Whenever I pitch a proposal to a prospective client, usually a business owner, CEO or senior executive, the conversation always ends up at the same place: But what’s the Return on Investment (ROI)?
It’s hard not to empathize with them since money, especially for small businesses, is an important and often scarce resource. And if they are going to spend it, then they want reassurance that there will be return on their investment. But that’s not always easy to measure.
the challenges of measuring the ROI
of brand marketing.
There are two main challenges in measuring the ROI of your branding efforts.
One, it’s hard to attribute a company’s performance specifically back to its brand marketing efforts when so many other factors might be at play. This is the reason why ROI isn’t always the right measurement for branding.
Two, branding is an investment that mostly impacts the long-term performance of the company. And the lifecycle of a small business causes leaders to lack the time, patience or perspective required to eventually see the return.
Branding is fundamentally about differentiation. So the question we have to answer here is, What’s the ROI of differentiation? Before we do, let’s get on the same page about what differentiation is.
differentiation and why it matters
When customers see products or services in a category as interchangeable options, they often choose the cheapest. And it usually leads to a price war, where profit margins get so small that everyone loses.
Differentiation is about gaining a competitive advantage. It isn’t about standing out. Otherwise, simply looking different would be enough to earn customers’ trust and loyalty. You have to be different in a way customers find relevant or meaningful. To earn customers’ trust and loyalty, they have to see and believe that you offer a differentiated value.
What might be the ROI of such a level of differentiation?
1. sales advantage
Brand differentiation is only achieved if the company is clear about who they are and who their ideal customers are. And when you bring the right products to the right people and with the right message, you get a sales advantage. You get better conversion rates because your messaging and your offer speak directly to your customers’ needs, challenges, fears and aspirations. And since you are able to communicate with empathy for them, they trust you.
Differentiation is also a service to customers. It saves them the time and energy to sift through a plethora of options. It minimizes the anxiety of having too many similar options and the fear of making the wrong choice. It helps customers cut through the clutter that could have prevented them from choosing you.
2. pricing advantage
If you are no longer seen as an interchangeable commodity, but as a unique option with differentiated value, then you can command higher prices than your competitors. Differentiation gives you the opportunity to charge a premium and therefore the ability to deal with less volume but with more revenue and better margins than your competitors.
Long term, differentiation gives you the ability to steadily raise your prices without losing customers. As Warren Buffet puts it, if you raise your prices by 10% and have to say a prayer because you are worried that your customers might leave, then you do not have a good, sustainable business.
3. customer loyalty advantage
With differentiation, you not only earn customers’ trust, but their loyalty as well. And loyalty is the ultimate advantage. It increases the revenue per transaction and extends your customers’ lifetime value, making each of them significantly more profitable over time.
Loyal customers are customers for life, and their love for the brand often turns into advocacy. They usually become the brand ambassadors that fuel word of mouth and bring in new clients. Brand loyalty also lowers your customer acquisition costs because repeat customers, as well as those they refer, cost you nothing to acquire.
4. human resource advantage
Companies with great brands are clear about their purpose, mission and values, which are key elements that enable them to achieve differentiation in the first place since they are harder and often impossible to duplicate— unlike prices and features. Top talents are hard to lure and retain based on compensation and perks alone. They seek companies with a great reputation, and with values aligned with theirs.
Brand and culture are two sides of the same coin, as the late founder of Zappos Tony Hseieh used to say. The only way for your company to build a brand is through its culture. More than what they say, companies are judged by what they do. And it’s your people's ability to consistently deliver on your values and promises that ultimately will help you build an authentic and reputable brand.
5. equity advantage
The difference between a $3 white cotton tee and a $35 Nike t-shirt is the brand. Adding the swoosh to anything immediately increases its perceived value.
Furthermore, 30% of a company’s valuation is its brand equity on average. And in some cases, well over 60% of a company’s valuation is its brand. It’s 68% and 71% for Disney and McDonald’s respectively, and even higher for some luxury brands. All the advantages we’ve covered so far contribute to a company’s brand equity.
So what’s the ROI? As you can see, this question is quite complex to answer, especially when we use short term metrics to measure long term effects. But once you shift your perspective, it becomes clear that branding is the most important investment for anyone trying to build a successful and sustainable business.
written by junior nyemb, chief empathy officer at grio