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How Branding Debt Ratios Determine a Brand’s Success

By: Ed Roach

 

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Over many years a business’s brand accumulates dreaded branding debt. The more branding debt accrued, the bigger the challenge to come out from under its weight and move your brand forward. The more branding debt you own the harder it is to differentiate yourself and grow your marketshare. If you haven’t figured it out yet, “Branding debt” is real and it’s damaging your company from the inside AND out. Branding debt is all the negative things that are dragging your company down. 

 
Related Article: The Truth About Branding
 
Branding debt can include but is not limited to:
 
  • Image inconsistencies. How many times have you seen one sign on the building, another one on a sign or vehicles, and yet another logo on the web and stationery. An inconsistent identity confuses your customers. Sometimes it looks like entirely different companies.
  • You’ve been reduced to a commodity. You’ve aligned yourself so closely to the sales leader in your category, you’ve reduced your brand to commodity—selling on price.
  • Internal communications lacking. You’ve allowed your staff to keep abreast of company news through the rumor mill. They hear directly from management so little, they’ve lost trust in what they say.
  • Corporate culture. The cultural well is poisoned. Staff are disenchanted with company direction and are hungry for solid leadership.
  • You’re a follower brand. Your brand follows at the heels of the competition, falsely believing that if it’s good enough for them, who are you to change up things?
  • Failure to engage the competition. Your brand is lacking the confidence to stand for something, being content with the mediocre.
  • What is your brand? Failing to define your own brand and exploiting its uniqueness.
  • False differentiation. Failing to see the true differentiator, excepting that it is the low hanging fruit such as employees. 
  • Using a crutch. Looking at a re-brand as changing the logo and slogan. Lipstick on a pig. These changes do nothing for the fundamental branding debt you are carrying.
  • Paying down branding interest and hoping the branding debt principal will take care of itself. This is a wish and a prayer. Succumbing to this strategy will send confusing messages to your stake holders.
  • Lack of Confidence. How many entrepreneurs don’t see themselves as the experts they are? They fail to center attention on their achievements and benefit from the attention.
  • Discrepancies in brand values. Not living up to your brand values or even compromising them adds to your branding debt. 
 
Just like financial debt, branding debt is a liability. Knowing how much branding debt your company can withstand will help you to determine what resources are needed to put your brand in a healthier position. Your branding debt ratio allows you to compare your debt to your branding assists. 
 
What items are contributing to the success of your brand and how much debt is holding it back. A brand’s goodwill is defined by its branding debt. Through proper analysis a brand with 10 brand assets and 4 brand liabilities could be said to have a branding debt ratio of 40%. This important ratio is the benchmark or limit that will allow your brand to thrive or suffer. 
 
The strength of your brand will best determine if a high ratio is sustainable or not. The stronger the brand the higher the branding debt ratio it can withstand. If the brand is weaker a lower branding debt ratio is all it could support. If the weaker brand has a high branding debt ratio then it is much harder to sustain negative market conditions and that results is a loss of market share. 
 
Branding debt ratios are common sense. The more things your brand is doing wrong directly infringes on its ability to succeed. More assets than debts means the brand could withstand some devastating blows that a weaker brand would succumb to. Like financial debt, branding debt is best when there is very little of it. 
Published: February 19, 2015
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Ed Roach

For more than 25 years, Ed Roach has worked with hundreds of successful small businesses by helping them develop unique brand positioning strategies that differentiate them from their competition. Ed appreciates working with companies who see the value of going beyond mere slogans and have a desire to sell from compelling positions, and consults predominantly with businesses facilitating his proprietary process, "Brand Navigator." This branding process effectively focuses a company's brand, delivering a positioning strategy that can be taken to their marketplace. He is the author of "101 Branding Tips," a book of practical advice for your brand that you can use today.

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