Warning: Do not attempt business without building a brand.

Best of luck,

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