The economy and brands

“Entrepreneurship and innovation are central to the creative process in the economy and to promoting growth, increasing productivity and creating jobs.”
Our Competitive Future – the Government’s competitiveness white paper.

Brands deliver their benefits to consumers through a process of innovation in a climate of competition. Competition is the incentive for innovation and innovation makes brands more responsive to consumer needs.

This process is highly beneficial to the wider economy through its contributions to innovation, competitiveness, wealth and job creation.

Consumers want brands for the benefits and value they give them. Mass publicity through advertising and other commercial communications, combined with widespread distribution, leads a scale which enables mass production. This provides the capacity for competitive pricing and funds for more research and development.

Brands are essential for a thriving, modern economy. Their identities provide differentiation in the marketplace, which enables competition to flourish, as new and existing brands contend for the consumer’s attention.

In addition to contributing to the domestic economy, British companies rely on their brand reputations to carry their products successfully into international markets.

Studies into brands and their contribution to the economy.

In 2008, a study by the Westminster Business School looked at the contribution of branding to the UK economy, finding that some 1 million people are employed in brand building and that it accounts for some £15.85 billion of investment to the UK. More information on this study is available here.

In 1995, a study for the European Commission by PIMS (Profit Impact of Market Strategies) found that innovation and intellectual property are the strongest drivers of competitiveness, and that there are clear links between these drivers and jobs.

Further work by PIMS in 1995, undertaken for AIM, the European Brands Association, found that branded businesses innovate twice as much as non-branded businesses.

Not only that, but branded businesses also extract more value from their innovation. Every pound spent by brands on R&D generates two pounds in value added. This compares to a ratio of 1:1.3 in the rest of the economy.

In 1999/2000, the Swiss business school IMD and PIMS studied the role of innovation and its contribution to brand performance. They identified a virtuous cycle involving innovation, consumer value and communication.

The cycle starts with a brand committing resources to innovation. Deep insights into consumer behaviour and needs are translated through this innovation into consumer value. To be successful, this value must be greater than current offers on the market. This value to the consumer must then be communicated to and understood by consumers if the innovation’s full potential is to be realised.

The virtuous cycle may become a vicious spiral if management reduce their commitment to innovate or misguided policies interrupt the innovation process.

For copies of the 1998 study Of brands and growth and the 1999/2000 study A virtuous cycle: innovation, consumer value and communication, please contact us.