Strategic Importance of a Brand

The brand is an intangible asset owned by an entity which gives a competitive edge to the entity over its competitors. Strategic importance of the brand can be analysed as follows:

  • Serves as a unit of account in financial analysis-

There are many products that falls under the same brand name. Certain cost incurred such as promotion costs for one product may automatically serve the other product. In other words there are certain costs that can not be ascertained product wise. As an example promotion cost of KFC Zinger Burger will bring publicity to other products under the KFC brand name such as KFC chicken submarine. In such situations the promotion costs are calculated based on the brand which reflects the true beneficiaries of the cost incurred.

  • Brands has a longer life cycle than a product life cycle-

Product may reach the decline stage and will have a short life cycle due to the rapid change in the technology and customer preference. But a brand will last longer than a product as the new product which are compatible with modern technology and customer preference can be added to the brand. The declining products can be removed from the portfolio. This will make the brand last longer than a stand alone product.

  • Brand decides the price of the product-

When people buy branded products consumers are actually paying for the brand/name. The product that is sold under the brand name does not cost much but a premium price is charged to reflect the associations of the brand. As an example when a customer buys a Rolex Watch he actually pays for the brand name and the product does not much as he pays for the product. Therefore the brand plays a major role in making pricing decisions.

  • Brand can be licensed to expand operations with lesser risk-

Company can provide a license to some third party (in return of a royalty payment)  to start operation in an untapped market using the existing brand name. This will benefit the licensor (brand owner) as they can access the untapped market with less business risk and earn royalty. The licensee (the one who is going to start new business) will be benefited as they can use the existing established brand name to start operations which reduces their business risk.

  • Brand dilutes buyers power-

The brand act as a unique measure to differentiate product from its competitors. Also brand differentiate the producer from the retailer and gives a unique identity to the producer even though brands are sold at retail shops. As an example if a good (say a Mars Chocolate bar)  is sold at a super market, the brand Mars will differentiate the product from the retailer and give some special identity to the product even though consumer is not directly purchasing from Mars. So brand serves as a psychological switching cost among alternatives as customers will always prefer to buy a known brand rather than an unbranded good.

  • Act as a barrier to entry-

The brand builds a barriers to small and new firms who are willing to enter the market as the brand has already captured a loyal customer base who will change their brand choice even if there are better offers from new firms. New players will be reluctant to enter the market as they assume that it will be hard/impossible to capture market share when there are established brands in the market.

Share this post

Related Posts