The Amer­i­can Mar­ket­ing Asso­ci­a­tion defines a brand as a name, term, sym­bol, and/or design that’s intend­ed to iden­ti­fy the goods and ser­vices of one sell­er or a group of sell­ers and to dif­fer­en­ti­ate them from those of the com­pe­ti­tion.

How­ev­er, we argue that a brand is more than a mere name that helps with iden­ti­fi­ca­tion and dif­fer­en­ti­a­tion. Iden­ti­fy­ing a brand and dif­fer­en­ti­at­ing it from com­pet­ing brands only makes sense when the brand offers val­ue. We define a brand as a val­ue-gen­er­at­ing enti­ty (name) rel­e­vant to both cus­tomers and the brand own­er. If no one wants to buy the brand, the name doesn’t have much mar­ket rel­e­vance. Such a brand fails to pro­vide val­ue to either the com­pa­ny or cus­tomers. But what does it mean to say that a brand offers val­ue to cus­tomers and com­pa­nies? Let’s first con­sid­er what we mean by brand val­ue to com­pa­nies.

Sur­pris­ing­ly, we have paid so much atten­tion to brands as iden­ti­fiers and mar­ket­place dif­fer­en­tia­tors that we have not paid much atten­tion to the sub­stan­tial, real, and strate­gic ben­e­fits that brands can pro­vide to com­pa­nies. But these ben­e­fits are numer­ous and sig­nif­i­cant.

What An Admired Brand Does

  1. Rev­enue Gen­er­a­tor: An admired brand increas­es cus­tomer loy­al­ty and attracts new cus­tomers.
  2. Cost-Effi­cien­cy Enhancer: An admired brand is in demand, which allows the com­pa­ny to take advan­tage of economies of scale and allows the com­pa­ny to enjoy cost-sav­ing cus­tomer brand loy­al­ty and brand advo­ca­cy behav­iors.
  3. Growth Facil­i­ta­tor: An admired brand facil­i­tates the intro­duc­tion and suc­cess of its exten­sions to oth­er mar­kets and oth­er prod­ucts.
  4. Human-Cap­i­tal Builder: An admired brand helps recruit and retain tal­ent­ed peo­ple who will ulti­mate­ly deter­mine the company’s suc­cess in the mar­ket place.
  5. Employ­ee-Morale Boost­er: An admired brand moti­vates employ­ees to pro­tect and strength­en the brand.
  6. Sec­ond-Chance Provider: An admired brand enhances cus­tomers’ will­ing­ness to for­give mis­takes made by a com­pa­ny.
  7. Mar­ket Pro­tec­tor: An admired brand serves as a bar­ri­er to entry to future com­peti­tors.
  8. Alliance Facil­i­ta­tor: An admired brand facil­i­tates alliances with desir­able and pow­er­ful exter­nal part­ners.
  9. Asset Builder: An admired brand enhances the company’s mar­ket­place val­ue, and also allows it to demand a pre­mi­um price in a brand-sell­ing sit­u­a­tion.

Rev­enue Gen­er­a­tor

An admired brand increas­es cus­tomer loy­al­ty and attracts new cus­tomers. These twin out­comes enhance a brand’s rev­enue. Although pro­duc­ing a soft drink is not rock­et sci­ence, new entrants find it incred­i­bly hard to com­pete in this mar­ket, since most cus­tomers have a strong and long-stand­ing pref­er­ence for a par­tic­u­lar soft drink brand. And this holds true world­wide. A strong brand also increas­es rev­enue by mak­ing cus­tomers less price sen­si­tive, allow­ing com­pa­nies to charge a high­er per-unit price. Think about the price pre­mi­um brands such as McK­in­sey and Gold­man Sachs can charge in the mar­ket­place.

Cost-Effi­cien­cy Enhancer

An admired brand is in demand, which allows the com­pa­ny to take advan­tage of economies of scale. Strong brands also cre­ate favor­able word of mouth (WOM) and cus­tomer evan­ge­lists who fur­ther con­tribute to mar­ket­ing effi­cien­cy by low­er­ing mar­ket­ing costs. In fact, some brands became mar­ket­place suc­cess­es pure­ly through WOM. Trad­er Joe’s is an exam­ple. Think about the sto­ries cus­tomers relate about the unique prod­ucts they can get only at Trad­er Joe’s. China’s Xiao­mi, a tech com­pa­ny, relies entire­ly on brand com­mu­ni­ties and WOM from its fans for pub­lic­i­ty and brand-pro­mot­ing activ­i­ties. Or con­sid­er the pride cus­tomers take in their durable Patag­o­nia jack­ets and the sto­ries they share about them. Since adver­tis­ing and pro­mo­tion costs often eat up a sub­stan­tial por­tion of com­pa­nies’ bud­gets, enor­mous cost effi­cien­cies are real­ized by fan-based WOM.

