I often ask my clients whether having a strong brand or a strong operating model is more important in terms of the value of their business.
Most elect for a strong brand over a strong operating model, arguing that attracting customers is the single most important driver of success. They are mistaken. The market rewards your ability to generate profit – and an efficient operating model gives you the option of competing on price or differentiation.
A strong brand magnifies the value of an efficient operating model, but does little to increase the value of a marginally profitable business. Based on a sample of 140 companies over a 10-year period, we found that improving the strength of the brand increased the value of low profitability companies by 20% versus their more-weakly branded peers, but it increased the value of high profitability companies by over 50% versus their more weakly-branded peers.
The implication of this is that we need to think of brands primarily as a means to magnify the value of already well-run companies, not as a means to redeem poorly-performing companies.
A brand can only be as strong as the underlying business that it supports. The mandate for marketing is therefore to be responsible for ensuring that the offerings and service of the company are focused on ensuring the delivery of differentiated levels of customer value, not just differentiated communications.