The Hidden ROI of Branding

Sam Tomlinson

“Why should we spend money on clarifying and building our brand when we need sales now?”

It’s a question that is all too common in marketing circles today. The story that surrounds that question is just as familiar: following the Great Recession, companies slashed marketing budgets and demanded quantifiable results to justify the investment made in advertising, media relations, sponsorships and the like. This kick started the “golden age” of digital advertising and spurred the rush of short-term campaigns that continues to this day.

Gone are the days of comprehensive marketing strategies, brand building activities and long-ranging strategic positioning initiatives; in are one-off campaigns designed to capitalize on passing trends or new fads. It is a systematic abandonment of brand building efforts in favor of the immediate gratification that comes from new customer acquisition. Unfortunately, for many companies, this is likely to be remembered as an extraordinarily expensive exercise in futility.

Direct Marketing – Effective until it isn’t

In an effort to achieve quick sales and easy-to-measure ROI, companies have chosen the path of least resistance: direct marketing. Measuring the ROI on these activities is exceedingly simple (with the rise of digital advertising and the wealth of consumer and conversion data it provides, has made it a favorite of CFOs and Marketers alike) and the results are near-instantaneous. Run a quick advertising campaign on Facebook (or Google, or wherever) to capitalize on a passing trend; realize an incremental increase in new customers and translate that into a black-and-white contribution to the bottom-line.

These results are presented to the higher ups, who (after seeing the boost to bottom line) allocate additional dollars to continue and/or expand these efforts. This seems well and good, until the inevitable happens: the returns start to diminish. Where once an investment of $X produced $Y in profit, that same investment is barely returning itself in revenue, let alone profit.

Inevitably this leads to a new, much more frantic question: “Why isn’t this working anymore?”

The simple answer: the company is all out of brand equity. Investments made previously have been drained out and what remains is an indistinguishable good in a competitive market. The price sensitivity of your consumers is sky-high; the “tolerance” of your consumers to increases in the price of your product is gone. This forces your company to compete exclusively on price against other companies with higher brand recognition — a losing proposition for even the largest corporations.

What’s worse: Consumers feel no loyalty to your product or service over others in the marketplace (if they know of your product at all), which increases customer retention costs, diminishes your conversion rate and reduces the number potential new customers.

Brand Building: The Cornerstone of Long-Term Success

Contrary to popular belief, “branding” isn’t an amorphous black hole for marketing dollars; it is the systematic process of determining the fundamental characteristics of your brand and defining the emotional experience you want each stakeholder to have each time they come in contact with your company.

Why is this important? A recent study by Psychology Today found “consumers perceive the same type of personality traits in Brands that they do in other people.” Branding is about creating a strong, lasting and meaningful emotional connection with your internal and external audiences. Done properly, investing in a brand building campaign is one of the most important spends a company can make: it builds loyalty, preference and elevates your product out of a pure commodity position. Consumers will pay more, travel farther and remain loyal to a brand they know, trust and love –all because of the positive, consistent emotional experience they derive from their interactions with it.

This is the (not so) short answer to the original question: strategic investment in your brand provides a stable, long-term ROI for your company, although it may not be as easy to measure as a one-off click-through campaign.

However, just because something is difficult to measure doesn’t mean it isn’t there – seeing the value may require a change of perspective. Take, for example, Starbucks: why people are willing to pay more, wait in longer lines and drive further for a mediocre cup of coffee? The simple answer is that it’s not about the coffee; it’s about the emotional experience of going to a Starbucks. Customers want that experience and are willing to spend more to have it. This is the impact a strong, well-developed brand can have on your company, regardless of the industry. It’s no coincidence that some of the most valuable and profitable companies in the world are also the most recognized and loved brands, from Apple to Zappos (with many more in between).

Here’s the bottom line: investing in ongoing brand building will help your company grow its bottom line; measuring the impact simply requires patience and a willingness to think outside the box.