Why branding should always be part of your business strategy. And vice versa!

If we look at brands from a business management perspective and classify them according to their business strategy, we can distinguish four types of brands: Profit-only Brands; Impact-only Brands, Impact-first Brands and Profit-first Brands. Understanding the differences between these types of brands is of major importance when developing your business strategy. It helps to determine the kind of brand your organisation is or wants to be.

The brand is the most valuable intangible asset of an organisation. On average, brand value represents about 20 percent of the value of the top-500 companies in the world. Therefore, it is important to place brand strategy in the context of business strategy in an organisation. When it comes to ‘purpose’ and ‘branding’, we notice that a lot of companies struggle in this matter.

The situation in which we find ourselves now due to Covid-19 makes it clear, now more than ever, that the sustainable running of an organisation still depends on making profit. However pleasant and desirable the growth of brands and organisations with a ‘social purpose’ is, it goes to far to say that strong brand organisations can no longer exist or arise without a social ideal.

The importance of a business perspective

When talking about branding, people often associate the term with creativity: that high-profile television campaign, a cool design, a unique brand name or powerful logo. Much forgotten is the business side of branding. A strong brand is the extension of the business strategy, the conductor of the orchestra with an unparalleled range of instruments. Or, in other words: ‘the concept that drives the business’.

"A strong brand is the concept that drives the business"

If we consider brand strategy in the context of an organisation’s business strategy, the crucial question is as follows: what is the relationship between the business model and the strategy on the one hand and brand strategy and brand purpose on the other? Especially in times when preserving the continuity of companies is a top priority this is more important than ever.

This is why it is useful to also look at branding from a business perspective. If we do that and arrange brands based on the relation between their business strategy and brand purpose, we can distinguish the four types of brands detailed above. This classification helps both to interpret a number of striking recent developments and to put those developments into the right perspective. First, let us take a closer look at the four types of brands.

Profit-only Brands

Profit-only Brands are brands and companies that operate based on the profit maximisation paradigm. This paradigm has been the base of education for a lot of managers and entrepreneurs who have been educated in renowned – often Anglo-Saxon – business schools. These brands believe that maximising profits for shareholders is the company’s one and only driving force.

With the exception of unavoidable taxes and employment, such organisations proactively contribute little or nothing to society. Due to them keeping between the lines of what is legal and possible, it is often hard to determine which brands belong to this category, all the more so when these brands don’t communicate it that well. These brands often give the impression that they do contribute to social responsibility. However, this is not what it seems. The only focus these companies have is profit. Profit only!

We notice that Profit-only Brands quickly lose the respect of consumers. Which is why more brands and organisations have realised that this is not a sustainable business strategy and are moving more and more towards Profit-first.

The current developments and the crisis situation in which we find ourselves will cause the support for Profit-only Brands and organisations to decline more rapidly. Nevertheless, even after the Corona crisis there will certainly still be brands, with or without a lot of ‘purpose washing’, which are able to survive based on this business model.

Impact-only Brands

At the other end of the spectrum we find brands which originated from a higher ideal. Getting rid of a disease or an abuse such as poverty, hunger or child exploitation. These brands are known to be strongly in favour of certain values and have passionate followers. Impact-only Brands that come to mind are War Child, UNICEF, KWF, WNF and The Red Cross. All of these brands are individually focused on improving public welfare and living conditions of others, also known as creating social impact. Making social impact is what these brands have originated from and why they do what they do. Making profit is not an objective and does not appear in their business model or vocabulary.

Impact-only Brands are funded via donations and subsidies and deal mostly with two basic target groups: their ideal or interested target group and the recruitment target group that finances the goal. Having a strong brand is crucial for Impact-only Brands to ensure that what drives them and why their charity needs financial support is felt and known. Despite the fact that Impact-only Brands are only about making a social impact and not about making a profit, we do see developments here.

In recent years, these brands have also come to realise the importance of setting up a brand organisation based on business principles. They are moving towards commercial, profit-oriented organisations. This can be seen as a good thing. After all, the more effectively the money obtained is used, the greater the social impact achieved.

Impact-first Brands

This is the avant-garde that is leading the transformation towards the ‘purpose economy’. Companies that do business for good rather than making business for money. Impact-first Brands do not look for the gap in the market. They look for the gap in society. However, Impact-first Brands do not just work for a better world, they also make a profit. Nevertheless, profit is a means and not an end. Making a social impact is their top priority. After all, this is the reason these brands were created, directly from a social ideal. This social or sustainable mission is the starting point of all business activities within Impact-first Brands. These brands successfully achieve social and sustainable goals with a commercial business model, independent of subsidies or donations. Brands that make a real ‘social impact’ and have that as their top priority at all times. Brands such as Greystone Bakery, The Body Shop, Fairphone and Tony’s Chocolonely.

