Branding is an ongoing process that is crucial to your business success. Or, at least, that’s what everyone tells you. How do you break down the value of your branding campaign in specific, quantifiable terms? We delve into the fickle topic of quantifying brand value in today’s blog post.
Branding Affects Revenue
Profit is the most common indicator of business success. Branding is proven to directly affect profit by affecting volume and price, the two factors in the revenue equation:
Revenue = Quantity * Price
Branding and Quantity
Branding affects Quantity by increasing the likelihood of purchase within a given population. Imagine that all grocery shoppers were robots programmed to purchase the “cheapest product that fulfills my needs.” Every time the shopper views a wall of grocery products, they list the top 5-10 choices that fit their criteria, narrow the choices down to 1 or 2, and purchase the “best” product.
Branding does 2 things. Branding presence ensures that your product is consistently placed in your consumer’s consideration set, while brand messaging influences the ability of your product to “win out” against the competition and make it to the top spot. From our blog post on changing branding perspective, we can see that branding can change your product’s ability to rank higher by changing its absolute value or placing the emphasis elsewhere.
By emphasizing that your brand “fulfills needs” more efficiently, faster, or in a better manner than the competition, you’ll be more likely to be placed first on the consumer consideration set. Alternatively, branding can influence your consumer’s emphasis on certain attributes, moving away from “cheapest product” to focus more on “quality over quantity” or “efficiency is cheaper in the long run.”
Whatever your strategy is, branding can increase the total number of sales.
Branding and Price
Branding and product quality are the two most important factors in determining price. All price is established through Supply and Demand, and if you can bring up the demand for your product, you can charge your consumers whatever you’d like. Keep in mind that your consumers do not buy your product merely for the item; they buy it for the whole consumer experience.
The Value of 1%
Let’s say that after you execute your branding strategy, your brand is chosen more often than your competitor’s 1% of the time. You’ve also justified an increase in margin by 1%. We’ve specifically chosen the number 1%, because in reality the impact of branding can be a lot more effective!
Product Margin: $10
Product Sales: 50,000
With Branding – 1% Increase
Product Margin: $10.1
Product Sales: 50,500
$510,050 Revenue – $10,050 incremental revenue
With Branding – 2% Increase
Product Margin: $10.2
Product Sales: 51,000
$520,200 Revenue – $20,200 incremental revenue
Your branding campaign which increased Quantity and Price by 1% translates to $10,050 in incremental revenue. And that’s only a 1% increase! If your branding campaign improves margins and sales by 2%, it can result in an increase in sales revenue by $20,200! In this case, the value of your branding campaign is $20,200, assuming you were able to increase sales by 2% after justifying a 2% increase in margin. Realistically you would only expect movement in one of the two metrics, Quantity or Price, but the movement would be much more apparent. If you were able to influence the decision of 1 consumer in every 20 consumers, your branding campaign value would be as follows:
1/20 consumers “won over” from competitors: 5% increase in quantity
Product Margin: $10
Product Sales: 52,500
$525,000 Revenue – $25,000 incremental revenue
The impact of branding can be immense, but only if you do it properly. Creating your strategy is only half the battle-the other half is maintaining your brand presence and calculating the effectiveness of your brand. Want to know how to evaluate your brand? Download our free greenpaper and find out more about best practices in branding! Or, contact us at our marketing agency in downtown Vancouver and we’ll be more than happy to help.