Growth Facil­i­ta­tor

An admired brand can be lever­aged and extend­ed, cre­at­ing growth (and rev­enue) from new prod­uct or mar­ket cat­e­gories. An admired brand makes it eas­i­er for com­pa­nies to grow and grow effi­cient­ly, through prod­uct and brand exten­sions that use the brand name. Such exten­sions help the company’s over­all growth. Ora­cle grew by extend­ing its brand to a port­fo­lio of cloud and mobile solu­tions. Apple’s exten­sions have allowed it to grow from $19.3 bil­lion in 2006 to $234 bil­lion in Decem­ber of 2015.

Human-Cap­i­tal Builder

An admired brand helps recruit and retain tal­ent­ed peo­ple who will ulti­mate­ly deter­mine the company’s mar­ket­place suc­cess. Tal­ent is the most dif­fi­cult core com­pe­ten­cy for com­peti­tors to copy. Think about Google and Tesla’s abil­i­ties to attract top tal­ent. Admired brands attract top tal­ent at all lev­els of the orga­ni­za­tion.

Employ­ee-Morale Boost­er

An admired brand also moti­vates employ­ees to pro­tect and strength­en the brand. Employ­ees of admired brands are more com­mit­ted to nur­tur­ing cus­tomers than are employ­ees work­ing for brands with no dis­cern­able equi­ty. Why? Because they believe in the brand and are proud of what they do to help it flour­ish. Cost­co, which can be called an admired brand, has high­er employ­ee morale than com­peti­tor com­pa­nies in the same indus­try. Employ­ees who work for com­pa­nies ranked as most admired in their indus­tries take pride in the company’s suc­cess, and they work hard­er to pro­tect and strength­en the company’s rep­u­ta­tion. Exec­u­tives who man­age admired brands are even will­ing to accept low­er pay for the oppor­tu­ni­ty to work for the brand.

Sec­ond-Chance Provider

An admired brand also enhances cus­tomers’ will­ing­ness to for­give unfor­tu­nate mis­takes made by a com­pa­ny, giv­ing it anoth­er chance to redeem itself. Martha Stew­art, Paula Deen, Toy­ota, Nike, and Harley-David­son, to name just a few, have all fall­en vic­tim to brand gaffes and dis­as­ters. Yet the strength of their brands, the loy­al­ty of their cus­tomer bases, and their cus­tomers’ will­ing­ness to see brand mis­takes as rare and unusu­al events have helped them to recov­er.

Mar­ket Pro­tec­tor

An admired brand pro­tects com­pa­nies by serv­ing as a bar­ri­er to com­pet­i­tive brand entry. Cus­tomers are reluc­tant to switch from an admired brand to a new one unless the ben­e­fits of the new brand are suf­fi­cient­ly com­pelling to moti­vate switch­ing. Cus­tomers’ famil­iar­i­ty with admired brands pro­vides com­fort via what they know and have expe­ri­enced. Their affec­tion for a brand they know and admire makes them unwill­ing to invest in a new and untried brand. His­to­ry shows that while many com­pa­nies can pro­duce ath­let­ic cloth­ing, toys, and data­bas­es, they can’t sim­ply com­pete with the likes of Nike, Lego, and IBM.

Alliance Facil­i­ta­tor

An admired brand can facil­i­tate alliances with desir­able and pow­er­ful exter­nal part­ners. Such alliances can both lever­age brand admi­ra­tion and enhance it fur­ther. Alliances allow com­pa­nies to build addi­tion­al rev­enue and mar­kets with­out mak­ing cost­ly invest­ments in areas in which they lack exper­tise. The abil­i­ty of Apple and Sam­sung to attract part­ners serves as a tes­ta­ment to how much oth­er com­pa­nies admire these brands. Recent alliances between BMW and Louis Vuit­ton, Apple Pay and Mas­ter­Card, and Spo­ti­fy and Uber also illus­trate this point.

Asset Builder

Final­ly, an admired brand gen­er­ates greater share­hold­er return because investors take notice of admired brands when mak­ing their invest­ment deci­sions. This in turn makes a company’s mar­ket­place val­ue sub­stan­tial­ly high­er than its book val­ue. That explains why Wan­da Group paid $650 mil­lion to acquire the Iron­man brand, which orga­nizes, pro­motes, and licens­es triathlons around the world, includ­ing the sig­na­ture Iron­man event that con­sists of a 2.4‑mile swim, a 112-mile bicy­cle ride, and a 26.2‑mile (a full marathon) run. As a sign of “hav­ing made it”, some par­tic­i­pants tat­too the Iron­man logo on their bod­ies upon com­plet­ing this hell­ish and gru­el­ing event.

The crit­i­cal ques­tion is this: If an admired brand offers val­ue to com­pa­nies on so many dimen­sions, how can com­pa­nies devel­op an admired brand? The answer to this ques­tion is both sim­ple and decep­tive­ly com­plex. The sim­ple answer is that com­pa­nies can’t reap the ben­e­fits of these myr­i­ad and sig­nif­i­cant sources of val­ue unless they also pro­vide val­ue to cus­tomers. The decep­tive­ly com­plex answer is that the field of mar­ket­ing has yet to devel­op a com­pelling per­spec­tive on what cus­tomers actu­al­ly do val­ue.