Twilight of the Brands

[Billy Jingo]

Twilight of the Brands

Twelve months ago, Lululemon Athletica was one of the hottest brands in the world. Sales of its high-priced yoga gear were exploding; the company was expanding into new markets; experts were in awe of its “cultlike following.” As one observer put it, “They’re more than apparel. They’re a life style.” But then customers started complaining about pilling fabrics, bleeding dyes, and, most memorably, yoga pants so thin that they effectively became transparent when you bent over. Lululemon’s founder made things worse by suggesting that some women were too fat to wear the company’s clothes. And that was the end of Lululemon’s charmed existence: the founder stepped down from his management role, and, a few weeks ago, the company said that it had seen sales “decelerate meaningfully.”

It’s a truism of business-book thinking that a company’s brand is its “most important asset,” more valuable than technology or patents or manufacturing prowess. But brands have never been more fragile. The reason is simple: consumers are supremely well informed and far more likely to investigate the real value of products than to rely on logos. “Absolute Value,” a new book by Itamar Simonson, a marketing professor at Stanford, and Emanuel Rosen, a former software executive, shows that, historically, the rise of brands was a response to an information-poor environment. When consumers had to rely on advertisements and their past experience with a company, brands served as proxies for quality; if a car was made by G.M., or a ketchup by Heinz, you assumed that it was pretty good. It was hard to figure out if a new product from an unfamiliar company was reliable or not, so brand loyalty was a way of reducing risk. As recently as the nineteen-eighties, nearly four-fifths of American car buyers stayed loyal to a brand.

Today, consumers can read reams of research about whatever they want to buy. This started back with Consumer Reports, which did objective studies of products, and with J. D. Power’s quality rankings, which revealed what ordinary customers thought of the cars they’d bought. But what’s really weakened the power of brands is the Internet, which has given ordinary consumers easy access to expert reviews, user reviews, and detailed product data, in an array of categories. A recent PricewaterhouseCoopers study found that eighty per cent of consumers look at online reviews before making major purchases, and a host of studies have logged the strong influence those reviews have on the decisions people make. The rise of social media has accelerated the trend to an astonishing degree: a dud product can become a laughingstock in a matter of hours. In the old days, you might buy a Sony television set because you’d owned one before, or because you trusted the brand. Today, such considerations matter much less than reviews on Amazon and Engadget and CNET. As Simonson told me, “each product now has to prove itself on its own.”

It’s been argued that the welter of information will actually make brands more valuable. As the influential consultancy Interbrand puts it, “In a world where consumers are oftentimes overwhelmed with information, the role a brand plays in people’s lives has become all the more important.” But information overload is largely a myth. “Most consumers learn very quickly how to get a great deal of information efficiently and effectively,” Simonson says. “Most of us figure out how to find what we’re looking for without spending huge amounts of time online.” And this has made customer loyalty pretty much a thing of the past. Only twenty-five per cent of American respondents in a recent Ernst & Young study said that brand loyalty affected how they shopped.

For established brands, this is a nightmare. You can never coast on past performance—the percentage of brand-loyal car buyers has plummeted in the past twenty years—and the price premium that a recognized brand can charge has shrunk. If you’re making a better product, you can still charge more, but, if your product is much like that of your competitors, your price needs to be similar, too. That’s the clearest indication that the economic value of brands—traditionally assessed by the premium a company could charge—is waning. This isn’t true across the board: brands retain value where the brand association is integral to the experience of a product (Coca-Cola, say), or where they confer status, as with luxury goods. But even here the information deluge is transformative; luxury travel, for instance, has been profoundly affected by sites like TripAdvisor.

[scott]

I think the headline is misleading. Brands are more powerful than ever, it's just different brands that are on top now than it was 20 years ago but that has always been the case.

[Billy Jingo]

I think the headline is misleading. Brands are more powerful than ever, it's just different brands that are on top now than it was 20 years ago but that has always been the case.

I liked the nakedcapitalism response to the article.

James Surowiecki Promotes Myth of Consumer Empowerment in the Face of the Crapification of Almost Everything

There’s nothing like getting a missive from the alternative reality where neoliberalism works and all consumer problems can be solved by more diligent shopping (and remember, since we are all consumers first and citizens second, the corollary is that pretty much any problem can be solved by better shopping).

