I tried to explain the concept of a brand to my seven-year-old. Twenty seconds into my explanation, I knew I was losing her. Soon thereafter, she found a reason to run away. My explanation was complicated. So, I looked up the definition of a brand on Investopedia.
The term brand refers to a business and marketing concept that helps people identify a particular company, product, or individual. Brands are intangible, which means you can't touch or see them. As such, they help shape people's perceptions of companies, their products, or individuals. Brands often use identifying markers to help create brand identities within the marketplace. They provide enormous value to the company or individual, giving them a competitive edge over others in the same industry. As such, many entities often seek legal protection for their brands by obtaining trademarks.
The Investopedia description isn’t much better either. Ultimately, I challenged myself to describe a brand in one word. I came up with ‘trust’. Strong brands evoke strong emotions. Among all the emotions, trust is the most important one. Without trust, a brand cannot sustain itself over the long term.
When I started to research what a brand stood for, I started my search on - of course - Google. I didn’t go to Yahoo, Bing, Ask.com, or any other place. I know that Google will bring me the most relevant results because the core mission of the Company is to index the world’s information. An entire SEO industry exists to make sure websites are optimized to be found on Google. Not for Excite.Com. So simply put, I trust that Google just isn’t another search engine, rather the best search engine. Trust elevates a business to brand status.
Costco has the lowest prices. Costco’s gross margins are 15% - compared to 25% - for the rest of retail. Therefore, Costco marks up goods at half the rate that its competition does. This includes consumer goods, gas, or hot dogs. Most Costco customers know this by experience. Costco has built one of the greatest retail businesses in history by introducing price trust. Without trust, there cannot be a Brand.
Families that are on the road, traveling with hungry kids, know that they can stop at the closest McDonalds, to make them Happy! That consistency of product and fast service - regardless of store or geography – is the key ingredient for hungry travelers. It's not any meal, it’s a Happy Meal.
Fifteen years ago, buying a used car was a very different and unpleasant experience It meant going to many different mom and pop dealers, finding the car you wanted, haggling over the price, and then praying it wasn’t a lemon. Believe me, I’ve been on the wrong end of this transaction, more than once. Maybe you have also. There were a lot of things this market lacked, but the main one was trust. CarMax realized this and built a large business over several decades by eliminating lots of consumer pain points. They introduced no-haggle pricing, large inventory, easy trade-ins, easy returns, and many more features. This standardization tipped the market in its favor. Most importantly, CarMax introduced trust.
Consumers at a grocery store can just pick up their favorite branded product just based on the logo of that product. We know it will taste the same, it will cost about the same, but picking up that particular branded product will cut down on ‘search costs’ for looking for the best alternative. Great consumer brands convey trust through product consistency and by eliminating search costs.
Twenty years ago, Online businesses had to solve a critical problem of establishing buyer trust before they were willing to transact. The trust factor was solved by creating a customer review system. A significant number of great reviews by other customers meant the seller was trustworthy. Ebay built a great marketplace by introducing Paypal as a medium of trust between buyers and sellers who did not know each other. The seller was paid only after the buyer received and verified the purchase. Trust enables all marketplaces, especially Online marketplaces.
Good businesses build customer trust through consistency. Without trust, it’s a transaction. That means a competitor can undercut you by lowering prices or take away business by introducing a product that is just slightly better. Trust elevates a business to brand status. Brands are the epitome of Trust.
Armed with this information, I am hoping for better results in my next conversation with my daughter.
This material does not constitute an offer or solicitation to purchase an interest in Latticework Partners, LP (the "Fund"). Such an offer will only be made by means of a confidential offering memorandum and only in those jurisdictions where permitted by law. An investment in the Fund is speculative and is subject to a risk of loss, including a risk of loss of principal. There is no secondary market for interests in the Fund and none is expected to develop. No assurance can be given that the Fund will achieve its objective or that an investor will receive a return of all or part of its investment.
This material contains certain forward-looking statements and projections regarding the future performance and asset allocation of the Fund. These projections are included for illustrative purposes only, are inherently speculative as they relate to future events, and may not be realized as described. These forward-looking statements will not be updated in future.
I am an investor and these are my personal thoughts on investing, behavioral finance, markets, and sports viewed through the prism of a Latticework