The good thing is that more and more of these brands are emerging. They operate in different areas such as climate change, clean energy, circularity and eco-products. However, also in the socio-economic domain with the fight against poverty, access to the labour market, fair-trade and social cohesion. And even more and more often in care, education and culture. Just as with strong regular brands, here too there is always a – in this case socially – inspired entrepreneur at the core.

Such an example is Marcel Belt, former top marketer of Unilever, Douwe Egberts and Reckitt Benckiser and now Chief Soap Officer of his own Green Soap Company. The brand ‘Marcel’s Green Soap’ consists of 100% vegetable ingredients and the packaging is also 100% recyclable.

The fact that sustainability can’t be profitable is a myth, according to Belt. He states: ”Sustainability can and must be profitable. You have to make sure you have a value proposition which is relevant to consumers and for which they are willing to spend two or three euros.” Customers often tell me: ‘Wow, it is very cheap’ rather than saying ‘Wow, it is so expensive’. Nevertheless, my brand is two or three times more expensive than a bottle that you can buy at Lidl. Only if sustainability is interesting to consumers as well as shareholders and investors will it grow.”

“The number of entrepreneurs moving from Profit brands towards Impact-first brands has been increasing.”

An interesting development that we also see here is the number of entrepreneurs moving from Profit Brands towards Impact-first Brands has been increasing and therefore also applies the business principles from the Profit Brand environment to the new environment.

An example is Sandra Balij who, after a career in banking, launched the social brands Ctaste, CtheCity, Ctalents and the Sign Language Coffee Bar. Ctalents is an employment agency for the ‘sensually challenged’. They train and coach blind, partially sighted, deaf and hearing impaired people and then match them to organisations.

Balij’s passion for purpose brands and social entrepreneurship started when she opened the restaurant Ctaste in Amsterdam. When you visit Ctaste you will eat in the dark and are served by people who know everything about the dark, namely the blind and visually impaired. Her most recently introduced purpose brand is the Sign Language Coffee Bar: This is a coffee bar where you are served by deaf baristas, so ordering your coffee is done by sign language. Interestingly, ABN AMRO was launching customer of the Sign Language Coffee Bar and the bank already has new locations in Rotterdam, Amsterdam, The Hague, Breda and Groningen.

Impact-first Brands receive a lot of attention in the media; it seems that they have been rapidly conquering the market lately. However, most of these companies are still young and in an early stage of development. This category still only represents a relatively small part of the business community. Yet all these Impact-first Brands together show that there is an alternative to a purely profit driven business. It can be done differently and it can be done better!

Profit-first Brands

Profit-first Brands are often brands and organisations that – in recent years – mainly had a profit only focus. Creating a solid return on investment still comes first within these brands, but this is no longer the only focus. These are the regular brands that we have all known for years. Brands such as Philips, Heineken, Bavaria, Coca-Cola, Pampers, Apple, Google, AkzoNobel and so on. But also the French bread and pastry maker Fournil who makes baguettes and cakes for which customers are willing to pay more than average, while also standing in line for them.

Profit-first Brands are brands with a clear customer value proposition that create added value for their customers. These brands did not originate from a higher ideal or a social mission and they are primarily focused on making profit. After all, a solid profit is the foundation of a sustainable and healthy company. However, we increasingly see that brands and companies of this kind no longer focus on making profit alone. Profit-first Brands increasingly look beyond short-term profit maximisation. Which does not mean that making a profit is not a priority.

After all, good profitability guarantees the sustainable survival of the organisation and its brand(s). However, profit-first also means that these brands are aware that in addition to profit, they can and must create value for their other stakeholders such as their employees or the local environment in which they operate. They understand that they can no longer act as isolated economic entities outside of the broader issues in society. Profit-first Brands realise that with their expertise, scale and resources, they also have the opportunity to actively and positively contribute to society and therefore can achieve significant competitive advantages that contribute to a healthy business return. This development is based on the economic principle of Creating Shared Value that was introduced a few years ago by Michael Porter.

Creating Shared Value is a lot more than the well-known concept of Corporate Social Responsibility (CSR). It assumes that companies can create economic and competitive advantages, while at the same time improving the economic and social conditions of their environment and thus creating value for all stakeholders.

