The Myth of Branding

“Doing business without advertising is like winking at a girl in the dark. You know what you are doing, but nobody else does.” – Stuart Henderson

I recently got an interesting e-mail from Brian Ochsner, an ETR reader from Denver. He said, “As a direct-response copywriter, I’m skeptical about the number of marketing people who are enamored with the need for ‘branding’ or to ‘build their brand’ to effectively market their business.

“I know that brands such as Kraft and Coca-Cola have power and influence with Americans, but I’m not sure ‘branding’ has much of a place with most small- to medium-sized business marketing.”

He posed three questions:

  1. What, exactly, is “branding” marketing?
  2. Can it be an effective type of business marketing?
  3. Can it work effectively together with direct-response marketing?

Brian’s hunch is exactly right. Branding is perhaps the most commonly touted and least understood aspect of marketing. If you believed all the hype, you’d think that you should spend 80 percent of your time and money “building” a brand.

As Bob Bly and I have said in past ETR articles, nothing could be further from the truth.

Branding makes sense for Kraft, Coca-Cola, Nike, and Sony. Huge consumer companies have to spend money on general advertising to keep their names out in the commercial world. The idea is that when people make buying decisions, they will favor products whose names they know.

Brand-name consumer products almost always outsell generic products. In 2002, Dennis Dangerfield (the vice president of grocery-store cooperative Topco Associates, LLC) pointed out that private-label products accounted for only 20 percent of grocery sales in the U.S. And the reason brand-name products come out on top is not quality, since many generic products are just as good. The reason is consumer trust.

Trust comes from familiarity, and familiarity increases sales. But it is very, very expensive to create a household name. We are talking about tens of millions or even hundreds of millions of dollars here – which puts branding entirely out of the reach of any fiscally intelligent entrepreneur, even if he is working with a big budget.

Prior to the Internet boom, small-business owners understood that they couldn’t afford to spend money on branding. To break into new markets, they relied on traditional techniques: big discounts and bigger headlines. But when billions of dollars started pouring into start-up Internet ventures, the idiot-savant CEOs running those operations had to put the money somewhere – so they put it into advertising their brands.

To justify this enormous waste of money, they invented theories to substantiate their foolishness. Most of those theories were versions of the same, stupid strategy: Spend whatever it takes to garner the most eyeballs to your website. And after you’ve established first position in the “look-who’s-looking-at-me” contest, figure out some way to profit from it. Profiting from something so nebulous needed its own magical name too; they called it “monetizing.”

Create traffic first by selling the brand… and then monetize the traffic… and then go public. That was the program. And dozens of Internet entrepreneurs did just that. Most of that brand building went to naught, of course. Sports stadiums were renamed for unpronounceable URLs, and then they were changed back to something else again as the Internet businesses behind them went bust.

It was during that period of chicanery that the modern myth about branding was formed – the myth that the first course of action for any small business should be to build a nationally (or internationally) recognized brand. This myth persists today in books and at conferences and seminars about Internet marketing. But smart would-be entrepreneurs like you have the sense to smell rats when they are rotting behind the floorboards.

The fact is, most of the profitable business in the world is done without the benefit of brand recognition – and 99 percent of new businesses develop without any money or time spent on general advertising.

I can think of only one exception. The George Foreman Grill began as a small business and morphed quickly into a world-class brand. But you are unlikely to replicate that success if you hook up with Mike Tyson – or any other celebrity, for that matter – even if you could afford the price tag. The George Foreman Grill story was one of perfect timing: the right product with an out-of-fashion celebrity who made a miraculous comeback to the mainstream. It won’t happen again for another 20 years.

The branding myth persists today, even among experts who witnessed the debacle of the Internet advertising implosion. According to a 2005 PointRoll Inc. survey, 70 percent of online advertising professionals cited “branding” as the most important or second most important goal of online advertising. Interaction rate was viewed as the most important measurement of an online ad’s performance, with 53 percent of those responding indicating that the best way to judge an ad’s effectiveness is to measure the percentage of users who interact with it.

What’s missing from that picture?

Profits, of course. As a future entrepreneur, you want to create sales immediately. But they have to be profitable sales – or at least near-profitable sales – or you’ll go broke before you reach your second year of business. There are as many ways to create profitable sales as there are businesses. When you get into your own business, you will have to figure out which way works for you. (I explain how to do this in my soon-to-be-released book Ready, Fire, Aim.)

Direct-response marketing of a hot product is probably the most effective way to create profitable sales. Promoting your brand through general advertising is probably the least effective way.

So now, to Brian’s three questions:

  1. What is branding marketing? It’s selling the name of a company or product through general advertising so that later on, when the customer is faced with buying your product versus another one, he chooses the brand he is familiar with.
  2. Can it be effective? Not for small businesses.
  3. Can it be combined with direct marketing? Not really. Branding is meant to make selling (either direct selling or retail selling) easier. It is not meant to be used simultaneously.

Those questions answered, let me say a few words about where and how branding can work for entrepreneurial enterprises.

First, understand that establishing a unique selling proposition (USP) is not the same thing as branding.

Many, if not most, products and product lines will benefit from marketing that stresses the USP. If, for example, you are launching a business that sells organic pet food, your USP should emphasize the fact that all your products are green. Your company’s name might express that benefit, as should the product names, the packaging you choose, and the layout and design of your marketing and product materials. And your USP should be a major component in the design of and sales copy on your website, as well as your Internet ads and landing pages.

All that promotion of your USP will have the effect of creating an idea in a potential customer’s mind that will have the same effect that branding has for large businesses. And that effect – which is a higher-than-average initial response rate to your marketing due to consumer familiarity – will also work with your existing customers on the back end.

Thus branding in this limited sense (consistently promoting your USP) works in conjunction with direct marketing as a back-end mechanism – to sell more products to people who have already bought from you. And that’s how people with small- and medium-sized businesses should think of it.

I have plenty more thoughts on this subject, but these are the most important for someone in the early stages of starting and growing a business. Get a copy of my book Ready, Fire, Aim when it comes out in January and you’ll learn more.

[Ed. Note: Michael Masterson and his team of business-building and marketing experts will be revealing their strategies for getting a brand-new business of the ground… and making an existing business grow like crazy. Reserve your spot at this fall’s Info Marketing Bootcamp – Making a Fast Fortune on the “Other Side” of the Internet – today.] [Ed. Note: Mark Morgan Ford was the creator of Early To Rise. In 2011, Mark retired from ETR and now writes the Palm Beach Letter. His advice, in our opinion, continues to get better and better with every essay, particularly in the controversial ones we have shared today. We encourage you to read everything you can that has been written by Mark.]