Restoring the Power of Brands

Several days ago, I posted on Restoring the Power of Brands on johnhagel.com.

In brief summary, I made the case there that the power of brands is not eroding.  Instead, brands are going through a period of disruptive change as we shift from product-centric brands to customer-centric brands. Many well-known brands will die or drift away into irrelevance. At the same time, new brands will emerge and attract the attention and loyalty of broad markets.  In fact, brands have gone through several stages of evolution over the past 100 years, shaped by evolving sources of scarcity in the economy.

By understanding and acting upon this deeper process, we have an opportunity to build much more powerful and lucrative brands, shaped by network effects that traditional brands can never replicate. However, these new brands will require very different marketing techniques and even a different marketing approach – something I describe as “collaboration marketing” (much of the thinking regarding this approach evolved from my work with Marc Singer and led to the writing of Net Worth). Even more broadly, this is just one more example of changes at the edge of the enterprise that are re-shaping opportunities for innovation and value creation. 

Seeking feedback

I urge you to take a look and let me know what you think – I am still developing this perspective and welcome opportunities for some productive friction with all of you (well, maybe not all . . . ) to help me tighten and refine my views.

Chris Anderson’s comments

On that note, Chris Anderson, the developer of The Long Tail concept – one of the richest and most powerful memes floating through cyberspace and executive boardrooms today, has already commented on my posting on his blog. Chris’s thoughtful comments provide me with an opportunity to clarify some of my own concepts and, ideally, kick off a conversation with Chris on this topic. I especially welcome this because the Long Tail plays a central role in the re-definition of brands that is only starting to play out.

Broadly, Chris agrees with me that brand power will shift downstream from producers to the consumers.  But, we diverge over who will own the most powerful brands – I believe it will be companies, he believes it will be the customers themselves. He especially singles out tastemakers as the brands that will really matter because they will provide the filters you trust. As examples, he gives Jessica Simpson, Instapundit and Jon Stewart.

Who will own the most powerful brands – people or companies?

At one level, we don’t disagree.  People have always been brands, in the sense of trusted guides to the purchase of products and services, whether it is the power computer user down the street who helps me to pick the best wireless LAN or the friend who has a 40,000 bottle wine cellar (did I forget to say “rich friend”?) who points me to a particularly smooth Burgundy. Celebrities have also been trusted guides and brands for a long time.  Remember when the Beatles embraced Maharishi and set off a wave of interest across an entire generation in Indian music, apparel, meditation and yoga?

But let’s look a little more closely at these two types of people – let’s call them “expert friends” and celebrities.  Expert friends are the most valuable guides because they combine a deep understanding of certain product categories with a deep understanding of my individual and evolving needs as a user of these products.  Chris emphasizes the importance of filters – and uses the term “advisor” to describe the most valuable kind of filter in the Long Tail world. Well, the most valuable advisors are those who know me as an individual and can help to guide me as an individual to the best set of products and services to meet my needs.  Here’s the problem, though, in physical space, expert friends don’t scale well. Even the most gregarious friends have a circle of a few thousand friends and, at this point, their knowledge of the needs of each friend is probably pretty superficial. These limits can only be overcome by companies using network-based technology.

Celebrities come from a different end of the spectrum.  They don’t have a clue who I am as an individual customer.  When they’re good, as in the example of Oprah Winfrey or Martha Stewart, they have a deep understanding of a certain customer segment like homemakers and they can introduce this segment to products or services that they might like.  But their value as a trusted advisor is ultimately limited by the fact that they don’t really know me – my trust would be a lot greater if they knew my individual tastes.

In the terms used in my earlier brand posting, these celebrities are great examples of “customer segment” brands – they develop a deep understanding of customer segments and use this understanding to be helpful to members of the segment.  Companies also can build customer segment brands – Disney (at least in the old days) and Nike being two of the most successful examples. Their brand promise is: “because I understand your segment, you can trust me to provide you with the products and services that will be most valuable to you.” They have achieved scalability, but at the expense of deep knowledge of the individual customer.

These customer segment brands are important, but transitional – they offer superior value relative to traditional product-centric brands, they will give way over time to true customer-centric brands.  Customer-centric brands will create more value than customer segment brands, because they offer superior return on customer attention.  Their brand promise is: “because I understand you as an individual customer better than anyone else, you can trust me to provide you with the products and services that will be most valuable to you.” This is the brand promise of an expert friend, but new technology makes this promise more scalable.

People will certainly continue to hold this kind of brand power.  My interest, though, is where economic value at the brand level will tend to concentrate. And I definitely diverge from Chris if he maintains either that companies cannot build customer-centric brands or that companies will not capture significant economic value with these brands. In fact, companies will ultimately be required to harness the enormous potential power that these brands now offer.

So where are the examples?

