Is Branding Part of the Value Proposition?

I’ve recently finished reading a book called “How Brands Grow” by Prof. Byron Sharp. Although it is not specifically technology venture focused, I would highly recommend it for any marketer, especially those marketing web-based B2C services such as we do at iWantMyName. The author questions much of the accepted wisdom on marketing and turns a lot of traditional textbook strategies about marketing on their head.

In a dynamic market, you can compete on price, but this is akin to an arms race and damages everybody. You can also compete by innovating and making your product more feature rich, but this is expensive and takes time. A third approach is to have a brand strategy in place from the outset that puts you in a stronger position when competition arrives. But product developers sometimes overlook branding as part of the overall value proposition.

In his book, Prof. Sharp argues that the quickest way to build a market is to make your brand physically and mentally available to consumers as well as targeting the large pool of dissatisfied customers that change brands each year. He scoffs at differentiation, citing cases like Coke and Pepsi who have attempted to differentiate within the cold drinks category, but whose respective market shares hardly change year after year.

Coke and Pepsi are constantly fighting off cheaper brands and do so quite successfully because customers are prepared to pay a premium for a brand they feel connected to. That connection has been built up through generations of consistent positioning. Everybody recognises the Coke symbol, right? It’s irrelevant whether or not the product itself is substantially better than the cheaper ones. What matters is that customers mentally associate positive attributes with a brand such as trust, some kind of meaningful narrative plus “sticky” graphical images. Customers ascribe value to intangible features and this should not be overlooked.

This post is an extension of a discussion on a value based strategy to competing in new markets started by Libby Russell on the New Zealand Software Alliance LinkedIn page.

Why Customer Acquisition Is Trumps

Companies traditionally put a huge amount of resources into carving out and dominating niches within a particular product category. Airline loyalty programmes are one example of the lengths marketers will go to in order to retain customers. But in more dynamic markets such as web-based services, the old rules no longer apply. Customer acquisition trumps retention every time. Do the math.

For argument’s sake, let’s say that there are a total of 100 customers in your target category and that 20% change their loyalty each year. So, ignoring any organic growth, there is a total pool of 20 customers up for grabs in any given year. A start-up entering the field does well and secures 5 of these floating customers in the first year. But they will lose one of these customers at the end of the first year on average. In the second year there are still 20 customers looking to change provider. If the start-up succeeds with customer acquisition at the same rate it will still more than double it’s user base.

Being a small brand in a market with high defection rates is risky. Growing customer numbers as quickly as possible is insurance against future defections. A larger brand can weather the storm. For many product categories in fact, 20% loyalty churn would be extraordinarily high. So a new entrant has its work cut out for it on both fronts because in some industries the number of shifters is fewer.

I’ve over-simplified the figures, but you see my point. Acquiring customers from the pool of dissatisfied users is the primary goal of a start-up. In the case of web-based services, create a better user experience and you immediately tap into that pool. Customer retention will also take care of itself. Because the domain registrar industry is in dire need of innovation and there is a large number of disaffected users, this is the approach we have taken at iWantMyName.