17 Mar 2010 | Business

Investment - Branding Control 

A company’s brand can reveal some interesting clues for investors. Simon Middleton explains why the importance of brands should not be underestimated.

The word ‘brand’ is one that most people associate with marketing, rather than investment. However, investment decisions are based on many criteria, one of which being the ‘feel’ of a company and brand can play a part in developing that feel.

Brand is very different from a corporate logo or marketing. A logo is useful and important and so is marketing, as it places a product or service in front of an audience of potential buyers, but marketing is about what you say and brand is about what you are. In other words, a brand is a short-hand term for a set of meanings about a product, service, company or organisation. If that set of meanings is small, coherent, sufficiently positive and shared by enough people, there is a strong and positive brand.

COMFORT ZONE

A powerful example of a strong brand is John Lewis. If I ask people in the UK what John Lewis ‘means’, four words come up over and over again: quality, service, value and partnership. Sometimes people add the company’s slogan, Never Knowingly Undersold, which refers to value, or they add potentially critical words like middle-class or expensive. The twist is that these apparent negatives are just nuances of the positives. The John Lewis brand is comfortable with being middle-class.

Having established this small and consistent set of meanings, John Lewis has a clear and differentiated position in the market place and can defend easily against rivals, which is nothing to do with logo. In fact, it would be more accurate to refer to John Lewis’s clear and differentiated position in people’s hearts and minds – about how people think and feel.

The more cynical might say that surely we buy products and services because of their effectiveness, pricing and ability to meet our rational needs? Well, the simple answer is no, we don’t. Most buying decisions are emotionally biased. The more hard-nosed, rational information we have, the more likely we are to make a decision with our hearts because we are overwhelmed by the data.

When we use our emotion and intuition to make a decision, brands are very important. Buying a car is a good example: just think of the phenomenal success of the new Fiat 500. Another illustration of the power of a brand is when choosing a laptop computer. Entry level laptops are currently around £249 but Apple’s cheapest model is approximately £799 – yet Apple devotees wouldn’t dream of buying anything else. Brands matter when we choose Pret A Manger over Starbucks or vice versa.

THE ROLE OF BRANDS IN INVESTMENT DECISIONS 

It seems logical then that brand applies as much in business-to-business marketing and investment decisions as it does to consumer purchases. Those buying business services learn to trust one supplier more than another, even if they have to pay more. Investors develop an ‘instinct’ about one company over another which goes beyond number crunching.

Brands should be considered as a strong contributory indicator for likely future success of a company and investors should consider certain elements such as, “What does that company mean to the world, what are its emotional qualities, what loyalty does it command, what stories do people tell and how do its customers feel?”

No matter what sector or size or kind of company, great brands tend to have three characteristics in common. It can be a useful and simple benchmarking test to ask whether an investment opportunity shares these characteristics.

The first is authenticity. Good brands tend to be true to themselves, often apparent in a consistent focus (leading, rather than following fads) and by the brand simply being very good at something. The second is being compelling or rather, engaging people through their senses, emotions, experience and other non-rational ways. First Direct, a division of HSBC, is a compelling brand due to its high level of customer service. People answer phone calls efficiently, rather than endless key pressing and recorded messages.

The third characteristic is differentiation. It’s not just a matter of being a bit different, but about being really different and staying so. No other computer brand is anything like Apple. No other beer looks, tastes or feels like Guinness.

Companies can succeed without ever becoming ‘brands’, by excellence, clever marketing, competing on price or convenience. However, brand has the potential to win sustainable engagement and loyalty in a simpler and more cost-effective way. When you are assessing a company as an investment opportunity, you must study the facts and figures. Study the brand too – it will reveal things that data alone cannot.

OWN-LABEL PRODUCTS 

Meanings of brands can and do change. Twenty years ago supermarket own-label products were the poor cousins of branded goods, usually chosen because they were cheaper. As own-label brands gradually developed, they tended to imitate branded goods, echoing the packaging and names of well-known brands. Over the last five years, own-label ranges have become brands in their own right. Sainsbury’s Taste The Difference and So Organic ranges command a price premium because of their high quality and distinctive associations.

Investors in the supermarket sector should not just be interested in heritage brands but those supermarket operations that have developed distinctive and ‘meaningful’ own-label ranges. Internationally, brand meanings change too. Developing economies from China to Brazil are producing not just powerful home grown brands but dynamic and meaningful contemporary brands, posing a potential threat to major Western brands.

Simon Middleton, The Brand Strategy Guru, is the author of Build A Brand In 30 Days, published by Capstone in April 2010.

 

The views that are expressed in this article should not be taken as fact and no reliance should be placed upon these when making investment decisions. They should not be considered as advice or a recommendation to buy, sell or hold a particular investment.

This article contains information on investments which does not constitute independent investment research and accordingly it is not subject to the protections afforded to independent research.

Investment markets, including currency exchange rates, can down as well as up and investors may not get back the amount invested.