Chris indicates that I don’t name any examples of customer-centric brands.  He seems to suggest this means that I am wrong.  I like to think it means I am ahead of the curve and anticipating opportunities that haven’t emerged yet.  In fact, if there are lots of great examples, I worry that I am not anticipating far ahead enough. Great examples rarely exist at this stage of emergence, but lots of partial examples exist and much can be learned by looking at their limitations.

1. Business to business brands

Some of the best examples of customer centric brands exist in the business to business arena. In this arena, customer purchases are sufficiently large to justify significant investment in understanding the needs of individual customers.  Li & Fung, a Chinese company, helps apparel designers around the world to connect with highly specialized providers of production and logistics services.  In the IT arena, a company like Everest Group helps enterprises to get much more value out of outsourcing services by deeply understanding their individual customer’s needs and the capabilities of a broad array of outsourcing service providers. Now, these brands are not well known outside their relevant customer segments, but they are known and deeply trusted among the customer’s they serve. And these companies can become quite large and profitable – Li & Fung generates over $5 billion in revenue and return on equity in the range of 30 – 50%.

2. Niche brands

Many great examples of customer centric brands are either highly localized or limited to the very wealthy.  This is because, until recently, building detailed understanding of individual customers required significant investment of effort and money and was not very scalable.  Some examples?  Start with Weimax, a wine store in my neighborhood.  They carry a great selection of wines on their store floor, but that is just the beginning.  As they get to know you as a customer, they will recommend and help you to search out wines around the world and special order them. The personal financial advisory service that I rely on is another example (sorry I won’t reveal its name, because it’s already too busy). Finally, look at Mayo Clinic.  Their brand is built on the proposition that they will invest an extraordinary amount of effort in learning about you as an individual patient and then connect you with a broad network of specialized medical services based upon your individual needs.

3. Martha Stewart

Chris referred to Martha Stewart in passing, linking to an earlier posting of mine.  Now, of course, Martha Stewart is an individual, but she is a lot more than that.  She founded a company, Martha Stewart Living Omnimedia that has had its share of challenges in recent years (not the least of which was the incarceration of its founder).

Nevertheless, it provides a very interesting early (and far from perfect) indicator of the opportunity to take a strong customer segment brand and evolve it into a customer specific brand. Omnimedia is doing this through the use of direct marketing and the Internet to build profiles of individual customers.  Celebrities alone can’t do this, but companies built around the celebrities can take this value to the next level. Omnimedia has built $1.5 billion in market cap so far – in spite of all of its troubles.

4. Amazon and Google

Chris says that these new brands probably won’t be held by companies at all, but rather by people, but then goes on to mention Amazon and Google as providers of filters that helped them become trusted aggregators. There’s a lot to be learned by contrasting the two.

Google is extraordinarily helpful in navigating through the Long Tail of the Web.  Yet it is still a very traditional product-centric brand.  Its brand promise?  “Trust us because we have a great algorithm to help you find what you need.”  Google doesn’t even pretend to know me as an individual – it treats me as a transaction.  Each time I come, it is like they have never seen me before.  They do not use any persistent profiles of me that will enable them to be even more helpful to me.  They are a tool company.  As soon as someone comes along with a significantly better tool, people will switch rapidly.

Contrast that with Amazon.  Amazon strives to get to know me and then, based on that knowledge, seeks to connect me not only with books that I might like, but also with experts (in the form of lists) that can also help me.  Again, this is far from perfect at this stage (Amazon recommends that I buy the book that I just wrote, not realizing that I’ve been there, done that, don’t need to read it again). But Amazon is on its way to building a customer centric brand.  It is becoming my expert friend on steroids. Question for Chris: why won’t Amazon become a viable customer-centric brand? Why won’t its value ultimately far exceed the value of an individual tastemaker or expert friend?

Bottom line

Here’s the point.  We’re on the cusp of a major transition.  We haven’t made it over to the other side yet, but there are enough early suggestions of the potential and a longer-term trajectory to suggest that there’s a lot of opportunity over there.  The opportunity starts with building enduring, rich and multi-dimensional relationships with customers.  Use the understanding that emerges from these relationships to become even more helpful and even more trusted as an advisor, helping people to navigate through the Long Tail.  People can do this themselves, but companies can amplify that capability. In the process they can become platforms for significant wealth creation and build a very different kind of brand from the ones that dominate our business landscape today.

Why couldn’t this be done before and why are there still only very limited examples of these new brands? Three reasons: technology, skills and mindset. On the technology front, the convergence of the Internet, Web services, customer profiling technology and deep analytic tools creates an opportunity to scale customer-centric brands in ways that were never economically feasible before. Using these technologies effectively requires a new set of skills and these take time to develop and deploy.

And then mindset.  Even among some of the best aggregators in the Long Tail, the mindset focuses on search through larger and larger numbers of objects.  They sometimes forget that there are people on the other end. They can become even more helpful by getting to know those people and using that understanding to become even more trusted advisors.