The Potential Downside of Successful Brand Building in an Online World?
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.
Interesting article: Online retailing has gotten to the point where it´s a self defeating prospect, when price points and street value no longer matter, and the value of the brand goes down in effect. And brands are underselling their own market, and themselves deteriortating the retail environment. So expect to see more and more store closures, and then less and less store accounts for the brands. Online has gotten completely out of perspective, so in the future the more responsible the brand behaves online, the more consideratrion it gives to the whole picture, and market, the healthier the brand will be. If you want to start with the end in mind, what do you see when there are no longer any stores carrying your brand? Amazon, ebay, etc, should NOT be the stage for responsible brands to market their products. The end result will be a bleak retail environment. They have lost control of their brand essentially.
Hi Bruce,
I pretty much agree with what you’re saying, and was especially struck by your last comment- companies losing control of their own brands. How did brands get to the point where selling to Amazon, etc. wasn’t a choice, but apparently a necessity?
Thanks for the comment,
J.
Good food for thought here, seems the conversation that was lively here in the past, has scaled down, and thats a shame, because you always pose interesting thoughts worth debating.
My quick anecdote is my recent pants purchase. I won’t name brands, because I personally work for an action sports brand who makes these products.
I recently went to the mall store to try on these new (expensive) pants, but, i’ve heard about them in the news, so I wanted to see for myself. Tried them on in the dressing room, loved them, wife loved them on me, bought them. Wore them for a week or so, they were great to work in. I wanted more, but I didn’t want to spend that price again if it could be avoided. Found them on Ebay for about 20% less than retail-was nervous about it as I have never bought apparel from Ebay. They are legit, not fake, new with tags. I will buy more.
I also tried another brand of pant, very premium brand out of NYC. Just got my first pair after hearing RAVES about them-these are great too! but I can’t see spending that much again, so I will patiently wait for a sale code, eBay auction on some new ones, etc….
I still tell people that ask, about how much I like the pants, i’ve become a brand ambassador of sorts, regardless of what I paid for them.
Bottom line is, and I say this in our business “make good shit and people will want it”.
HI Stuck,
Yeah, I’m pretty sure we’ve all done the same thing. Assuming of course that we don’t get it free or really cheap because we’re in the industry. Perhaps it would be good if we had our customer’s shopping experience from time to time. I agree that if you make good shit they will want it, but they still will be happy to pay less for it if they can find it cheaper. Distribution, distribution, distribution.
Thanks for the comment.
J.
Hi Jeff,
I often wonder about this as well. I think Amazon is a cancer for retailing in general. They run that side of their business at break even or at a loss and make all of their profit from other sides of Amazon. So whilst they are turning numbers they are completely ruining the brands that deal with them.
We have been really strict on controlling our web presence, who sells online and for what price. Hopefully it bods well for us for the future but the short term dollars that come your way via eBay and Amazon will bit everyone in the ass for sure.
I really feel for retailers at the moment. They seems like they are stuck between getting hammered on price, this must be so tiring to face every day. Consumers are being conditioned by eBay and Amazon that they shouldn’t pay full price. Profit seems to be a dirty ugly word but without it everyone is gone. Nothing is for free that is for sure whilst things might say free someone ultimately pays somewhere along the line.
Thanks for this post you’ve done a great job verbalising this issue we all face.
Cheers
Kel
Hi Kel,
Hey, let’s be careful with the blaming Amazon stuff. Too much of that. They exist, they aren’t going away, how do we use them? Or not use them? Remember, the consumer seems to like them, so we’re stuck with it. There are just business choices here. I don’t think consumers are being conditioned. I think they like having perfect information, infinite choices, not having to spend so much time shopping and being able to pay less. Before it wasn’t possible. Now it is. Even when the rationalization of our retail space is complete (that is, when we don’t have more retailers than we know what to do with) they will still like that.
Congratulations on carefully controlling your web presence. I kind of consider your efforts there as money spent on branding/marketing. Maybe we need a new definition of what marketing means and a chart of accounts from the accounting department with categories that reflect that.
Thanks for the comment,
J.
Yep, I agree with you re the comment on Amazon – My gut tells me that lots of online is focused on off price. Anyone who runs any sort of e-comm knows that it isn’t cheap to create, maintain, run and support so e-comm needs considerable profits to be viable as well ( Unless you can switch on other revenue like afore mentioned company : )
Cheers
Kel
Kel,
As I’ve always said, your online efforts have to add enough to your gross margin to at least pay for the cost of setting up and maintaining your online presence. You have to guard against just stealing from your existing brick and mortar sales.
