While we are primarily concerned with brands and their optimization, it is important to clarify that brands do not necessarily exist in all markets. Even though brands exist in a legal sense, they don’t always play a role in consumer purchasing decision making. Other factors may be more important.
For example, research on “brand awareness” shows that in different product categories, shoppers don’t look at the brand when making their choice. Who is concerned about the brand when making their choice? Who is concerned about the brand when buying a notepad, eraser; markers, markers or photocopy paper? Neither individuals nor companies. There are no strong brands in markets like sugar and socks. There is no national brand of flour in Germany. Beer brands are also mostly regional.
Inherently, brands exist as soon as the risk is perceived. Once the perceived risk by the buyer disappears, the brand no longer has any advantage. It is just a name on a product and ceases to be a benchmark, a guide or a source of added value. The perceived risk brand analyst is greater when the unit price is higher or the repercussions of a bad choice are more severe. So buying durable goods is a long-term commitment. Also, since humans are social animals, we judge ourselves on certain choices we make and this explains why so much of our social identity is built around the logos and brands we wear. As for food, there is a certain amount of inherent risk every time we ingest something and allow it to enter our body. The function of the brand is to overcome this danger which explains the importance of brands in the market for, for example, spirits such as vodka and gin.
The brand: a source of value for the company
Why do financial analysts prefer companies with strong brands? Because they are less risky. Therefore, branding works the same way for the financial analyst as it does for the consumer, branding removes the risk. The certainty, the guarantee and the removal of the risk are included in the price. By paying a high price for a branded company, the financial analyst is acquiring almost certain future cash flows.
If the brand is strong, it benefits from a high degree of loyalty and thus the stability of future sales. In Volvic, 10% of the buyers of this brand of mineral water are regular and loyal and represent 50% of the sales. The reputation of the brand is a source of lasting demand and attractiveness, the superior image quality and added values justifies a premium price. A dominant brand is a barrier to entry for competitors because it serves as a benchmark in its category. If he is a prestigious or a trendsetter in terms of style, he can generate substantial royalties by granting licenses, for example, Naf-Naf earned over £ 6 million in net royalties in 1993.