Brand generates alpha for a business
Brand alpha is not a distant shiny theoretical concept. It generates cold hard cash.
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I have mixed feelings when I see Varun Gupta’s post about this businessman who gamed the system to become the #3 seller on Flipkart.
On the one hand, I doff my hat to this Indori businessman. While it takes talent to spot this loophole, investing enough to reach #3 takes rare Putin-flavoured impunity.
On the other hand, this proves once again what I believe with religious ferocity - a recognisable and trusted brand generates alpha for a business.
So, what is alpha?
Alpha is a concept in the world of finance. It is the extra return a stock earns over and above its benchmark (e.g. Nifty 50). Smart investors pick stocks with high alpha.
The most important, yet least understood lever that generates alpha for a business is its brand.
You know a business enjoys alpha from its brand when:-
It grows faster than the category,
It charges a price premium, and consumers are happy to pay,
It commands loyalty from consumers,
It attracts more employees who stay longer. Because who doesn’t want to work for a loved brand?
A strong brand alpha even insures you from crises. Remember Maggi? A weaker brand would have been obliterated in 2015. But when Maggi returned after the ban, it reclaimed 60% market share within months.
In short, brand alpha works like a Teflon coating that protects you from all kinds of kryptonite.
Brand Alpha is not a theoretical concept. It’s so real that it translates into real growth, salaries, profits and valuation.
Brand alpha generates cold, hard cash
Here is a great example, albeit dated. [Source]
Alkaline battery was a two-player - Duracell and Eveready - category. Both started at the same place. Both had similar products, go-to-market strategies and technology.
But at the end of 10 years, Duracell was outselling Eveready.
Not just that, Duracell trumped Eveready on all metrics. It commanded a higher market share, sold higher volumes, that too at a higher price point… and its profits were 2.2x of Eveready!!
This sounds too good to be true. Even magical!
That’s because Duracell used its advertising lever to create a strong brand preference, or alpha (57% vs. Eveready’s 37%).
The Uncomfortable Truth
The Indori businessman's success proves an uncomfortable truth - brand alpha is so powerful that it generates returns even in the wrong hands.
Think about it. Consumers were not buying his products. They were buying the trust someone else had earned over years and years. This businessman did not build a better product, nor did he create any innovative marketing playbook. All he did was feed off of brand alpha. Like a parasite.
This should both terrify and inspire you. Terrify, because it shows how vulnerable unprotected brand value is. Inspire, because it proves how incredibly valuable brand alpha can be.
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I agree with you. They are parasites. One+ can’t do anything about this?