Branding, they tell me, is all about building a relationship between a customer and a brand. That customer, theoretically, will have a bias towards your brand that encourages less consideration of alternatives, more purchases and, hopefully, less price sensitivity. That’s the theory anyway.
It was, most of us would probably agree, a pretty good theory. It was true for most brands to a greater or lesser extent at least some of the time. Still is.
Why were we (are we) so focused on building our brands? Well, to compete better. Ultimately, successful brand building was supposed to translate into the customer buying more of our brand rather than the competitor’s brand at a higher price. Sorry to be quite so crass about this. I recognize there are other benefits to brand building. Yet if the cost of brand building isn’t exceeded by the revenue you generate, neither you or your customers will ever get to recognize those other benefits.
You’ve got to make a profit. If you aren’t the big, low price leader and your product isn’t fundamentally distinctive from your competitors, you better have a strong brand.
So now we get to the part that has me worried. In an online world, I don’t think we can count on the link between successful branding and revenue generation to remain intact. I’d go so far as to say the more successful you are, the less net value you may get out of it. Let me emphasize that this is a hypothesis. I’m asking you what you think.
Let’s imagine an apparel brand that’s been very successful in brand building. They’ve identified and targeted their desired customer group. That customer group knows and actively follows the brand. They know how it will fit them. They like the colors and styles and believe the durability is good. They interact with the brand and other customers in social media and are truly excited about the brand and their relationship with it. They have a clear vision of why they need the brand and how they use it.
It doesn’t get any better than this from a brand building perspective. I doubt it ever gets this good.
Okay, so now it’s time to buy. On EBay, the customer finds new product from this brand with the tags still on it for one half of the brand’s in-store or online retail price. Shipping is free and they won’t have to pay sales tax.
But more importantly, there’s just no information they need before making a buying decision that would cause them to pay a higher price. The brand has done such a good building a relationship with this customer that the customer doesn’t feel a need to visit the store, try the product on, see it displayed, or ask any questions. There’s no chance to sell some more product while the customer is in the brick and mortar store.
In this particular case, branding has backfired. The fact that the customer is committed to the product and has no doubt about it has cost the brand money.
The first observation that everybody will make is that the product shouldn’t be EBay or wherever at half off. Okay, true I suppose, but nobody’s distribution is perfect. You will have returns from legitimate online selling, closeouts, product you just got too much of, and some product that just got through your ability to police it. That can be managed, but not eliminated. Anyway it’s not really what I’m talking about.
The example I gave is a true one, but probably an extreme. I hope. But even if the product is only 15% cheaper, the customer has no motivation to pay more. What’s to do?
Recognize economic reality. For a long time, income in the U.S. of the top 10% by earners and the bottom 90% increased at pretty much the same rate. Somewhere in the mid 1970s that stopped and the top 10% rose at the higher rate that leaves us where we are today in terms of income disparity. You all know that wages for much of our population (and especially among our customer base) have gone nowhere for the last ten years or so.
You are dealings with a population that is overall more price sensitive. They just are. They have less money to spend. That has to tell you something about what you can sell and at what price points.
Take a good look at your product mix. Do you really need all those colorways? Everything does not have to be completely redesigned each year. What everybody has pretty much figured out is that cautious inventory management is dove tailing nicely with brand building and good financial practices.
Distribution still matters. I continue to believe most brands have to sacrifice some revenue growth for higher margins, lower expenses, and a better bottom line. Brands and retailers have to work as partners. Yeah, heard that before. What does it mean?
Brands have to commit to controlled distribution, limited discounting and consistent pricing across channels. Retailers have to commit to carrying brands they are willing to stock enough of so they can merchandise it effectively.
As I write this, I guess I’m suggesting a quality and frequency of communication between brands and retailers that hasn’t existed in the way I’d like to see. The rep visiting the store once in a while isn’t the answer to the question, and I guess one question that may come up is just how the role of reps is evolving. I wonder if their primary purpose is still to get orders.
Part of the answer- and I think it’s ongoing- is that the investment in systems that’s happening is improving the quality of information and the immediacy of feedback that brands and retailers have about what’s selling to whom.
I’m also wondering if the trade shows, whose purpose is evolving in ways we’re still figuring out, don’t have a role in improving brand/retailer communication. No, it has not escaped my notice that one of the primary benefits of trade shows is that brands and retailers get to talk to each other face to face. But I’m suggesting a more rigorous, “best practices” kind of educational approach. Maybe people won’t want to share. And maybe (make that probably) the fact that retailers are brands and brands retailers complicates this all.
This article sort of got out of hand. The question I wanted to ask you is if successful brand building, given the current online and economic environment, doesn’t permit (would motivate be a better word?) the customer to be more, rather than less, price sensitive?
That’s a pretty nasty hypothesis unless you’re a consumer, and I’m hoping some of you will dissuade me from thinking this way.
As always, I appreciate your taking the time to read and respond.