Your brand as the creator of margin

There are lots of definitions of brands I love:

The face of your business strategy

What people say about you when you are not in the room

and finally:

the value created over the cost of goods and services.

This last one is a great one, because it strikes at the heart of what it takes to make a business healthy, sustainable, and a great place to work. It is also a strong indicator of the value a brand is taking to its customers.

On the stock market it is measured as the value of the intangible assets which stands at over 60% of the market capitalisation of the leading companies. Here is a list of the value of the  world’s leading brands  for 2011(thanks Interbrand!). Check that upward movement of the Internet, IT and mobile computing brands. Three of the four most valuable brands in the world are IT brands. The top 20 are  primarily  made up of the  internet, computing, cars and fast food.

Rank Previous Rank Brand Region/Country Sector Brand Value ($m) Change in Brand Value
1 1 United States Beverages 71,861 2%
2 2 United States Business Services 69,905 8%
3 3 United States Computer Software 59,087 -3%
4 4 United States Internet Services 55,317 27%
5 5 United States Diversified 42,808 0%
6 6 United States Restaurants 35,593 6%
7 7 United States Electronics 35,217 10%
8 17 United States Electronics 33,492 58%
9 9 United States Media 29,018 1%
10 10 United States Electronics 28,479 6%
11 11 Japan Automotive 27,764 6%
12 12 Germany Automotive 27,445 9%
13 14 United States Business Services 25,309 9%
14 8 Finland Electronics 25,071 -15%
15 15 Germany Automotive 24,554 10%
16 13 United States FMCG 23,997 3%
17 19 South Korea Electronics 23,430 20%
18 16 France Luxury 23,172 6%
19 20 Japan Automotive 19,431 5%
20 22 United States Business Services 17,262 16%

When we look at brand value as margin, we can look at the retail mark up over the cost of goods and services. This is an interesting point to reflect on. Too many times I meet people in business, especially in struggling small business, who see the name of the game as getting the cost of delivery down at the expense of their face to the world and their perceived value. They typically under invest in the creative values and production values of their business… or they may under value and cut back on the investment in the customer facing side of their business, thinking all the value is created in the transaction engine. These are the businesses that consistently fail to command margin and consistently fail to survive.

This morning I stumbled across a blog by Rafi Mohammed called How to Find out What Customers will Pay (thanks Rafi). He put forward some numbers on margin, so compelling they became the inspiration for this blog. He refers to his study on the impact of margin in his book: The 1% Windfall. In this book he shares a study of the top 1200 companies in the world, which revealed a rise of 1% in price, increases profits by an average of  11%. (Gulp)…some companies would get spectacular impact at 1% price increase, such as Sears at 155% and Whirlpool at 35%.

In Hearts and Minds research we have uncovered two simple ways to start to boost your margin, the first is to remove confusion, bring as much clarity, consistency, simplicity, ease and convenience to your brand. The second way to do this is to build trust. Just by giving a warranty you are usually able to raise your prices up to 20%, some businesses claim up to 50 to 100% increments with warranties and guarantees. Trust is also about a choice of behaviours. By walking your talk, being associated with trustworthy people, being clear about your motivation, and speaking the unvarnished truth, your ability to generate customer trust will rise.

To get your margin up, do some  customer research. Some customers will be willing to pay more for significant reductions in risk, or even greater convenience. By customising solutions and pricing accordingly your business can grow margins by segment and increase the perceived value at the same time.

Pricing and its associated perceived value, are critical expressions of your brand. Even the amount you ask for your brand  immediately sets up expectations about your  business self worth and the positive perceptions that come with that. So before you start to tinker with price, think about who you are attracting in, your position in the market, and  how you can develop creative pricing strategies through customised solutions.

Louise Kelly

Managing Director

Hearts and Minds

http://www.heartsandminds.com.au

Founder Thought Leaders Circle

http://www.thoughtleaderscircle.com

References

http://blogs.hbr.org/cs/2012/09/how_to_find_out_what_customers_will_pay.html

http://www.interbrand.com/en/best-global-brands/best-global-brands-2008/best-global-brands-2011.aspx

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