Brands are the icing on the business model

November 16th, 2010 by Patrick Stähler

How do brands and business model work together? That is a key question for successful companies because if they do not align brand and business model it will backfire, probably not in the short run but surely in the long run.

Branding is a hot topic. Brands give products the magic touch. With branding regular, normal products morph into highly desired status symbols customers are willing to pay a premium for. Branding worked very well in the last years but is branding sustainable?

Brands are not sustainable if the foundation is missing

Branding is not sustaining when you have a business model that does not support your brand or vice versa, your brand promises something you cannot fulfill. If you focus too much on branding you create over the long run, a perception gap between what you promise and what you deliver. It is like the icing on the wedding cake. It looks great but very rarely does a wedding cake taste as good as it looks.

Let us look at one example.

The Ergo Insurance Case

The German insurance company Ergo Gruppe is the holding company of the well-know household brands Victoria Insurance and the famous Hamburg Mannheimer Insurance. Lately, Ergo decided to consolidate its brands under the fresh brand Ergo. Ergo tapped into people’s discomfort that insurance companies are great in sales but very bad when it comes to ease to understand the policy condition and in the case of a claim.

From this customer insight of discomfort with traditional insurance companies Ergo created the claim “Versichern bedeutet verstehen.” or in English “To insure means to understand”. Ergo used all communication channels and very well made commercials to establish the brand Ergo among German consumers. In the ads, people ask why it is so difficult to get insured, why the agents do not take them serious.

In one ad, the customer states: “I will versichert warden. Nicht verunsichert”. In German, that is a great pun or wordplay. Versichert means to insure and has the same root as verunsichert meaning to alienate or make insecure somebody. So Ergo wants so position itself as the insurance company that is easy to do business with, where you do have to study law to understand letters, where claims are handled in a fair way and customers understand the general terms and conditions. I think personally that this claim is great if Ergo can really fulfill its promises because insurances are a nuisance.

So let us look behind the façade of Ergo.

Can Ergo fulfill its promise?

So let us look at the general terms and conditions of Ergo insurances. First, I did not find any directly on the website. Therefore, I cannot inform me independently before I have a meeting with a sales agent. Well, that behavior does not support their claim that they are the insurer who understands customers.

After some goggling, I found some general terms and conditions for the liability insurance on the website of the direct insurer Ergo Direct. The GTC are 8 pages long and in fine print. Below, you find the section with all the liabilities that are not covered in the contract.

Altogether, 24 bullets cover these important points. Does Ergo fulfill its fresh claim not to make its customers insecure? That is up to you to decide if reality matches the claim.

The business model is the foundation of all branding

Klaus-Dieter Koch of brand trust who pointed out the Ergo case uses the metaphor of an iceberg for the brand. The tip of the iceberg is the brand and what we see but it has to be supported by the business model. In the case of Ergo, just pure branding will backfire as it did in the case of Vodafone that claimed to be the provider for the “Generation upload”.

Well, when that generation checked the claims vs. the reality, they got angry (FAZ Online in German). In the case of Vodafone, the firm withdrew the campaign since their business model did not support the claim. And that is better than pretending something you are not.

To develop trust you need a business model that makes you unique and valuable in the eyes of your customers. Then condense your positive uniqueness and reason why people love you in your brand statement. With such a brand (and business model), your customers will love you, your employees know how to act, how to handle customer complaints and your advertising or branding agency will not get nuts to sell something what is not there.

Be honest. That is what a great business model and brand is all about. It is all about the value you create not what you pretend to be.

The brand is the icing of the cake (business model). Icing is great but it is the cake that gives you satisfaction.

3 Responses to “Brands are the icing on the business model”

  1. Kay Plantes Says:

    A useful reminder Patrick of what matters. A brand sitting on a weak foundation will never be differentiated. That said, I’s use a different image for the brand than icing. I just did a consulting assignment with Duluth Trading, a multi-channel lifestyle marketer. They’ve transformed a category that is often frustrating to buy into a fun and satisfying experience. Fun is core to the brand and repeat purchasing (alongside unique product well designed for specific outdoor work). So the emotional promise of the brand is more than icing – and in DT’s case creating this fun is built into how they’ve designed their business model. Think tiramisu! Thanks again for the great post to share with my client base.

  2. Patrick Stähler Says:

    @Kay. Interesting case you mention. I always wonder how we can define a value proposition for a life-style firm. What is the job a life-style firm solves? Looking forward to a post on your blog on this topic.

  3. Kay Plantes Says:

    I will add your post idea to my list Patrick. I worry sometimes that the “jobs” approach to business model innovation becomes at best a product innovation versus a business model innovation. The jobs approach to business model innovation (in the US literature) emerged from the disruptive innovation literature. That literature focused on products that had become too “feature” filled to meet needs of some segments or non-users. A business model is not designed around one job for the target market. It can be defined around multiple jobs.

    In the case of Duluth Trading, they are making the search for work clothing a lot easier and they are adding features to clothing that make it easier for workers who work with their hands or out of doors to do their work.

    Take care, K

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