How brands make money

This presentation is about how brands make money. And I’m going to suggest a model for thinking about exactly how a brand translates into commercial value for its owner.

Brands, as we know, are ideas in people’s minds. And those ideas influence how people think and feel and act.

As consumers, obviously, they make us want to buy. That’s the most obvious way in which brands work. So Coca-Cola, because it stands for all of these ideas to do with refreshment and energy, the American spirit, happiness, maybe even memories of our childhood, gets consumers to buy 19 billion of the drinks every day.

But brands also influence employees. So the people who work at GE, one of the world’s biggest companies, which is all about invention and innovation and imagination at work, are constantly working on projects that get their products to market faster, that cut costs, that make the business more efficient.

So a strong brand influences consumers and employees. If consumers buy them, revenues go up. If employees work more effectively, then costs go down. And that generates profit in the short term. But brands have a long-term effect, too. And here is an expert, Tim Ambler, from London Business School talking about the way in which “A brand is an upstream reservoir of future cash flow.” Brands hold future value. And how do they do that? Well, first, they keep people committed. So Toyota is a brand that stands for reliable, green, innovative, always a better way. Those are the kinds of ideas that people have about Toyota in their minds.

And that means that Toyota still sells 9 million cars a year, even though they had, like many other car manufacturers, several product recalls because of product problems in the last few years. In spite of all of that, people keep buying. People stay committed.

And there’s a similar effect on employees, too. Brands stimulate constant innovation inside companies– Google, perhaps, most famously. Because everybody at Google knows that it’s all about organising the world’s information and making it universally accessible and useful, people are constantly innovating on that and, actually, other related ideas, which is helping Google grow, last time we looked, by 22% a year, which is an astonishing growth rate.

So long term, brands get consumers to commit, which means that the risks associated with the company go down. And employees want to grow, to innovate, to expand, to do more, which means that business opportunities for the company go up. And that combination of risk down and opportunities up means great growth prospects for the future. So put that alongside the short-term impact on profit, and you get commercial value. Because this is exactly how markets usually value organisations– by multiplying their most recent profit with an estimate of their growth prospects. So that is exactly how brand feeds into commercial value.