chapter  8
26 Pages

Brand-Based Strategies

Overview Brands can be based on either products or customers. A product-based brand strategy, such as Coca-Cola and Marlboro, enables the business to grow and create shareholder value by finding new customers for the existing product. On the other hand a customer-based brand enables shareholder value to be created by new products being sold to existing customers. All strong brand strategies are self-limiting in that if the brand is stretched too far its strength can be irreparably weakened. If a competitive strategy that is based on brands is to be shareholder value

enhancing, the brand must enable the business to earn a super profit on its more tangible assets. In other words, the brand is itself an intangible asset of the business. There are only limited ways in which a brand can generate a super profit.

A strong brand can enable the underlying ‘product’ (whether good or service) to be sold at a higher price than would be obtainable without the brand. Alternatively more of the underlying ‘product’ can be sold at the same price, either by increasing the market share gained or by increasing the size of the total market. It is clearly possible for a brand to generate a super profit by a combination of slightly higher price and higher market share. In all these cases, the ‘brand’ increases the financial return that can be

generated from the ‘product’, but a strong brand can also reduce the volatility of the cash flows produced by the underlying product. This reduced volatility reduces the perceived risk of investors and can result in a lower required rate of return. There are a number of stages involved in developing a brand into a long-

term asset. This development process requires considerable financial investment by the brand owner. Marketing has now developed quite sophisticated research techniques and methodologies that can evaluate the effectiveness of activities at each stage in the brand development process. The challenge for marketing finance is to turn these purely marketing measures into financially relevant measures that can ensure these successful brands are shareholder value enhancing.