Wednesday, May 17, 2006

The Role of Brand Marketing in New Business Success

As I work with more and more smaller businesses, including start-ups, it has become obvious to me that some businesses attempt to address underlying business problems through branding. I find that I am not only consulting on branding but also general business strategy and especially the intersection between the two. Given this clear need, this article is about the intersection of branding and business strategy in creating a successful new business.

A very common problem I encounter is businesses that have a product and a manufacturing process but little understanding of the underlying customer need that the product addresses. Businesses should always start with a solid understanding of the customer needs that its products and services can fulfill – functional, emotional and otherwise. This assumes that the business has already identified its primary and secondary target market segments and knows a fair amount about those segments’ needs, desires, hopes, fears, values, aspirations, problems, concerns, shopping behaviors, etc. All of this can be discovered through formal or informal market research. Research techniques are myriad, but often include one-on-one interviews, focus groups, online surveys and discussions with current customers. Another technique is to ‘shadow’ your customers and ‘live the brand’ with them to discover how they experience it.

Another common problem is developing a product or service that does not deliver a superior value proposition to what is already available, either because it is not differentiated in relevant ways from what is already available or because its cost structure demands too high a price for the perceived value.

Sometimes, while the business may understand the customer’s need and have created a superior solution at a reasonable price, it may not be able to easily identify or communicate with the target audience (or be made aware of the event or situation that triggers the need) making the marketer’s/media planner’s job very difficult and sometimes even impossible.

I have said this many times before: a brand promises relevant differentiated benefits to specifically targeted customers and then makes good on that promise in all that it does. Ideally, it promises a benefit (or benefits) that: (a) are extremely important to the target customer, (b) the company is particularly well suited to delivering and (c) that the competition is not addressing. The most powerful benefits to own are often emotional, experiential or self-expressive.

Another common new business problem is being under capitalized, leading to cash flow problems. What may otherwise have been a very successful, profitable business, dies for lack of cash. This can be solved by accurately forecasting cash flow needs and raising enough funds to cover inaccurate cost or revenue estimates or other faulty assumptions or unforeseen circumstances. A related problem is the ability and will to live with low or no income for a few years until the business has a chance to more fully develop.

Choosing the right business model is also important.

What is the long-term profit potential in the product/service category? Is the business scalable? What is the ratio of fixed to variable costs? What is the sensitivity of demand to price? What, if anything, will make your execution of the business more profitable than everyone else’s?

Adaptability is critical. Most successful businesses have reinvented themselves many times until they have landed on a formula that is successful.

Hard work and attention to detail is also extremely important.

And again, I will stress that businesses often start with a product or an idea, but no real understanding of the underlying customer need or purchase/usage behavior. Marketers, when asked to develop marketing for start-ups and other small businesses, must be able to deliver much more than a logo, tagline, brochure, trade show booth or ad campaign. They must be able to help the business understand its markets and its business model and define and deliver upon its unique value proposition.

Another comment: business owners in my experience -- especially doctors, engineers, and other very smart, analytical types -- often underestimate the importance of marketing and the unique skill sets of experienced marketers. This sometime leads to cutting corners where they shouldn’t be cut or second guessing messages or campaigns based upon anything other than the communication of product functions and features.

I have seen businesses that have created superior product functionality but ignored the look and feel of the product (its aesthetic design). What otherwise would have been very successful products are spurned by the target customers for this reason alone. Don’t forget product aesthetic design (and packaging, if appropriate).

Two other areas in which marketers can be very helpful to small business owners: in crafting the optimal pricing and distribution strategies (which can only be adequately addressed in separate dedicated articles).

Last, but certainly not least, newer quickly growing businesses are almost always constrained in what they can spend on marketing and brand building. The brand marketer will best serve these businesses by focusing on (a) the basics (defining the unique value proposition, crafting pricing and distribution strategy, etc.), (b) low or no cost marketing techniques (such as publicity, customer referrals, building ‘buzz’ and highly targeted marketing) and (c) the quickest and easiest incremental revenue wins – identifying and pursuing the ‘lowest hanging fruit.’

Here are the criteria that I use to estimate the potential for a new business or brand:
* Size of market (customer need, total revenue potential) – bigger is better
* Rate of market growth (or contraction) – high long-term growth rate is best
* Market fragmentation – this may be good or bad – requires additional analysis regarding the factors that underlay this fragmentation
* Your unique value proposition within the market – extremely important – be honest with yourself
* Your current or projected share of the market – bigger is better
* Market profitability – higher is better
* Market entry and exit barriers – high entry barriers and low exit barriers are best

I hope this helps you as you think about the value of marketing and branding in the context of new business development.