Pair the brand with what the ideal customer likes

1. What a brand does for a business

A better deal is not always enough. One owner ran a supplement company that paid affiliates 40 percent commission on products the owner believed were the strongest legal formulas around. A friend with a medium-sized audience at the time was earning about $40,000 a month in commissions from a large international brand that paid only 10 to 20 percent. Switching would take five minutes and, the owner told him, would multiply his income by four; by the owner's reckoning it was worth another $500,000 or more a year. Months passed, and every time they met the same conversation came round again. The friend would not switch. The other company was giving him something the better offer did not: it was cool. The owner had spent the whole budget on commissions and product and none on a brand people would think was cool.

Flag: the story's figures. The story gives four times the income and $500,000 or more a year. At the stated rates, 40 percent is four times a 10 percent commission and twice a 20 percent one. On $40,000 a month earned at 10 to 20 percent, the same sales at 40 percent would add about $40,000 to $120,000 a month, or roughly $480,000 to $1,440,000 a year. Which of the two rates the friend was paid is not established on this page.

The three levers. A business becomes worth more in only three ways: more customers, customers worth more, and making sure both keep happening well into the future. The only way the owner knows to move all three, at the lowest cost and over the longest stretch of time, is branding.

Lever	What a brand does to it	The example given
Lower the cost of winning a customer	A larger share of the people who see your advertising buy; customers come at a fraction of what competitors pay, consistently; an established brand is assured of sales for a new product from the first day	A famous actor can have millions of customers for any new product he launches, on launch day
Raise what a customer is worth	Charge 2, 5 or 10 times what competitors charge for exactly the same thing	A coffee chain charges $5 for coffee that sells for $1 elsewhere
Lower the risk	Customers buy from you again and again without looking at competitors	Once someone uses one computer maker's machines, they tend to buy only that maker's products for life

How far acquisition costs spread between competitors when no brand is at work is on SOP 56 — Define and compute what a customer costs to acquire, section 7.

2. How a pairing becomes a premium price

Start with a weak brand: a new mark nobody knows or cares about yet. Pair it with the people, experiences and other things your ideal customer likes. Say your customer wants to make money. Pair the mark with two of the richest businesspeople in the world, and people who like investing, entrepreneurship and money will probably respond well. Pair it too with the books and videos they turn to for value, and with the outcomes they want.

To turn that into money, move some of the influence and reach of whatever you pair with into the product itself (influence and reach are defined on SOP 92 — Measure brand as reach, influence and direction, section 3). Then pair the product with your audience through an offer. The twist is that a strong brand turns a commodity, such as a $10 hat, into a premium product, and a premium product makes customers want to pair themselves with it. Buying is how they attach themselves to the outcome the brand stands for. They pay, they get the hat, and the association forms from everything they have seen that mark next to. They wear it, and they go from wanting to be an ambitious entrepreneur to saying, with their money, that they are one, or feel like one. If the ideal customer likes money, innovation, entrepreneurship and investing, they are more likely to buy from a brand paired with those things.

The chain, in order:

1. You start with a brand that means nothing: a logo people know is a brand without knowing what it means (the unrecognized mark on SOP 92).
2. You pair it with things your customers like.
3. To them, the brand starts to mean "a thing I like".
4. You buy a generic product.
5. You put your brand on it, and the generic product becomes a premium branded one.
6. Customers want to be associated with that well-regarded branded product.
7. They trade their money for your premium product.
8. They get the product and the association.
9. You get higher profits, from higher prices, because of those associations.

The break-even test. As long as you come out ahead between what it costs to tie the brand to the things they like (books, videos, people, experiences) and how many hats you sell, you make money. Put the other way: as long as the extra profit from the premium price covers the cost of making the pairings, the branding worked.

3. A worked comparison: unbranded against branded

Pricing power is the most important thing to judge in a business. A business that can raise its prices without losing customers to a competitor is a very good business; one that has to pray before raising a price 10 percent is a terrible one. That is the point this section rests on.

Two companies sell comparable things. One is branded, one is not. The figures are a scenario, not a measured case, and the tables show them as offered:

Each sale	Unbranded	Branded
Price	$2,500	$5,500
Cost of goods	$500	$500
Gross profit per sale	$2,000	$5,000

The campaign	Unbranded	Branded
Return on advertising	4 to 1	45 to 1
Gross profit	$8,000	$90,000
Sales	2	18
Conversion rate	4%	6%
Clicks	100	300
Click-through rate	1%	3%
Advertising spend	$2,000	$2,000

The account given: one thing sells branded at $5,500 and the other unbranded at $2,000; the brand gives pricing power while the cost of goods stays the same, so each sale makes far more profit (+150 percent). Both spend the same $2,000 on advertising, and because people prefer to buy from the brand, it wins 50 percent more customers at its higher price. The difference between them comes to 4.5 times the sales and 11 times the return on advertising. That is what a brand can do with the right audience. On top of that, the branded one may get many future purchases from each customer at no extra cost, whereas the unbranded one may lose buyers to whichever rival next undercuts it by 10 percent. That is why brands beat commodities in every industry and hold an advantage that is theirs to lose. In one owner's experience, returns on branded advertising are enormous but slow to arrive, and that slowness is offered as the reason no one does it.

