What would have to happen for me to believe that branding alone is a competitive advantage? Show me two companies with products that are almost identical, but one has invested more money in the branding and it has led to higher returns on capital than their competition.

I’m not saying branding isn’t important – because it is. I’m saying that branding isn’t what leads to excess profitability.

I respectfully disagree with you on many of your points. Branding isn’t a source of a competitive advantage? How can you come to this conclusion? Brands can be the greatest competitive advantage. Using your example – If you and I played a game of basketball and we each scored ten points, yet my personality, style and charisma drew others to want me on their team instead of you, I would have the competitive advantage. For the simple reason that I would be able to play the game longer and score more points based on more playing time.

A brand is the emotional connection between a customer and a product, service or organization. It’s much more than a logo or tagline. It is the sum of all experiences a customer has with you. Emotional connections are powerful things. They will trump reasoning in purchase decisions. They will inspire consumers to wait or go out of their way for a branded product if it is not immediately available. In some cases brands inspire people to tattoo themselves with a brands’ identity.

In contrast to your view, strong brands are very powerful competitive advantages. We see this everyday. Look at bananas, water or vodka, how do you become a market leader in these categories? By understanding that consumers do not develop relationships with products nor or are they loyal to products. Brands and what they stand for establish the emotional connection with consumers. Once you have built this connection you you’re your target paying more for your water, seeing a difference in your vodka, and preferring your bananas.

Leading organizations have discovered that brands are their most valuable asset (along with their people) for a number of reasons. Strong brands deliver substantial benefits:
Increased revenues and market share
Decreased price sensitivity
Increased customer loyalty
Additional leverage with vendors and retailers (for manufacturers)
Increased profitability
Increased stock price, shareholder value and sale value
Increased clarity of vision
Increased ability to mobilize an organization’s people and focus its activities
Increased ability to expand into new product and service categories
Increased ability to attract and retain high quality employees

You mention marketing cannot save a lousy business, I agree. But with the right branding strategy you may get a second chance. Your customer will share unmet needs. If you listen and meet new or existing needs they will bring their business. Brands are created in the mind; powerful competitive advantages have been created there too.

That’s a GREAT definition of marketing.

Rob –

I understand that my frame of reference is heavily skewed towards startups but I’d argue that CA is more advantageous to a new business than it is to a profitable one — that’s why “buzz” is so unbelievably valuable (probably a new products most useful asset) — and I still think financial performance (other than rev-share) is a really poor measure of CA, though I don’t doubt there’s a strong corellation.

1) Financial results and competitive advantage are not (directly) related. Because we compare companies financials, it is common to consider them ‘competitive’ but in reality, the only thing two companies can compete for is demand — because that is the only resource competing companies have in common — so, when discussing “competitive advantage”, the only relevant comparison is market penetration.

2) So … to understand whether branding is a competitive advantage or not, you need to ask yourself whether branding is likely to influence a purchasing decision i.e. does a strong brand drive demand vs. competitive offerings. When doing Thanksgiving shopping, do consumers reach for a litre of Pepsi, or did they buy the un-known cola brand? Clearly a strong brand is a competitive advantage — the tangible “asset” that makes well-known consumer brands more competitive than their rivals is “trust”. The trust that comes with brand familiarity opens a consumer’s wallet more easily than brands that don’t enjoy that social capital.

3) … the old theory of branding = marketing = advertising is horribly flawed. Advertising is possibly the least efficient means of marketing — and marketing is a just one facet of a brand’s image (just look at dell and consider the importance of service and distribution to that company’s brand).

I’ve seen this at work at our startup. We’ve built the strongest brand in our space and it’s definitely a competitive advantage — competitors are now carbon copying our product but none have come close to our market share. Interestingly, we decided to forgo advertising in our marketing strategy and instead invested in our product — it’s a strategic marketing decision that’s had a more positive impact on our brand than we had expected.