A strong brand is an entry barrier for the competition. It will be difficult for a new entrant to enter a business in which there are established brand identities because the consumers won’t shift to the new entrant that easily. A brand reduces business risks and uncertainties. It generates steady cash flow for the company and helps the company to earn long term profits. Brand extensions earn more profit to the company. The value of a brand to the company is the difference between the marginal revenue and the marginal cost of brand management.
By recognizing the brand as an economic asset, like other business assets, it starts to be managed for growth. Brands generate profits in three ways. The first one is by charging a price premium. For example Levis socks have the same production material used in any non branded socks but the price difference is huge because of the brand name of Levis. The second one is the by creating loyalty. Brand loyalty is what can generate profits even in adverse conditions. The third one is by generating high profit margins. Strong brands will always generate high profit margins.
Successful brands stand for something clear and are consistent over a period of time, a set of values and attributes that are called Brand Equity. Brand assets are driven by brand strengths and they create the brand equity. It is the actual strength of the brand in the eyes of the consumer. Brand value is the actual financial worth of the brand. The core tasks of brand management are to gain market leadership and gain market share.