Flag: the unbranded sales. 100 clicks at a 4 percent conversion rate is 4 sales; the table gives 2. The $8,000 of gross profit is 4 sales at $2,000, and the 4.5 times is 18 against 4. With 2 sales, gross profit would be $4,000 and the sales multiple 9 times. This page does not settle which reading is right.

Flag: the unbranded price. The account under the tables gives the unbranded price as $2,000; the table gives $2,500, with $2,000 as its gross profit per sale and as the advertising spend. The +150 percent matches gross profit per sale, $5,000 against $2,000. This page does not settle which reading is right.

Flag: "50 percent more customers". The table's conversion rate rises 50 percent, from 4 to 6 percent; its sales rise from 2 in the table, or 4 as computed, to 18. The 11 times matches the returns, 45 against 4 to 1. This page does not settle which reading is right.

4. The four steps, in order

A saying worth keeping in view: a reputation takes 20 years to build and 5 minutes to ruin, and knowing that changes what you do.

Branding is the deliberate pairing of your thing with what your ideal customer has; good branding is pairing your thing, on purpose, with something good. To start a brand, grow one, or turn a bad one into a good one:

1. Work out who your ideal customer is. Section 5.
2. Work out what they like. Section 6.
3. Associate your stuff with those things. This step, and the three levels of authority it climbs, are SOP 95 — Climb the three levels of authority.
4. Tune those associations for the most profit. This step is SOP 93 — Choose a market direction.

Whether you have no brand or a bad one, you start the same way: by working out whom you are trying to serve.

5. Step 1: who the ideal customer is

The example business throughout is a law firm that serves businesses. It could help everyone, but that is unlikely to make a profitable business: it would have to be too many things to too many people. Narrow the customer down so you can give each one more value.

The four tests are the same four that SOP 1 — Pick the market before the offer, section 2, carries (pain, purchasing power, reachable, growing). What this version adds is below, in its own order.

1. Growing. Given a shrinking audience, a flat one and a growing one, take the growing one: even if you only hold your share, you grow because the market does.
2. Enough money. If you want to charge a lot, they have to have a lot. If you could go after poor, middling or rich customers, go after the ones who can afford you.
3. Easy to target. Customers who exist but cannot be found are of little use. Pick people you can put advertisements in front of with little effort.
4. In pain. Pick people who desperately want what you sell. Competition is welcome here, because at least it shows people are buying the thing; then you only have to do it better, and most business owners are not hard to beat. If you could choose between hard and easy, choose easy.

Put briefly, the same four are growing, in pain, can afford it, and easy to find.

Worked. For the law firm:

1. Growing: the baby-boomer generation is growing. Check.
2. Money: check; plenty of businesses already serve this population.
3. Easy to find: advertising aimed at older people is straightforward. Check.
4. Pain: an aging population has plenty of legal problems, and the businesses that serve it carry the burden of them. Check.

All four pass, and the "who" is found: owners of assisted-living centers.

6. Step 2: what they like

Still the business-law firm, now looking to win assisted-living center owners as clients. What do those owners like? The list as stated, all eight, in order:

1. They probably like making more money.
2. They probably want more customers.
3. They probably want more profit.
4. They probably want to build a business they can sell.
5. They probably want help recruiting talent, so they do not have to work as much inside the business.
6. They probably have trouble keeping talent, because good nurses and nurse practitioners are not cheap and demand for them is high right now, above all in the private sector.
7. They want to be sued less often.
8. They want a smaller tax bill.

These are some of the things they like and some of the problems they are struggling with.

7. What this page does not decide for you

• What to spend on pairings. The break-even test in section 2 is the only rule given. This page gives no figure for a pairing budget.
• How long branded returns take. Section 3 says only that they take time. How long to wait is on SOP 95 section 5.
• The comparison's disagreements. Section 3 carries three flags; the page takes no side.

8. The checklist

Question	The answer
What a brand moves	The cost of winning a customer, what each customer is worth, and the risk that buying stops
How a pairing becomes profit	Pair the mark with what customers like; put it on a generic product; customers pay a premium for the association
When the branding paid	As long as the extra profit from the premium price covers the cost of the pairings
The four steps	Who the ideal customer is; what they like; associate with those things; tune the associations for profit
Step 1's tests	Growing, enough money, easy to target, in pain
Step 2's output	A list of what they probably like and the problems they are struggling with

9. What this page does not cover

Setting the price itself is SOP 82 — Set price from the pricing rules and the three models, and the gap between price and value is SOP 2 — Set a price from the value gap, not from competitors. Tax and employment law are not covered on this page. Measuring a brand is SOP 92; the third step and the levels of authority are SOP 95; the fourth step, moving the market, pivots and mistakes are SOP 93.