The motivation of Profit-First Brands to think beyond profit alone is therefore not only based on a sincerely felt moral obligation, but also on healthy self-interest. It also comes from the increased awareness that brands and organisations can only flourish sustainably if they create value for all stakeholders, including the ecosystem and the environment in which they operate. As a result of this development, attention for brand purpose and purpose marketing has also increased exponentially among regular brands and organisations.

Moreover, it is interesting to see that the Creating Shared Value principle has in fact been seen to a certain extent in real family businesses. Good profitability is also key in family businesses. But in the first place, they also want to preserve the company and pass it on to future generations. The management of a family business often operates on the stewardship principle whereby the current generation loans the company to future generations. In addition, the local involvement of family businesses has been traditionally high. Employees originate from the local community. Which is why, for personal reasons, the dismissal of people because it is financially necessary to maintain the company’s profitability, is often postponed for as long as possible. Of course, if it has to be done, it has to be done. Otherwise, the survival of the entire company may be endangered. And that is ultimately even worse for all stakeholders and for the future generation.

The difference between three concepts

So, yes, we can see that the different categories of brands are moving towards each other. Simultaneously, it helps in developing a brand and business strategy to keep the difference between the categories well understood. Classifying brands based on the organisation’s business model also helps to identify the difference between purpose brands, brand purpose and purpose marketing.

Brand purpose

A brand purpose revolves around the goal, the vision and the core values of the brand. The brand concept driving the business. An inspiring brand purpose gives direction to objectives, behaviour and decisions; it reflects the existence of the brand in addition to making money. What does the brand stand for? What reason was the brand or company founded? It is the compass that you use to set the course. Every brand or brand organisation probably has a brand purpose.

Purpose brands

If your brand was created to make the world a better place, it – of course – is logical that the social problem that the brand solves is at heart of the vision, core values and therefore the purpose of your brand. After all, the higher ideal is embedded in the DNA of your brand and organisation. As far as I am concerned, these are the only brands that we can rightfully call purpose brands with a capital ‘P’. We often call them social purpose brands or social impact brands. So in theory, we distinguish two types of purpose brands: the philanthropic Impact-only Brands and the Impact-first Brands, which in addition to social impact also try to achieve a healthy return on investment.

Purpose marketing

Brands and organisations that are not primarily founded and originate from a higher social ideal, but from, for example, a consumer need, a gap in the market or a specific competence or technological invention are therefore not purpose brands. However, we see that in recent years these brands have become increasingly active in purpose marketing.

One of the pioneers in this field was the fashion brand Benetton which, with its taboo-breaking and controversial advertising campaigns at the end of last century, already stood up for diversity. At the time, this was mainly a clever campaign to boost Benneton’s worldwide brand awareness and sales with relatively few resources. This is a perfect example of purpose marketing. Purpose marketing is basically a marketing tactic to achieve a certain sales, communication or activation objective by making a positive contribution to the world.

Inspired by the rapid emergence of more and more purpose brands and the ideas of the economic Creating Shared Value theory, we see that purpose marketing is now more popular than ever and that many brands and organisations have moved from Profit-only towards Profit-first. Many of these Profit-first Brands even have the positive social contribution included in their brand purpose. By doing this, these brands go beyond just applying purpose marketing as a tactic. However, this does not yet make them purpose brands.

Apparently, Profit-first Brands see the advantage of ‘Creating Shared Value’ more and more often and are also incorporating elements aimed at generating positive social impact in their business and brand strategy. A brand purpose like that is not only important for customers and consumers, it also gives direction and inspiration to employees. Something that is increasingly important for addressing millennials. This in itself is a good and beautiful development. After all, large companies and brands have the scale and the means to truly create a positive impact in society.

Creating a credible brand purpose

However, a brand purpose must be credible. And in the case of Profit-first Brands that can still be a challenge. After all, for Profit-first Brand, making a profit rather than making a social impact is ultimately still the main priority. That is why it is important not to overdo it when formulating your brand purpose and to ensure that your brand purpose is concrete and directly linked to the added value and proposition of your brand.

“Simply claiming to exist for a better world is not credible for a Profit-first Brand.”

Simply claiming to exist for a better world is not credible for a Profit-first Brand. The brand purpose of a Profit-first Brand must be about what it is exceptionally good at as a brand and can therefore earn money with. The brand purpose connects these core competencies with the needs of the market and society.