The current sighting is a story in the New Yorker by James Surowiecki, The Twilight of Brands, that tries to tell us, in all seriousness, that companies now have to be on their toes because consumers are more vigilant and less loyal. He starts with the backlash against yoga clothes maker Lululemon when quality fell sharply, and states his thesis:

It’s a truism of business-book thinking that a company’s brand is its “most important asset,” more valuable than technology or patents or manufacturing prowess. But brands have never been more fragile. The reason is simple: consumers are supremely well informed and far more likely to investigate the real value of products than to rely on logos. “Absolute Value,” a new book by Itamar Simonson, a marketing professor at Stanford, and Emanuel Rosen, a former software executive, shows that, historically, the rise of brands was a response to an information-poor environment. When consumers had to rely on advertisements and their past experience with a company, brands served as proxies for quality; if a car was made by G.M., or a ketchup by Heinz, you assumed that it was pretty good. It was hard to figure out if a new product from an unfamiliar company was reliable or not, so brand loyalty was a way of reducing risk. As recently as the nineteen-eighties, nearly four-fifths of American car buyers stayed loyal to a brand.

This is utterly backwards. The reason “brands have become more fragile” does not not reside in demanding, disloyal customers, but in short-sighted corporate behavior. Surowiecki does point to the early 1980s as the beginning of the sea change, but the driver was a shift away from businesses focusing primarily on good old fashioned success in the marketplace (via matching product quality/price attributes versus customers needs, improving manufacturing processes, looking for new product/technology opportunities, etc) to focusing much more on financial results as the key determinant of success. That orientation arose as raiders, later rebranded as leveraged buyout firms, and now private equity, took over companies, sold unproductive assets, piled on debt, and pushed hard to wring out costs. While many companies were so fat that a lot of overhead could be reduced without affecting production and marketing, the pressure to reduce costs soon moved into areas that involved manufacturing and product quality. Companies began subtly, and then more overtly, lowering product quality and running on brand fumes.

And even though Surowiecki talks about quality, it’s important to remember that branding is about consistency: you are providing a consistent set of product attributes at a certain price level. Dollar Stores is a brand where everything costs a dollar and you can find a broad range of merchandise. That’s a straightforward proposition. Volkswagens (the old beetles and iconic vans) were light-weight, simple to maintain, no frills cute cars at a modest price.

What Surowiecki is talking about is that consumers are engaging in a long-overdue and largely futile backlash against the crappification of almost everything. I’m not a car buyer, but I understand some high-end brands like the Lexus and Prius have stayed true to their consumer promises. But the trend overwhelmingly is the reverse. Let’s give some examples:

Crapification. Awesome.

[scott]

I liked the nakedcapitalism response to the article.




Crapification. Awesome.

Heh!

That said, he's wrong too. Brands are more powerful than ever. Look at the iPhone. For the first 3 years it was a crappy phone and a mediocre computer. Now it's a mediocre phone with a decent computer but mostly it's a status symbol for middle-aged affluent moms and teenage girls (or whiny teenage boys - same thing).

[Billy Jingo]

Heh!

That said, he's wrong too. Brands are more powerful than ever. Look at the iPhone. For the first 3 years it was a crappy phone and a mediocre computer. Now it's a mediocre phone with a decent computer but mostly it's a status symbol for middle-aged affluent moms and teenage girls (or whiny teenage boys - same thing).

I find it interesting that I rarely use my phone as a phone. It is a Youtube (daughter), Facebook, This Place, text device. It also works as my pocket Library of Fucking Congress when there is conversation about things and I am forced to either prove my assertion or admit that I made it up. It's about fifty-fifty.

Sometimes I look at it and I am stunned by the change in the world. I feel like a man born at the turn of the century looking out of the window during a plane flight that he takes all the time.

[scott]

I find it interesting that I rarely use my phone as a phone. It is a Youtube (daughter), Facebook, This Place, text device. It also works as my pocket Library of Fucking Congress when there is conversation about things and I am forced to either prove my assertion or admit that I made it up. It's about fifty-fifty.

Sometimes I look at it and I am stunned by the change in the world. I feel like a man born at the turn of the century looking out of the window during a plane flight that he takes all the time.

The Internet certainly did change everything. I really - REALLY like the democratization of information and it's only getting better from here.

But brands are still powerful, even more so as marketing gimmicks fizzle more often.

[Novaheart]

When Levis were $18, Calvin Klein marketed jeans for $50. It was considered an outrageous price… but they sold. Yes, there was a certain designer hysteria to the times, but Calvin Klein jeans were designed to make flat-assed nonathletic people look good and they did. Lot's of designers made it big in the 1970's, it was like the invasion of the euro-trash… except that the products really were better.

