Branding works
Nobody ever got fired for buying IBM. Nobody ever ate a terrible burger at McDonalds. Branding is not about being the best product, but about being the least likely to be terrible. Buying brands gives certainty and reduces risk.
To a buyer, buying from a startup is high risk. To compete with incumbents, focus on reducing perceived risk, rather than building even better products. This is why branding matters.
Tips
- A brand is like a reputation: Levi Strauss has been selling jeans since 1853. They built a reputation over 175 years. Today, they have a choice: they can either sell you a good quality jean and keep you coming back, or they can make a quick extra profit by selling you a cheap rip-off, but ruin their reputation. What’s better for them? Protecting their brand, by providing quality, obviously!
- While quality is one property that matters, variance is another one. Variance is the difference between the best and the worst case. If you go to the airport, it’s better to take a road that takes 10 minutes longer but never has traffic, rather than a road that’s a little faster, but sometimes can have really bad traffic which might cause you to miss your flight.
- Compared to big companies, startups are (rightfully) perceived as high variance: they carry a higher risk of catastrophic failures, such as the entire company going bankrupt, and leaving their customers hanging.
- In a B2B setting, there are not only the direct risks, but also reputational consequences: if you recommend Big Inc to your boss and Big Inc screws up, it’s obviously not your fault. But if you recommend an unknown startup that nobody knows and they ruin it, it is your fault… for not having picked well-known Big Inc instead!
- As a consequence, startups should invest much more in branding than they think makes sense. Forget about being seen as better, but rather to be perceived as less risky.
In Practice
Think about condoms. Condoms are all about risk protection. Most buyers don’t really care about having a better condom. They want a safe condom. A reliable condom. Something that will get the job done. The cost of a condom is neglectable relative to having to deal with some scary STD or an unwanted pregnancy.
Expensive is often better, and big brands are probably big brands for a reason. So people strongly prefer a well-known brand over a lesser known manufacturer, even if they need to pay a premium. Makes sense, doesn’t it?
Pair with
- Rory Sutherland
- Byron Sharp: How Brands Grow
- 22 Immutable Laws of Marketing
