It's extremely important for entrepreneurs to understand the concept and the importance of branding. Carefully branding your product or service allows you to differentiate it from other options available in the market. It oftentimes also allows you to charge a price premium. For example, Warby Parker products are less expensive than many other eyeware options but are more expensive than many other eyeglasses available online because of their unique brand. Let's not forget Apple was a start up at one point in time. Branding also allows you to create a personality or an image for your company. Is it a company that is breaking tradition? Harley Davidson is a well known motorcycle brand, but their EV motorcycles will be called livewire because they want to show it will break tradition. So let's spend some time studying branding in more depth. So what is the brand? Brand is a marketing device designed to create value that is above and beyond the core product or the service benefits. It's beyond the functional benefits of the product, beyond the features of the product. Brand adds value. Brands create value for the organization by often increasing the effectiveness of our marketing actions. If our brand is strong, our advertising works better. Our selling works better. In many cases, a brand can also create a separable company asset. You can sell it or license it without selling the company. Brands create value for the customers by differentiating it from competitors. Brands also serve as a credible signal of quality. Brands also offer emotional and social, self-expressive benefits, we call this brand personality. So let's go a little bit deeper into each of these aspects of a brand. How does brand create value for your organization? A very nice study conducted by McKinsey looked at 130 consumer goods companies and found that companies with strong brands generate returns 1.9% above the industry average. Weak brands generate returns 3.1% below the industry average. And more importantly, half of the market value of fortune 250 is sitting in intangible assets and a big part of that is in brands. What does that mean? Brand actually is a valuable asset that your shareholders are willing to pay for. Brands can help differentiate your product in the mind of the customer. In a very well known classic study on branding, expert beer drinkers were asked to taste beer under two conditions. One in which they could see the brand they were drinking, and another where the labels were removed. In each case they were asked to give their opinions on how similar and dissimilar were the beers that they drank. So in the blind taste test where the labels were removed, the various options were rated to be very similar except for Guinness. I'm not a beer drinker, but I'm sure there must be something very unique about Guinness relative to the other beers that made it taste different even when the labels were removed. Now, look at the case where they could actually see the labels. When brand labels were visible, the products that were similar tasted different. Any such differentiation allows each of these brands to charge a higher price. We know that from basic economics, that differentiation allows each of the brands to be able to charge a slightly higher price. Brain studies have also shown that branding has a distinguishable effect. Those interested in these brain studies may want to look at the work of Professor Reed Montague and see how he compared coke versus Pepsi using MRI analysis. Brands also serve as credible quality signals. The question that we ask is for what kinds of products do brands serve as strong quality signals? For this, we can classify our brands, our offerings into three different categories. And economists often put them in these three categories. Search goods, experienced goods, and credence goods. So what do we mean by search goods? Search goods are those where a potential buyer can be relatively sure about the quality and appropriateness of the product by say, looking at the characteristics of the product by going to the website. For example, when I'm buying a new PC, I just go to the website, look at the specs, and I'm very comfortable placing an order. So for me, a new notebook computer or a new pc is a search good. I just did that a few days ago I went to the website of the company looked at the specs and saw which one fitted me better and just placed the order and it's hopefully going to arrive this morning. Now let's think about experience goods but when I'm buying a car I still go to the website, look at the specifications but I'm not as comfortable. What do I want to do? I want to do a little more. I feel the need to test drive, experience the car in a little more to see if it matches what I want. When it says it has enough space, what does it really look like when it says it has good acceleration. When I put my foot down, what does actually happen. So specification alone is not enough. When I'm thinking of seeing a movie, I look at the genre of the movie, I look at the name of the actors but seeing the trailer add some value. We shall call these experienced goods. Now let's look at the third category of credence goods. How about consulting services, legal services or from a different angle cement that goes into the foundation of a bridge or vaccine that will prevent me from getting sick, or financial planning advice. In all these cases, the outcome takes a long time and whether or not what I purchased was good or bad will not be known or by the time it is known it is too late to take corrective action. We call these credence goods for example, financial planning. By the time I found out it didn't do the right thing. It may be too late, in all these cases, especially for credence goods. Trust is more important and strong brands provide that trust. It's therefore not surprising that in many of the credence goods industries incumbents with strong brands have a great advantage. Online financial advice is difficult to break into for new entrepreneurs but easier for strong existing players. The same is true for consulting. So if you are entering into these markets, you need to make sure you have a very unique value proposition. I think this is an important concept to understand. Historically, brands were used in search goods kinds of products to create differentiation where differentiation did not exist. In today's world branding has much more power as a signal of quality ingredients, goods, types of products. So if you are entering a credence goods market, you need to recognize the importance of creating a strong brand. Because that's where you need a trust between the buyer and the seller and the brand provides that trust. I put my name on it. Another aspect of branding that's useful to know is the concept of brand personality. Professor Jennifer Aaker from Stanford has done some very interesting and path breaking work in this area. She studied brands in the US and developed the concept of brand personality using very thoughtful approaches and pointed out five different brand personalities that exists. And the 5 personalities she identified were first sincere, brands such as Ford and Hallmark fell in this category. The next one was competence or competent brands. Brands such as IBM and Mercedes were in this category based on her studies. Rugged, Marlboro, Levi's, Harley, Davidson fell in this category. Sophisticated, Tiffany and Aston Martin were in this category. Exciting when she did her study, Virgin and Yahoo were in this category. What are the implications of this to think about? Each entrepreneur has a personality? Should the brand you create match the personality of the entrepreneur? Steve Jobs had a personality of being a rule breaker. Elon Musk has a certain persona. Should the brand match the personality of your target segment or should it complex what is missing in them? Are people buying Levi's jeans rugged or do they want to appear rugged? Some brands can create emotional value through their personalities and then appealed to the target audience either by reinforcing who they are or by complementing what they are not. In summary, it's crucial for entrepreneurs to understand the concept of branding. Good branding allows you to differentiate your product from others, think of Warby parker. A brand also signals the quality of your offering by creating a trust between the buyer and the seller. I am willing to put my name on it. Brands through their personality, also offer an emotional benefit by allowing consumers to be who they are not, or to express who they are. So think about branding as a key concept, as you're thinking about launching your new venture, and I wish you all success in this process.
