Brand equity and the role of brands

The American Marketing Association defines a brand as “a name, term, sign, symbol, or design, or a combination of them, intended to identify the goods or services of one seller or group of sellers and to differentiate them from those of competitors.â€? A brand is thus a product or service that adds dimensions that differentiate it in some way from other products or services designed to satisfy the same need. These differences may be functional, rational, or tangible — related to product performance of the brand. They may also be more symbolic, emotional or intangible related to what the brand represents.

Branding has been around for centuries as a means to distinguish the goods of one producer from of another. The earliest signs of branding in Europe were the medieval guilds’ requirement that craftspeople put trademarks on their products to protect themselves and consumers against inferior quality. In the fine arts, branding began with artists signing their works. Brands today play a number of important roles that improve consumers’ lives and enhance the financial value of firms.

Role of brands:

Brands identify the source or maker of a product and allow consumers either individuals or organizations to assign responsibility to a particular manufacturer or distributor. Consumer may evaluate the identical product differently depending on how it is branded. Consumers learn about brands through past experiences with the product and its marketing program. They find out which brands satisfy their needs and which ones do not. As consumers’ lives become more complicated rushed, and time-starved, the ability of a brand to simplify decision making and reduce risk is invaluable.

Brands also perform valuable functions for firms. First, they simplify product handling or tracing. Brands help to organize inventory and accounting records. A brand also offers the firm legal protection for unique features or aspects of the product. The brand name can be protected registered trademarks; manufacturing processes can be protected through patents; and packaging can be protected through copyrights and designs. These intellectual property rights ensure that the firm can safely invest in the brand and reap the benefits of a valuable asset.

Brands can signal a certain level of quality so that satisfied buyers can easily choose the product again. Brand loyalty provides predictability and security of demand for the firm and creates barriers to entry that make it difficult for other firms to enter the market. Loyalty also can translate into a willingness to pay a higher price — often 20 to 25 % more. Although competitors may easily duplicate manufacturing processes and product designs, they cannot easily match lasting impressions in the minds of individuals and organizations from years of marketing activity and product experience. In this sense, branding can be seen as a powerful means to secure a competitive advantage.

To firms, brands thus represent enormously valuable pieces of legal property that can influence consumer behavior, be bought and sold, and provide the security of sustained future revenues to their owner. Large earning multiples have been paid for brands in mergers or acquisitions, starting with boom years of the mid 1980s. The price premium is often justified on the basis of assumptions of the extra profits that could be extracted and sustained from these brands, as well as the tremendous difficulty and expenses of creating similar brands from scratch. Wall Street believes that strong brands result in better earnings and profits for firms which in turn create greater value for shareholders. Much of the recent interest in brands by senior management has been a result of this bottom line financial consideration.