Advertising Primer 3: The Value of Branding
Marketing—and advertising in particular—often seems like an intangible science. If fact, it seems more art than science most of the time.
However, brand equity is one aspect of marketing that is exceedingly tangible. Brand equity is a balance sheet metric that plainly shows how well a given organization has applied their marketing efforts towards their brand.
Nearly every day each one of us purchases certain preferred name brands when comparable generics sit inches away on the same store shelf. This is brand equity.
But how does brand equity show up on the balance sheet? Well, consider the difference between a publicly traded company's book value (the value of their assets minus liabilities) and their market value (the total worth of their stock). McDonald's, for example, has a book value totaling around $14 billion. McDonald's stock, however, is currently worth more than $75 billion. This means investors are willing to pay more than five times more for a share of McDonald's stock than the value of the real-world assets behind that share of stock.
At the end of the day, the only "real world" value that companies care about is whether markets are willing to pay more for their brands. Similarly, nonprofits succeed when supporters and funders feel comfortable supporting and funding their organization.
Brand image advertising is a type of advertising which seeks to improve brand equity over time. Note, I said "over time." Brand image advertising, unlike promotional advertising, does not result in overnight sales. The goal is not feet in the door tomorrow, but a long-term growth in brand awareness. The kind of brand power that means when people do buy, they will buy your brand, support your nonprofit, or choose your service, no matter if your brand is more costly or harder to find.
And that last concept is called "price elasticity," a measure of how much more a consumer is willing to pay (in cost or inconvenience) for a given product or service in order to obtain that product vs. other similar products. The higher the brand equity, the higher the price elasticity a product will enjoy.
Products or services with high brand equity are considered specialty products. Products with low brand equity are called commodities, and brand image advertising takes brands from commodities to specialty products that can practically name their price.
Some content for this series was derived from course notes from Introduction to Advertising, UC Berkeley Extension.
However, brand equity is one aspect of marketing that is exceedingly tangible. Brand equity is a balance sheet metric that plainly shows how well a given organization has applied their marketing efforts towards their brand.
Nearly every day each one of us purchases certain preferred name brands when comparable generics sit inches away on the same store shelf. This is brand equity.
But how does brand equity show up on the balance sheet? Well, consider the difference between a publicly traded company's book value (the value of their assets minus liabilities) and their market value (the total worth of their stock). McDonald's, for example, has a book value totaling around $14 billion. McDonald's stock, however, is currently worth more than $75 billion. This means investors are willing to pay more than five times more for a share of McDonald's stock than the value of the real-world assets behind that share of stock.
At the end of the day, the only "real world" value that companies care about is whether markets are willing to pay more for their brands. Similarly, nonprofits succeed when supporters and funders feel comfortable supporting and funding their organization.
Brand Image Advertising
Brand image advertising is a type of advertising which seeks to improve brand equity over time. Note, I said "over time." Brand image advertising, unlike promotional advertising, does not result in overnight sales. The goal is not feet in the door tomorrow, but a long-term growth in brand awareness. The kind of brand power that means when people do buy, they will buy your brand, support your nonprofit, or choose your service, no matter if your brand is more costly or harder to find.
And that last concept is called "price elasticity," a measure of how much more a consumer is willing to pay (in cost or inconvenience) for a given product or service in order to obtain that product vs. other similar products. The higher the brand equity, the higher the price elasticity a product will enjoy.
Products or services with high brand equity are considered specialty products. Products with low brand equity are called commodities, and brand image advertising takes brands from commodities to specialty products that can practically name their price.
Some content for this series was derived from course notes from Introduction to Advertising, UC Berkeley Extension.
posted by David Board at
1:52 AM
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