Today, businesses and consumers are placing increasing importance on brands. Brands give consumers a sense of identity, stimulate their senses, and enrich their life experiences. People have needs to affiliate and surround themselves with things they know well, trust, and aspire to be. From a customer viewpoint, a brand is a signal of quality and creates a bond of trust with the manufacturers behind them.

There is a distinct difference between companies, products, and services that customers might be aware of, and real brands with strong brand equity. Therefore, strong brands are more than trademarks and trade names (logos that identify the products and services). Before delving deep into an analysis of branding, it is important to get the branding terminology right. Branding is a widely misused and misunderstood term which is almost clustered onto everything related just vaguely to strategy, marketing, and communication.

Branding is an investment that must be perceived as such and is required to deliver a Return On Investment (ROI) and shareholder value like any other feasible business activity. It must appear on the left side of the balance sheet as an intangible asset, and its value is subject to change upwards and potentially downwards.

A strong brand is defined and characterized by the following dimensions:

  1. A brand drives shareholder value;
  2. The brand is led by the boardroom and managed by brand marketers with an active buy-in from all stakeholders;
  3. The brand is a fully integrated part of the entire organization aligned around multiple touchpoints;
  4. The brand can be valued in financial terms and must reside on the asset side of the balance sheet;
  5. The brand can be used as collateral for financial loans and can be bought and sold as an asset;
  6. Customers are willing to pay a substantial and consistent price-premium for the brand versus a competing product and service;
  7. Customers associate themselves strongly with the brand, its attributes, values, and personality, and they fully buy into the concept which is often characterized by a very emotional and intangible relationship (higher customer loyalty);
  8. Customers are loyal to the brand and would actively seek it and buy it, despite several other reasons and often cheaper options available (higher customer retention rate);
  9. A brand is a trademark and marquee (logo, shape, color, etc.) which is fiercely and pro-actively protected by the company and its legal advisors.

Psychological research demonstrates that brands are durable because people are cognitive misers. Modern society is overloaded with information, and the average person receives far more information than one can possibly digest properly. Therefore, people seek to simplify the world by relying on a variety of heuristics to minimize the amount of searching and information processing needed to make reasonable decisions.

Also, in business-to-business environments, branding plays a very important role. Many people remember the brand, and they are already carrying out a search – so owners spend a lot of money on advertising their brand. Most decision-makers would feel very comfortable choosing IBM (a brand known for quality), buying networks from Cisco (security), acquire consulting from McKinsey & Co (credibility), order shipping services from Maersk (precision), or lease aircraft engines from Rolls-Royce (reliability) along with many other similar examples.

Once people believe a brand works for a certain purpose or reason, they are less likely to seek out new information that challenges the assumptions. Sociological research also demonstrates why people are less likely to switch brands. Multiple elements like images, stories, and associations are attached to a brand. As these elements are shared collectively by groups and networks of people, they form generally accepted conventions about brands. It is, therefore, relatively difficult for individuals to switch brands and thereby abandon these shared conventions.

One of the main underlying reasons for this behavior pattern is the trust that customers develop in certain brands. This trust helps customers to reduce the inherent risks involved in any purchase. Researchers refer to this concept as “perceived risks” and define it as the consumer’s perception of the uncertainty and adverse consequences of buying a product and services. Perceived risks have six dimensions: performance, financial, opportunity/time, safety, social, and psychological risks.

Brands can help reduce these perceived risks by authenticating the source of the goods and serve as a strong promise of the perceived value of the goods sold. By providing these promises of value through a brand, customers are assured in the purchase decision process that the risk-to-reward ratio of purchasing a strong brand is higher than that of purchasing a similar unbranded good.