This is why Rabobank was criticised for launching its new brand purpose to contribute – as a social bank – to the solution of the food problem in the world. As a result of the ‘Growing a better world together’ campaign, Rabobank was accused of overdoing their brand purpose. Apparently, it was not sufficiently clear that Rabobank’s ambition derives from its uniquely strong position in the global food and agricultural sector and that it makes an important contribution to improving global food and agricultural production and processing.

Following Philips’ strategic business decision to shift its focus from irons and shavers, TVs and light bulbs to medical devices, has also resulted in a new brand purpose. Philips’ new brand purpose clearly shows what they are good at (or want to be good at) and therefore want to make money with and how they also contribute to society: ‘At Philips, we strive to make the world healthier and more sustainable through innovation. Our goal is to improve the lives of 3 billion people a year by 2030.’ The strength of this brand purpose is not only the goal, but also the way in which Philips aims to achieve this goal (making innovative medical equipment) as part of the brand purpose. This makes it specific and credible.

The same goes for the brand purpose of IKEA, which is almost as old as the brand itself. IKEA not only says they want to create a better life for as many people as possible, they also make it clear that they do so by offering a wide range of interior products with beautiful design, good functionality and quality at prices so low that the majority of people can afford them.

Briefly, with Profit-first brands the positioning and promise of the brand and preferably also the supporting evidence must be part of – or directly and clearly linked to – the brand purpose. Like ING’s new brand purpose: ‘Empowering people to stay a step ahead in life and in business by making banking frictionless to the world’.

This purpose derives directly from ING’s Think Forward business strategy. By doing so, ING is saying that it wants to give people a head start by offering them an excellent user experience that is smart, easy and personal so that they can do their banking with minimum effort and maximum simplicity. A type of ‘lead through innovative banking technology’. With this very concrete brand promise, ING seems to position itself as the ‘Audi’ among banks. The social contribution is somewhat less concrete, but not too ambitious.

Crucial: strong added value proposition & brand positioning

Brand purpose already plays a huge role in the development of business and brand strategy. An inspiring brand purpose is ‘the concept that drives the business’. However, we must realise that for Profit-first Brands, in addition to a social commitment, the brand promise and positioning of the brand is still crucial. Not every Profit-first Brand can – and does not have to – position itself on the basis of a social contribution.

After all, despite the fact that the purpose prophets may be running a little too fast, we are rapidly moving towards making a social contribution for brands to a greater or lesser extent a hygiene factor. It is therefore very likely that it will no longer be a determining factor. And if, in the end, all Profit-first Brands contribute more to a better world, it will be important that brands are still able to position themselves well based on a clear distinguishing value, an appealing emotion or, for example, the choice for a specific target group.

In summary

Purpose marketing is an operational marketing tactic that allows you to achieve a certain sales, communication or activation objective by making a positive contribution to the world. Therefore, this is not the same as having a brand purpose. A brand purpose is the guiding compass of a brand organisation. However, the fact that you have a brand purpose does not mean that you are also a purpose brand. Purpose brands are brands in which the social problem that the brand solves is central to the vision and core values, which are born out of a desire to make the world a better place.

As a result of the Corona crisis, social support for Profit-only Brands seems to be declining at an accelerated pace. More and more brands and brand organisations see that they can create economic and competitive advantages while at the same time improving the economic and social conditions of their environment, creating value for all stakeholders. Many brands are therefore moving in the direction of Profit-first Brands.

“There will always be room for brands that deliver a fantastic product in a responsible manner”.

At the same time, we see that philanthropic Impact-only Brands, just like Impact-first Brands, are increasingly recognising the importance of setting up a brand organisation based on business principles and, in this sense, learning from and even shifting towards more commercially profit-oriented organisations. Profit-first Brands increasingly see the need to incorporate Creating Shared Value principles into their business and brand strategy, generating more and more social impact. For Profit-first Brands it is therefore also more important to have a brand purpose that is embedded in society, just like Impact-first Brands.

However, this does not mean that the brand strategy of Profit-first Brands can only be based on social ambition. Having a clear added value proposition and distinctive brand positioning remains a requirement for the long-term business success of Profit-first Brands. So, for brands that perhaps do not focus directly on contributing to a better world, but do deliver a fantastic product in a responsible way, there is still a place in this world.

We see that the different categories are moving towards each other. However, when developing a brand and business strategy, it is imperative to understand the differences between the categories and to determine together what kind of brand and organisation you are now, or want to be in the future.