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[BEST BRAND] The importance of brand

Dec. 28, 2016 - 18:24 By Korea Herald
By Park Heung-soo,
Professor at Yonsei University School of Business

Apple’s brand value in 2016, according to Interbrand, was tops in the world at $178.1 billion. The No. 2 spot went to Google with $133.2 billion and third to Coca-Cola with $73.1 billion. South Korea’s Samsung came in at No. 7 with $51.8 billion.

Brand value is a monetary unit of the current value of a brand. It would be the amount that would be added to the company account book’s net asset value when selling the business in return for passing on the brand.

Companies have placed importance on a simple increase in revenue, but more are paying closer attention to the value of their brands.

Prof. Park Heung-soo

We see how establishing a brand directly links to profits when witnessing companies merging and being acquired at a price higher than one’s own actual assets by having its brand value recognized. In short, brand equals enterprise asset.

We have to discuss the changes in the market when looking at the rising importance of brands. By doing so, we can understand the background against which strategies in managing brands have transformed. And we can deem the importance of brands by looking at the actual roles played by the brands corresponding to such background changes.

Background of brand management

The background upon which brand strategy became vital to effectively raise one’s asset is the change from reasonable and rational consumption to empirical emotional consumption. It raised the importance of creating a bond with consumers in order to effectively expand sales, rather than by delivering a message of a product’s physical attributes.

Second, the standards on which a consumer assesses a product’s quality is changing. The consumer tends to subjectively recognize a product’s quality around an image of the brand, rather than objectively measuring the quality based on the products’ components.

As a result, the competition has transformed from a race between products’ individual attributes to a rivalry between overall brands.

Third, the market has changed from being centered on manufacturing to distribution. With enhanced influence of distributors, the competition amongst manufactures became fiercer, bringing down their profitability.

To effectively avoid price competition, the companies began to recognize brands, as they faced the task of establishing a strong brand that can guarantee long-term profits.

Role of brand

Brands play various roles that help the company reap profit.

First of all, a strong brand provides a company a point of differentiation against a rival product. It offers the product an identity, thereby leading consumers to deem the product above a certain level, which leads to creating satisfaction and brand loyalty among consumers.

Second, a strong brand guarantees the company’s sustainable growth. A company that holds a strong brand are able to survive any crisis faster through high support from consumers with great loyalty.

Third, a strong brand enables premium pricing. A strong brand lowers the consumers’ price sensitivity, thereby allowing the company to set a price higher than a rival. Through additional product expansion, the strong brand also allows the company to successfully launch new products that result in high profits.

Fundamentally, a brand is extremely important as it plays roles that are directly linked with profits. The brand is bound to become all the more important in a market that has entered a matured stage where product quality has become standardized. Companies should recognize such importance for sake of long-term maximization of profit and exert efforts into constructing such great brands.