A moat describes the ability to reap economic competitive advantages over competition and yield an above average profit for a period of time. In today’s startup crazed world, many cite data network effects and technology IP as a defensible moat and seem to ignore the effect that brands have as a possible defensible strategy.
Perhaps it is due to the seemingly intangible nature of brands that they don’t get much recognition but is that really the case?
What comes to mind when you hear someone say-
- Search Engine
- Fast food
My guess is that you probably were not thinking about Bing, Puma or Swensons (no offence guys). If you can occupy significant enough mind-share, your target shoppers might not even think to look for alternatives.
The strength of establishing a retail brand is commonly understated. Although it takes time and creativity to build, it can result in lots of long-term efficiencies.
- Halo Effect: This is a generally positive attitude that influences the overall perception of all the specific brand attributes.
- Purchasing Decisions: Some knowledge about the retailer or the brand can simplify the eventual buying decision by reducing the perceived risk associated with the purchase.
- Price Sensitivity: Proper brand architecting may lower the price sensitivity of shoppers which can establish a preferred position for the retailer. Over the long term, if this can be maintained, it leaves you less susceptible to price competitions.
- Personification: When we think of our favourite fashion brands, they tend to serve more than a utilitarian role- they also play a hedonistic one. They serve as a symbol for the brand values and attributes which appeals to certain shoppers.
- Product Extensions: Stronger brands are, at times, afforded the luxury of being able to diversify their product offerings into other product ranges
Just like many business decisions, we tend to have to justify the investment in terms of our P&L statement. Unfortunately, there still hasn’t been a standardised equation for measuring the value of a brand.
One possible measure could be estimating the additional cash flow associated with the brand. This formula would look similar to a forecast of future revenues discounted to present value. Although there are some debates about whether price premiums are a fair evaluation metric.
There are other possible proxies that one could use such as-
- Brand Awareness (Recall)
- Trustworthiness of Brand
- Customer Satisfaction
Retail Brand Architecture
With the rising number of retailers branching into different market segments, many have to make the decision of whether new retail formats should carry the same brands.
A brand hierarchy has to be devised internally and it should clearly define which strategy
- Umbrella: The same brand carried throughout all stores
- Family: Different brands carried depending on store format
- Mixed: Combination of the above
Differentiation is a word that is often tossed around in business schools without much context. In this particular case, the core reason why you want to get the differentiation statement crystal clear is because whenever someone thinks about that particular domain, your brand is top of mind.
Branding is a long-term strategy which requires both commitment and patience. (Not too different from parenting.) Constant repetition of clear concise points will cement brand associations but negligence and cost it to fade away.
If you have any feedback or questions about this post, we would love to hear from you.