Branding is a hot topic in boardrooms around the world because most CEOs recognize that a strong brand is a powerful driver of shareholder value. Indeed, McKinsey analysis suggests that about half of the market value of the Fortune 250 is tied to intangible assets. For some of the world’s best-known companies, the figure is even higher.

Intangible assets include more than just brands, of course. Nonetheless, our research into the connection between brand strength and corporate performance at 130 consumer companies suggests strong brands generate, on average, total returns to shareholders (TRS) that are 1.9 percent above the industry average, while weaker brands lag behind the average by 3.1 percent.

Why do brands "work" for customers? The reasons are familiar: they simplify everyday choices (a shopper who regularly buys Crest doesn’t have to agonize continually over toothpaste), reduce the risk of complicated buying decisions (IBM mainframes and Boeing jets are safe choices), provide emotional benefits (Tiffany), and offer a sense of community (Apple Computer and Saturn). Strong brands are therefore enormously attractive to senior managers, whose interest is fed by any number of books and articles on how to get and keep them. But anyone who thinks seriously...