From cars to apparel to electronics the 1970's was an American experiment in just how foolish the American buyer can be. American car companies stopped trying to make better cars, instead they decided that their business was marketing and financing. Who cared if a Chrysler Cordoba was a piece of shit, as long as the Corinthian Leather and AC held up so your silk jacket and blow dried hair was perfect on arrival. In a time when the minimum wage was under three dollars, Americans were buying $100 Gucci belts, $500 Louis Vuitton bags, and spending $50 for a haircut. America was learning something about value in this experiment. We learned that you take better care of expensive accessories and that some of them last a lifetime. We also learned that $50 is too much to spend for a $12 haircut. We learned that there really is a difference in quality between brands, but it's not necessarily established by price: hence the wisdom of buying a good Toyota over an expensive BMW.

[Norm dePlume]

some high-end brands like the Lexus and Prius

That cannot be what they meant to say.

[phillygirl]

I find it interesting that I rarely use my phone as a phone. It is a Youtube (daughter), Facebook, This Place, text device. It also works as my pocket Library of Fucking Congress when there is conversation about things and I am forced to either prove my assertion or admit that I made it up. It's about fifty-fifty.

Sometimes I look at it and I am stunned by the change in the world. I feel like a man born at the turn of the century looking out of the window during a plane flight that he takes all the time.

The weird thing about The Phone is that I want to get my mother a smartphone only because of the ease with which you can actually make phone calls and check voicemail. I can not for the life of me figure out how to do it on hers. She won't ever use any of the internet (she doesn't really know what that is) or any of the other things. But damn it drives me nuts that she can't get her voicemail or know who tried to call her and she missed it. Luckily, she knows that pretty much it's only me that ever calls her on it, and it's only at very specific times...but she can't find it in her purse when I've told her to turn it on when I'm going to meet her somewhere, so she at least appropriately does call me back.

Somehow, she manages to go through life without using a cell phone more than one call per month.

[Frostbit]

But brands are still powerful, even more so as marketing gimmicks fizzle more often.

I think certain brands keep their appeal and value by keeping their focus on what made them what they are.

Holland & Holland of London is a stellar example. They were a gun maker that all others were compared to at the turn of the century....that's 1900 mind you. They are still the benchmark for finely expertly crafted firearms for the upper gentry.

On a sad note, I own none.

[Adam]

That cannot be what they meant to say.

I can only think that he(?) meant to say "Lexus and Porsche."

[Adam]

I find it interesting that I rarely use my phone as a phone. It is a Youtube (daughter), Facebook, This Place, text device. It also works as my pocket Library of Fucking Congress when there is conversation about things and I am forced to either prove my assertion or admit that I made it up. It's about fifty-fifty.

Sometimes I look at it and I am stunned by the change in the world. I feel like a man born at the turn of the century looking out of the window during a plane flight that he takes all the time.

It is certainly a wonderment that this:





is actually laughably outdated technology now. Television shows even mock the "flip phone" now as being horribly outdated.

[Norm dePlume]

It is certainly a wonderment that this:





is actually laughably outdated technology now. Television shows even mock the "flip phone" now as being horribly outdated.

Just wait until you land on a planet without a compatible cellular network and need to contact a ship in orbit. See how laughable it is then. It's not so clunky compared to an Iridium satphone.

[Adam]

Just wait until you land on a planet without a compatible cellular network and need to contact a ship in orbit. See how laughable it is then. It's not so clunky compared to an Iridium satphone.

I don't even want to know what the roaming charges are when you call from Saturn.

[Gingersnap]

I think the writer is correct. Brands have been meaningless for years (meaningless to me for longer). When I have to make a major purchase I look at price, features, colors/style and then at customer reviews for the objects that fit my needs.

When I needed a semi-professional slicer, it never occurred to me to confine my search to slicers made by brand names. When I needed a new washer it obvious that second tier machines made on the same lines by the same people were a much better buy than the famous name version.

Reviewer expertise is also more important to me than branding - I pay more attention to reviews by people like me. By that, I mean that I buy knitting supplies based on reviews that discuss the yarn or tools the way I would discuss it with like-minded friends. I buy gardening equipment when the reviewer talks about non-obvious aspects of the product that are important to people standing ankle-deep in mud or crap or poison weeds. I don't care if the reviewer liked the color or the delivery time.

Neither brand names nor celebutard endorsements mean anything to me. I think there are more people like me emerging. We know advertising usually lies and we know that the tastes of engineers or college coeds are not useful to most people.