Contentions: A good brand enables profit margins and product expansion

It’s obvious that it takes money (or time) to nurture a brand. What’s much less obvious is that a brand also pays off in the long run in more money, in the form of profit margins. Jon Lax writes:

The only purpose of a brand is pricing power.

The stronger a brand, the more pricing power the company has. This is why luxury goods manufacturers work to keep their brand at a perceived value that lets them sell handbags at 500% gross margins. A brand lets you enter markets with strong pricing power….

At its most mature form, this looks something like established brands in the luxury market. Imran Ahmed says:

If you go back to Michael Porter’s ‘Five Forces’ analysis model, which talks about the barriers to entry, over the past decade or so, the ability for smaller players to compete with brands like Vuitton, Hermès and Chanel is now very limited. The barriers to entry have become so high. Not just in terms of the investment, but also because these big groups control all the retail space and relationships with advertisers. They control the whole ecosystem; they have a lock on it.

In this sense, an established brand has created a very powerful virtuous cycle; the more profits the incumbents have, the more they can invest back into the brand, with new partners, and control the ecosystem and distribution. Disruptors have fewer ways of competing. Back to Lax:

Software that pursues low cost or no cost to attract scale would see very little value in a brand, since pricing power, is not a significant concern to them. But pricing power is also a proxy for trust.

A willingness on the behalf of consumers to follow companies in to new markets, sometimes irrationally. Strong pricing power acts as a sort of bank account that companies can draw from without having to be consistently remarkable. Since most first gen products are rarely that remarkable, a brand gives a company some breathing room (permission) to get it right.

Think about Google’s many expansions into Google Design, Think with Google, Bard, Google X, etc. Google’s brand also enables it to experiment boldly, shipping many products (and shutting them down—to many customers’ chagrin).

The implication is you don’t need to build a new brand from scratch when you build new products or go upmarket; the brand’s halo effect will lend your new work trust.

Content marketing needs to involve elements of both user acquisition and brand; to acquire customers without a good brand is to miss a serious opportunity to make a good first impression (and not to have to do that later!). To make a good brand without acquiring customers will require a lot of patience, and many companies are not in the circumstances to wait.

See also a luxury brand is a living, breathing, person, the hotel lobby brand litmus test, bringing creativity, brand, and distribution together.

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