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How Brands Create Value for Customers

Supposing that everyone knows what brands are and how to manage them let’s see how brands create value for customers. I’ll frame this discussion around the same four sources of value.


Functional value

The four sources of value are functional value, monetary value social value and psychological value and brands can provide or reinforce or augment each of these sources of value for your customers.

Functional value is accrued by virtue of an offering doing what it was designed to do. So, the functional value of soap is that it gets you claim the functional value of a car is that it gets you from point A to point B.

Brands contribute to customer evaluations of functional value by serving as a performance signal. In economics signal is a term of art it refers to an easily observable but unimportant attribute that serves as a proxy for difficult to observe but important attribute.

So if you are buying a car it is important that you get a car that is reliable, but reliability isn’t like color or engine size it’s difficult to observe directly before purchase. Instead we tend use brand as a signal of reliability because the brand is an easy to identify attribute.

Monetary value

Monetary value can also be influenced by branding. A brand since a reference frame for consumers when evaluating prices. If I were to tell you about a Bic brand pen selling for $50 you would probably be shocked and outraged by a pen priced so high. If on the other hand I were to tell you that a Mont Blanc pen was selling for $50 that might seem perfectly reasonable and perhaps even a bargain. But how can that be?

I didn’t tell you anything about the pen other than the brand name you don’t know what kind of pendant is you don’t know how well it’s made you know how well it writes but the brand alone was enough to influence your evaluation of that price thereby affecting the monetary value you would derive from an offering.

So, if you want your brand to serve as a signal that can boost functional value or as a reference frame that will boost monetary value for your customers what can you do? Both of these sources of brand value are based on correlations in the minds of customers.

When your brand consistently produces high quality offerings or offers consistently low prices or makes consistently delicious cupcakes those links are reinforced in memory in your brand signal value is improved. If you are not disciplined and consistent in managing the associations your customers have with your brand your brand signal value will be much weaker.

In short your brand must stand for something and the way to do that is slow, regular, repetitive communication of a consistent message.

Social and psychological value

The last two sources of value social and psychological or little more interesting from a marketing perspective. For social value and psychological value brands don’t serve as signals of or reference points for another source of value. Instead the brands themselves create value for the customers.

Social value is the value a brand provides in facilitating relationships with other people. In many situations a brand can serve as a kind of passkey that lets you into a clique or group. It can provide you with an excuse to talk to someone or as a topic for extended conversations.

If you’ve ever bonded with someone over the car you both drive or the computer you both use or even the sports team or the TV show you both love you’ve experienced the social value of brands.

The last type of value a brand can provide is psychological. We are actually gonna break this type of value into two categories some of the psychological value brands provide is internal in other words brands affect how we feel about ourselves.

Brands can also provide external psychological value this is when brands affect how we define ourselves to the world and influence others perceptions of us. We often refer to this kind of brand value as lifestyle branding.

Different sources of value for different customers

So we have these different sources of value that brands can create or reinforce for customers and there is a common belief among marketing managers that it’s better to build a brand around social value or psychological value around functional value or monetary value.

In fact in some circles these various sources of value are ordered from most concrete that would be the functional value through monetary value and social value up to the most abstract source of value the psychological value associated with self-definition and lifestyle communication.

People describe this as the branding ladder and speak of the virtues of moving up the ladder from more concrete benefits to more abstract benefits. It certainly not hard to think of successful brands that started as functional and moved up the ladder over time.

It’s easy to see why marketing managers would see moving up the ladder as a good thing functional attributes are more concrete and so more open to blatant attacks. more abstract social or psychological sources of value are usually harder to make substantive claims against.

Functional versus lifestyle branding

In the case of lifestyle brands that need is the need to self express and that can be a powerful need but there are three important things to realize about this need to self express.

First this need is not a constant need, it fluctuates over time depending on what consumers are doing and how they’re feeling. Sometimes the need to self express is very strong. Other times particularly right after customers have expressed themselves in some way the need to self express is weaker.

The second thing to acknowledge about the need to self express is that consumers now have more opportunities to express themselves than they have ever had before. You can self express or brands of course but you can also express yourself through your politics or your hobbies you can take mass-produced goods like your computer, your phone and then customize them by changing the wallpaper or the ring tone.

The third thing to remember about self-expression is that the need to self express is not limited to a particular product category. You do not have one need to self express through your car in the separate independent need to express yourself through your clothing and then another alternative need to self express through entertainment choices. The need to self express is a single unitary need that can be stated in any number of different ways.

Taken together these three insight suggests that there are some dangers to lifestyle branding in addition to the benefits. When moving away from a functional positioning for your brand you allow yourself to serve a more fundamental customer need but you also open yourself up to cross category competition from

That’s branding

Remember as with everything else in marketing take your customer’s perspective when thinking about your brand. Don’t just think about your branding elements the logo and so on, but also consider the associations your customers are likely to have with your brand.

Manage those associations and, finally, consider the different sources of value customers can derive from your brand. Determine what sources of value functional monetary social or psychological you want to convey to your customers through your brand.

Doing this will ensure that you create a brand that customers will connect with that will simultaneously make your offering more valuable and defendant from competition.