Brand profitability sustains a product as the earnings it attracts are used to ensure its survival and growth. To better understand how this business profitability is affected we'll take a look at influential marketing factors.
Advertising vs. Marketing
Before we set out to talk about the elements that influence brand profitability, it's important to understand the difference between advertising and marketing to better grasp the role each plays in marketing your brand as you work toward your overall business profitability goals.
Advertising is printed or broadcast matter distributed to the public. This media showcases your brand to existing and future customers, but advertising is just one element in promoting your brand.
While advertising is part of the marketing process it is not the only factor involved. Marketing is a methodical process that's planned and implemented. It involves everything that it takes to move goods from the producer to the consumer. It includes:
Deciding on the price for your product is more than figuring out how much profit you want to make. It goes back to the law of supply and demand. How much will your potential customers pay for your product? That's the key. Tools like customer feedback and competitive pricing help determine the optimal price for your product. For example, customer feedback provides detailed responses that allow you to see the impact of specific elements of your product in regards to the overall price which in turn allows you to adjust marketing for the most favorable benefits in extending your brand's profitability.
Know Your Market
Knowing your market is another critical element to successfully marketing your brand. This means understanding your customers and understanding your competition. Your customer base plays into this fluid aspect of your marketing strategy in an increasingly aggressive trade environment. To help identify your market, ask yourself these questions:
- What do consumers want?
- What influences their shopping behavior?
- What are the current buying trends?
- Who are your competitors?
Consider all of these questions, because consumer answers don't always reflect trends. Once you have the answers to these questions, the secret is to find the balance of what consumers say they want compared to what the current trends reflect and then actually zeroing in on what influences them to buy and how to gain an edge over your competitors. This is the key to your brand profitability.
Factors Other Than Price
When building a brand, it's tempting to lower the price to generate initial interest. However, there are factors other than price that come into play. While "low prices" may be on the list of things consumers are looking for, other items just as important may include things like:
- Easy to find
- Wide variety
- Reasonable replacement parts
Consider what else your brand has to offer other than price to increase its value.
Brand Profitability vs. Value
Just as advertising is included in marketing, in the same way brand profitability and brand value are interrelated. The following methods are tools available to help determine brand value and profitability:
To calculate brand value using the residual approach, subtract net assets from the total business value. This provides an easy-to-calculate, objective measure. The problem with this approach is that it doesn't take into consideration other positives like goodwill which can directly be linked to brand profitability.
With this approach the brand's value is determined by the costs involved in development and maintenance of the brand.
The market approach determines the value of your brand by comparing it to similar brands recently sold.
There are two methods by which businesses calculate the net value of present and future profit and cash flow.
- Royalty exemption method - this measures maintenance or royalty fees the business will be required to pay.
- Price premium method - measures difference in cost between branded and non-branded products. This difference equates brand value or brand profitability.