Brand as a Foundation of Business Strategy

If you could gain an advantage in your business that increases your ability to generate revenue and competitors are unable to contend directly, would gaining that advantage be your number one priority?

Bloomberg Selection’s Best Books of 2017 featured Hamilton Helmer’s 7 Powers: The Foundations of Business Strategy and to me, it is a standout. Mark Baumgartner, Chief Investment Officer at the Institute for Advanced Study lauded Helmer as a master in the discipline of strategy who managed to condense 40 years of thought and practice into a single book.

The framework introduced by Helmer in his book is simple (but not simplistic) and aimed at helping you build a great company.

As a brand enthusiast, my focus would be on Chapter 5 of his book: Branding.

Helmer describes Branding as an asset that communicates information and evokes positive emotions in the customer, leading to an increased willingness to pay for the product.

A little semantic detour here: Brand is the asset while branding is the activity involved in building that asset. A good brand will, adding slightly to Helmer's description, communicate information and evoke the desired emotions and response from the customer (positive or negative as long as it is in agreement with the brand) and an increased willingness to pay for the offer.

Helmer pushes the power of brand up a notch as compared to Kevin Lane Keller’s definition on Customer Based Brand Equity (CBBE) where "brand equity is the differential effect that brand knowledge has on consumer response to the marketing of that brand".

In simpler terms, Keller’s CBBE explains that the power of a brand is its ability to make the consumer react well towards all that brand’s marketing efforts.

In both cases,

Branding helps Marketing,
Marketing helps Sales,
Sales helps Revenue Generation.

A business with Brand power, according to Helmer, is able to charge higher prices for its offering due to two reasons:

REASON 1: The associations with the brand elicit good feelings about whatever the offering is. These feelings are not to be confused with the actual objective value of the good. For example, a 1 Carat Tiffany Engagement Ring at the Tiffany Setting (I VS2) starts at $12,000 while the same product, Blue Nile’s Classic 6 prong (I VS2) starts at $6,697.

I bought Tiffany and knew I was getting soaked. Didn’t matter. Happy then and would do it again. -Some Customer
REASON 2: Similar to reason 1, all the associations give the customer peace of mind, or uncertainty reduction. Customers give trust, deserved or underserved, to the familiar. Bayer aspirin can sell more than double the price of Kirkland aspirin over the counter purely because of Bayer’s long history and reputation of consistency.

In short, a powerful brand makes the customer

Feel Good and Trust You.

Helmer believes that a strong brand can only be created through a lengthy period of reinforcements and copycats face a lot of uncertainty when challenging an existing brand due to the long investment runway with no assurance of success. Mimicry also runs into the risk of trademark infringement or general customer disdain for knockoffs.

With that, Helmer positions ‘Branding’ as one of the 7 Powers that has barriers where others are Unable to Challenge and give benefit to the holder in the ability to increase Value generation power.

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Branding sitting pretty at a space that both creates value and where challengers are unable to completely mimic.
Halfway through the chapter, Helmer then gives his proper definition of ‘Branding’:

The durable attribution of higher value to an objectively identical offering that arises from historical information about the seller.
This conclusion intersects with Keller’s thoughts on brand and positioning where there needs to be points of parity (POP) and points of differentiation (POD) for a comparison to take place and understand where the brand adds value. It provides a realistic view where brand power exists only relative to the competition i.e. is only made real if there are points of parity when being compared.

Later on in the chapter, Helmer describes one of the challenges to the power of branding: Changing consumer preferences.

Over time, customer preferences may vary in a way that undermines the value of Branding. Nintendo developed a brand for family-friendly video games. However, as the gaming demographic evolved from predominantly children to adults, there was a shift in demand for more mature games. Nintendo’s branding did not extend to this segment, causing a negative impact to its bottom line.

I’m adding here a closer look into Nintendo and how the brand was built.

Nintendo was founded in 1889 as a Hanafuda playing card company. Hanafuda cards were historically associated with gambling. There is nothing family centric or wholesome about this market at the time. Well throughout the years till the 1970s, Nintendo’s image was focused on entertainment.

In 1985, Nintendo launched the NES or Nintendo Entertainment System. The NES was redesigned to look more like a videocassette recorder (VCR) so that Nintendo could launch in the U.S. and the main reason this was done was because there was public backlash in 1983 against video games in the U.S.

Beyond redesigning the NES, they placed content restrictions and assured consumers that there were no harmful or explicit content using a Seal of Quality. Over here, this was a deliberate stance from Nintendo to say that the NES was safe as an entertainment system, but never explicitly gunned for the ‘family-friendly’ brand image.

In the 1990s, Nintendo finally made a commitment to advocate for content restrain (for example, they refused to support uncensored versions of Mortal Kombat) and this marks the era when the brand chooses not to pursue the mature audience.

Despite that, Nintendo did try to pursue the ‘high-performance’ space with the launch of its GameCube. The GameCube even carried titles like Resident Evil and Eternal Darkness. However, Sony and Microsoft held a grip on the market through the PlayStation and Xbox as they have never once lost their focus on pursuing mature audiences that demanded cutting edge graphics and gameplay.

Nintendo then made the Wii pivot. This is when Nintendo’s brand strategy crystallized. Nintendo committed to the ‘family-friendly’ image and continues to build their brand to this day.

TL;DR: The Nintendo brand journey:

1889–1970s: Entertainment, no moral framing
1983–1989: Family-safe as positioning for market entry to the US
1990–1995: Conscious rejection of edgy maturity
2001–2006: Temporary performance/mature experiment
2006–present: Family-friendly as strategic identity moat

It was not that Nintendo set out from to build family-friendly games. There was also no change in consumer preferences. Consumers in the family-friendly space remained wanting family-friendly entertainment.

Nintendo basically rolled with the punches and tested the market out. This brand was built well over a century by adapting to consumer preferences.

The real challenge for Nintendo was a lack of focus that was overstretching their brand, not changing consumer preferences.

FINAL THOUGHTS
Brand is indeed a critical power and the ONLY moat in business strategy that considers customer perception and emotions as an asset.

The danger for companies that are pursuing a strong brand is not the changing of consumer preferences (because brands can evolve alongside those preferences), but in underinvesting in brand building itself.

P/S. If you’ve read the book by Helmer, what did you think about his take on Branding? If you haven’t, I hope my piece above gave you something new to ponder about!