Why Branding is Important for Penny Stocks - dummies

Why Branding is Important for Penny Stocks

By Peter Leeds

Branding is the single most important aspect of any business, and thus, is an important factor when choosing a penny stock. A brand is the concept or unique image of a company and its products or services.

Brands have the unique ability to hold certain beliefs or expectations in the minds of individuals. For example, you may think certain countries make inferior cars, or a certain politician is dishonest, or a specific restaurant chain provides healthier options than the rest. Branding plays a major role in all these notions.

Branding is the act of developing or directing a brand so that customers react positively to the underlying company and its wares. Brands hold certain connotations — whether positive or negative — among consumers and have impacts on all aspects of their interactions with a company.

McDonald’s — along with its Golden Arches logo — is an instantly recognizable fast-food brand. Apple’s brand differs significantly from that of IBM, even though both companies make computers.

Any time you have opinions about a company or product, they’re probably a result of branding (or a lack thereof). Many people think that they know the best vacuum, or motorcycle, or smartphone, even though they’ve never even tried all the options. That is branding at work.

Most companies try to improve their brand and by extension, their sales, through various means. Here are some of the most popular:

  • Provide superior customer experiences. Branding occurs at every touch point between a consumer and the company. This includes customer service personnel, the experience with the product, and even the ease of navigating it website.

  • Make visual cues recognizable. Easily recognizable brand logos and colors help customers associate connotations with a company. The Peter Leeds brand uses a specific shade of red on all our publications so that there is a cohesion and consistency across all touch points. Banks tend to use green to represent wealth; many retailers like to use yellow because it grabs your attention.

  • Manage reputations. Companies try to address any detrimental perceptions by improving the way they interact with people or going after those who besmirch their reputations. Some firms specialize in helping companies manage their reputations.

  • Improve accessibility. Some of the best brands are more accessible or accountable to consumers. Even having enough customer service personnel to answer the phone lines so that customers don’t have to wait on hold is enough to improve a brand’s image.

  • Play into their strengths. Brands that know what customers like about them and work to make that aspect of their business even better, are likely to succeed. For example, if a company is known for having the lowest cost offerings in its market, it often can improve its brand by doubling down on that strength and dropping prices even farther.

Why branding is more important with penny stocks

Branding is more important with penny stocks than it is with larger, more established companies because it represents a way for newer and smaller companies to compete and maybe even have an advantage. Established companies are committed to how consumers already see them, which opens angles and opportunities for younger and unknown companies to use solid branding to take market share.

Newer companies also have the advantage of developing their brand from scratch, devoid of any preconceived notions. They can look for what is missing in a market and position themselves to be that missing link — whether that link is the “fastest,” or “friendliest,” or “simplest,” or “cheapest.”

With smaller companies, the brand is often their only asset.

When branding is done well

Unfortunately, far too many companies do a bad job of handling their brand. In such situations, the brand is costing the company in terms of revenues and reputation.

When branding is done properly, however, it can lead to easier and more numerous sales, higher customer loyalty, and increases in word-of-mouth referrals. A strong and effective branding strategy must

  • Remain consistent. Every time a customer sees or interacts with a brand, it should be obviously similar. A company’s colors, logo, and even its style must remain consistent.

  • Add value. Each time a consumer interacts with a brand, it should provide some value. Better software, an easy-to-navigate website, great fashions for the money, or whatever the deliverable.

  • Maintain communication. Successful brands continually connect with customers to see how they are feeling about the brand. They conduct focus groups, monitor customer reviews, or simply keep clear contact channels open so they can ask questions or provide feedback.

  • Continually improve. While it is best to never change a brand in terms of appearance or focus, companies must constantly work to improve their brand. The main concept should remain consistent, but there are lots of things around the brand that a company can always improve. Examples include an improved social media presence, value-added features to new products, or even free customer appreciation gifts.

  • Appear unique. A great brand stands out from very other business operating in the space.

  • Focus on fewer attributes. He who is friends with everyone is ultimately friends with no one. A strong brand conjures up, and goes after, only one or two attributes. The least expensive, healthiest, best-tasting hamburger will never outsell a hamburger that only claims to be the best tasting, or only claims to be the healthiest.

When analyzing a penny stock, pay attention to its branding and that of its competitors. While the operations of a business are not at all important for very short-term trading, they are of paramount importance when investing for more than a few weeks.