J.
We too, as a brand (action sports equipment) have been vigilant with MAP pricing protection and policing. We have 3rd party sellers on Amazon and a few times a week, we have to get on someone for pricing our brand at discount and its often not even that much of a discount, but we go so far as to police someone thats a penny off MSRP. We protect our brick and mortar people as best we can. Internationally this is much tougher.
Hi Stuck,
Yup, way tougher internationally. But sounds like you’re well on your way to developing a reputation for being serious about it and that’s what you need. So what have been the benefits that you’ve noticed of the policing you do?
J.
Tried to reply to your question of – how has the MAP benefited us. Well, it hasn’t happened overnight, but, brick and mortar guys especially started to bring us into their stores, knowing it was going to be blown out on sale any time soon-they like this, a lot and in our business not every brand does it. Our main competitor pretends to do it, and I only say pretends because the MAP timeline is much shorter for the competition. Now, if a shop wants to offer discounting via a membership club, or other offers, so be it-but they just can’t have a sale price until we say so. Its great, its part of the puzzle that has led to growth for us.
It’s definitely a slow, never ending process and it’s never perfect. Sounds like you’re doing it right.
J.
“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?”
In todays retail environment the impacts of successful brand building to actual profit are substantially less, because consumers have basically access to 100% of the information they need to find the sales location of the product (offered by the brand) listed at its lowest price worldwide. Remember they have access to this information in their pocket at any given time of the day. Therefore like you said it is so important with a calculated and well managed distribution for any brand to successfully generate margin for themselves and their retail outlets.
By sacrificing successful brand building for other efforts you might increase your margin in the short run, much like you would by selling to these big outlets (Amazon, Ebay, at a discounted price), but you will lose to those brands that continue to build their “brand” and consumer relationships in the long run. You will disappear from the consumers radar and they will not even look for you at a discounted price, let alone be willing to touch your product at the store or click on your product online. Therefore I believe that successful brand building still motivates the buyer to be less price sensitive, but not like he/she was 10 years ago or as often. But, I like your point about brand building might motivate consumers to become more price sensitive, because they are aware of the product and thereful willing to look for deals or the best price.
Today there is a need for more attention to focus on distribution, brand building, consumer relationships, innovation, focused product offerings, and retail/brand cooperation than there ever before. In the past you could build an amazing brand presence and killed it because everyone wanted your brand at whatever price was available closest to them (people could not find the deals at a swipe of a finger like than can today), but today you need to be focusing on being successful in all areas (DBRIPC) to have a chance at making any profitable margin.
Sorry to babble on, but I guess what I am saying is that without successful brand building you will end up loosing the customers in the end. Consumers have and will always be looking for deals, but today it is easier for them to find. Consumers are not idiots, a dollar saved on 10 dollars spent is a dollar saved, but without a reason (practical or emotional) to buy than the brand/retail not focusing on building their brand to capture these consumers attention will lose the 9 dollars either way.
Just wanted to say I really enjoy reading your articles, keep up the good work.
Hi Knut,
Just to be clear, I’m not saying, “Don’t worry about brand building.” I am saying that whatever you spend on brand building, and however you do it, you have to end up making a profit. I think your distribution (and possible some lower sales) are a more critical part of brand building in our industry than they’ve ever been. I also believe, though I didn’t get to it in any detail in the article, that you need to reduce and reallocate your brand building expenditures. Team riders, print media and trade shows are all areas where spending is at least changing and probably declining for most brands. And my gut is that it can decline even as you build your brand if you do a good job on your social media presence and follow your customers rather than trying to lead them. I’ve written about that before.
The market is so competitive, the barriers to starting a new brand so low (not saying it’s easy to make a new brand work), and the pace of change so great that it’s just tougher to be successful. In some ways, all I’m saying is that you have to do a lot of “normal business stuff” well. In a different time, we could be less rigorous about doing that stuff well because, as always, strong cash flow covered up a lot of shortcomings.
As you note, though you don’t quite say it this way, market power, for the moment, has accrued to the consumer.
Thanks for the comment,
J.
What is DBRIPC?
No idea. Where did you see it? What’s the context? It wasn’t in the article.
J.
knut, references this acronym in his/her post.
Figured it out. It’s shorthand for the items he mentions in the paragraph where he uses the term.
J.