How to Create a Brand

Some people believe a brand results from an innovative idea or a cool logo that translates some meaningful words or images from the founders. Is a brand just an innovative idea and a logo?

The word or image isn't as important as what it represents and delivers. What is critical is how the prospects, customers, and employees feel when interacting and experiencing the brand. Nowadays, much more than 20 years ago, to build a bank brand means to create a bank's soul. The only way to do this is to build based on an understanding of the target customer. The first step must be to understand individuals, and establish what the bank wants to be, then create the bank's ideas, values and how it wants to be perceived, and its ideologies. These messages and actions must be clear and in synchronicity as customers are in control and have an abundance of information and choices.

To understand how customers or prospects perceive the bank, we normally create clusters of customers with similar behaviours toward the bank to better manage the data, creating interactions that gather data that transform it into valuable information. Transforming data to information in this way allows us to understand how a brand is perceived. In Level I and Level II, we discussed the importance of knowing your customers and the best way to manage them. So, everything learned there must help understand your target customer to gather the above information.

It is very important that the bank can identify its customers and understand how they behave towards it and how they perceive life, their values and beliefs. Through interaction with customers the bank can learn their issues, problems, dreams, and contact preferences. With this knowledge, the bank can build the solutions needed to answer them within their terms.

The way the solutions are built and how they are deployed must follow the information dynamically gathered. We say dynamically because some successful banks with strong brands have been around for over 100 years. By understanding their customers, they can continue to be around with relevance for their customers, and can build propositions aligned with its positioning to attract prospects.

Building solutions successfully is about leveraging the perceived values and expectations created by the brand to answer the evolving demands of its customers and employees, and then delivering this in the brand's 'special way'.

We say employees because for a brand to be delivered consistently, there must be a way of managing personnel that reflects what drives it, which is its values and purpose. The values, characteristics, and perception of the brand must be embedded in the hiring process. Identify candidates whose profiles can show an ability to deliver and live the brand values. Some banks and companies may deliver their services and products formally, others in a more relaxed, personal way, and others more technically and remotely. Different customers will look for each of these approaches, and the bank should have people looking to work on each of these ways of delivering services. The delivery approach will be reflected in the internal culture and ways of doing things. By hiring, training and motivating employees to do things the company way, the executives in charge will guarantee a long life for the brand and the bank.

Even banks with strong brands that deliver the expected experience can face difficult times and challenges. The history of successful companies is full of difficulties! However, if the 'soul' of the company – its values established over many years – are consistently delivered with discipline, it will almost certainly survive. As long as the brand values are still seen by customers and prospects as valuable, what may change is the format to deliver it.

Let's look at companies that constantly adapt to keep their differentiation relevant and market presence.

Apple is a brand that has maintained its strength and relevance over time. From pioneering the personal computer to securing a significant and loyal share of the smartphone market, it has consistently set trends and delivered products in a simple, intuitive, and innovative way. Another great example is Amazon, which evolved from an online bookstore into one of the largest retail companies in the world. By leveraging its own infrastructure, it created AWS, enabling businesses worldwide to access powerful cloud computing services.

In banking, JPMorgan Chase stands out as a financial institution that has successfully modernised itself without losing customer trust. It has managed to offer a seamless digital experience while preserving its credibility and long-standing tradition.

However, not all brands succeed in maintaining relevance and differentiation over time. Kodak is a prime example. Once the undisputed leader in photography, it failed to adapt to the digital era. Ironically, Kodak invented the digital camera but saw it as a threat rather than an opportunity. Instead of embracing innovation, the company hesitated, ultimately losing its dominant position in the industry. It could have remained the leader, but in digital photography rather than film.

Blockbuster is another classic case of failure to adapt. Once the leader in DVD rentals, it declined an opportunity to acquire Netflix for $50 million in 2000. Reed Hastings, co-founder of Netflix, proposed a partnership in which Netflix would manage Blockbuster's online operations while Blockbuster would promote Netflix in its stores. Blockbuster's executives laughed at the offer, believing the streaming model was too niche and unprofitable. The rest is history – Netflix revolutionised entertainment while Blockbuster faded into obscurity.

Deutsche Bank serves as an example within the banking sector. A once highly respected institution, it suffered from repeated financial scandals and management failures, eroding customer trust. Struggling to adapt to new technologies and regulatory changes, it lost market share to more agile and innovative competitors.

Brand Importance in the Company's Value

A strong brand is one of the most valuable assets a company can have. It influences customer perception, builds trust, fosters loyalty, and ultimately drives financial performance. While a brand is often seen as an intangible concept, it has very tangible effects on a company's balance sheet and valuation.

How a Brand Contributes to a Company's Value

A strong brand creates a competitive advantage, allowing a company to charge premium prices, attract and retain customers, and expand into new markets more easily. This results in higher revenues, improved margins, and long-term stability.

When a brand is recognisable and trusted, it reduces customer acquisition costs, increases repeat business, and strengthens investor confidence. This leads to higher stock prices and a stronger overall valuation.

How Brand Value Appears on the Balance Sheet

Goodwill (Mergers & Acquisitions) – When a company acquires another business, the price paid above its tangible assets is recorded as goodwill on the balance sheet. A significant portion of this goodwill often represents brand strength. For example, when Facebook acquired Instagram for $1 billion in 2012, much of the valuation was based on Instagram's strong brand and user base rather than its physical assets.

Intangible Assets – Some companies record their brand name, trademarks, and patents as intangible assets. This is common in industries where branding is crucial. For instance, Coca-Cola lists its brand and trademarks as key intangible assets, contributing significantly to its market value.

Revenue and Profitability – Strong brands command higher pricing power. Companies like Apple and Louis Vuitton leverage their brand strength to sell products at premium prices, leading to higher gross margins and profitability, which investors consider when valuing the company.

The Role of a Strong Brand in the Share of Companies

A strong brand will affect the share price in the following ways:

Investor Confidence and Market Perception: investors are more likely to buy and hold shares of companies with strong brands because they perceive them as lower-risk, high-reward investments. This demand for shares drives up the company's market capitalisation.

Stock Premiums and Price Stability: companies with strong brands often trade at higher price-to-earnings (P/E) ratios than their competitors. For instance, Apple and Microsoft have consistently high valuations because investors believe in their long-term brand strength and innovation.

Attracting Institutional Investors: strong brands draw interest from institutional investors, mutual funds, and ETFs, increasing share demand and liquidity, which in turn supports stock price stability.

Mergers and Acquisitions Value: companies with strong brands are often acquisition targets at premium prices. When Google acquired YouTube or Amazon acquired Whole Foods, the brand recognition and customer loyalty of these companies were major factors in the valuation.

How to Measure the Value of a Brand

Consulting firms and organisations use proprietary models to estimate brand value. Some of the most recognized models include:

Interbrand's Brand Valuation Method: This considers financial performance, the role of branding in purchase decisions, and brand strength in the market.

Brand Finance's Royalty Relief Model: This estimates what a company would have to pay in licensing fees if it did not own its brand.

Kantar BrandZ Model: Assesses brand equity based on consumer insights, financial data, and market performance.

Acquisition of Strong Brands

When a company with a strong brand is acquired by a larger conglomerate, the worst possible outcome is for the large conglomerate to kill what is behind the brand's success, which is the way of behaving and doing things in sync with the brand's perception. This kind of mistake will gradually make the brand fade away. The conglomerate will end up losing the value priced into such acquisition: the company goodwill.