Jan Lindemann - The Economy of Brands

The Economy of Brands

Jan Lindemann

Jan Lindemann 2010

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First published 2010 by
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The past 25 years have seen the recognition of intangible assets as the main drivers of business and shareholder value. In many businesses brands now account for the majority of shareholder value. This is not only true for the classic consumer goods businesses such as The Coca-Cola Company or Unilever but also for many B2B businesses selling to a professional audience. It is therefore important to understand how the economy of brands works and how it can be exploited to create sustainable value. The purpose of this book is to develop and enhance the understanding of the brand as an economic asset in order to make better business and investment decisions. It looks at the value creation of the brand from all aspects and provides approaches on how to assess and manage the value of brands. The book is written from a practitioners perspective and is based on the authors experience in the practical application of brand value in all relevant areas.

Different chapters will consider the economic value of brands from a theoretical and practical point of view. The first chapter deals with the variety of definitions of brands and provides the economic definition of the brand adopted in this book.. In the final chapter a brand management framework is discussed and developed. The findings and insights of the book are summed up in the Conclusion.

Understanding and measuring the economic value creation of brands requires a clear understanding and definition of what a brand is. The word brand is derived from the old Norse word brenna which means to burn. By burning signs onto cattle skin farmers could demonstrate their ownership. Although the initial purpose of branding was to demonstrate the origin of an animal it quickly grew into a means of differentiation. Over time a farmer would establish a certain reputation for the quality of his cattle expressed by the branded mark on the animal. This enabled buyers to quickly assess the quality of the cattle and the price they were willing to pay for it. The information provided by the brand helped to guide the purchase decision. Facilitating choice is probably the most important purpose of branding in commerce. Understanding how the brand guides customer choice is crucial in defining what a brand is and what economic value it creates.

Brands can be traced back to ancient civilizations as evidenced by archeological proofs from Etruria, Greece, and Rome. Producers marked their pottery to communicate their origin and quality.of differentiating their goods. It was during this period that brands such as Campbells, Coca-Cola, and Quaker Oats emerged. In the US market these goods are still called packaged goods.

In the late 1880s, James Walter Thompson, founder of the advertising company JWT and one of the pioneers of brand advertising, published so-called house advertisements to explain and sell the services of his agency to potential clients. Thompson drew on insights derived from behavioral psychology and advanced market research. His house advertisements were amongst the first systematic descriptions of the use and effect of brand advertising and an early commercial explanation of what is today defined as branding. Consumer goods companies started developing sophisticated communications strategies including brand positioning, tag lines for advertising campaigns, packaging design, mascots, and jingles to build their brands through media communications mainly radio and television. By the 1940s, consumer marketing became more sophisticated as companies began to understand and recognize the social, psychological, and anthropological dimensions of the relationship consumers were developing with their brands. Increasingly brand communications expanded beyond promising quality towards building more complex psychological associations. As the quality of many products became increasingly similar and difficult to differentiate brands had to offer additional, mainly emotional benefits to be distinguishable. Most of these emotional benefits provide means of self-expression and definition. Buying and owning a specific brand communicates specific associations and values internally as well as externally. For example a buyer of a pair of Nike sport shoes communicates to both the outside world and the owner of the brand success, performance, and winning. Both internal and external communications are closely linked with the internal feeding on the external. Alongside the emotional benefits there are also perceptions about tangible or material brand benefits. In most categories consumers can choose from a wide range of options however, they can no longer test and compare the actual material differences of these offers. Some material benefits such as quality are also hard to define as they comprise different aspects such as durability, functionality, timeless design, etc. Often, therefore, consumers have to rely on the brand communications not only for intangible but also tangible benefits.