the Power of Brands
by John Hagel III
brands are in trouble. They are far from dead, but they are losing
their power – and this is happening on a global scale.
Until we understand how brands need to change, business
executives will struggle to prop up their brands and fret over
diminishing returns on brand investments. On the other hand, those
who understand the new role of brands will be able to create and
capture enormous value.
challenge ahead was aptly described in “The
Decline of Brands”, an article in the November 2004 issue
of Wired by James Surowiecki, the author of the
Wisdom of Crowds. As
study by retail-industry tracking firm NPD Group found that nearly
half of those who described themselves as highly loyal to a brand
were no longer loyal a year later. . . . Another remarkable study
found that just 4 percent of consumers would be willing to stick
with a brand if its competitors offered better value for the same
powerfully drives home his point with a series of charts showing
the rapid deterioration of price premiums commanded by such diverse
and powerful brands as Tide, Chicken of the Sea and Sony. But then he observes, “marketing types either
don’t see this trend or choose not to talk about it.” He concludes “the aristocracy of brand is dead.
Long live the meritocracy of product.”
does a great job of capturing the challenge, but he remains trapped
in the old way of thinking about brands, so he doesn’t help
us to address this challenge.
In his perspective, brands are about products and the underlying
attributes of the product determine value, not the brands.
hold on a minute. That misses one of the most profound shifts
in brand power that has been playing out over the past several
decades. We have witnessed a broad-based shift in brand power from product brands
to retailer brands. Retailers like Wal-Mart, Tesco, Best Buy,
Home Depot, Nordstrom’s and CompUSA have been steadily amassing
brand power at the expense of more traditional product brands.
What’s going on here?
happening is that brand power is shifting with relative scarcity. In the first half of the 20th century,
consistently high quality products were relatively scarce. Product
brands prevailed. Over time, more and more products entered the
market and shelf space became the scarce good. Power shifted to
now on the cusp of another major shift in brand power, driven
in part by the growing role of the Internet as a shopping platform.
Chris Anderson, in his article in Wired
magazine and subsequent blog
postings, has written eloquently about the impact of new kinds
of intermediaries using the Internet to help customers connect
with the “long tail” of niche products in a broad range of media
categories like books and music. If a product is out there, the
customer can easily find it and buy it. As shelf
space constraints evaporate, what becomes the scarce good?
is something that is becoming ever more valuable – our attention. No matter how powerful our technology becomes, it will never give
us more than 24 hours within the day. As more and more options
compete for our attention, this asset becomes even more valuable.
How we as customers choose to allocate this scarce good will increasingly
determine where and how value gets created.
power is not going away, but it is shifting – and a new generation
of brands will focus on maximizing the value of this scarce good.
As customers, we will become enormously loyal to anyone who can
help us quickly and effectively sort through proliferating options
based on a deep understanding of our individual needs.
broad strokes, we are moving from product-centric brands to customer-centric
brands. Product-centric brands represent promises about products
(or retailers) – “buy this product from us because you can trust
that it will be a quality product at good value.”
Customer-centric brands offer a radically different promise – “buy
from us because we know and understand you as an individual customer
and we can tailor an appropriate bundle of products and services
to meet your individual needs better than anyone else.” In other
words, customer-centric brands promise that, if you give them their attention,
they will give you a better return on attention than anyone else.
few customer-centric brands exist today.
In some cases, you might think of your personal physician,
lawyer or accountant. In
other cases, you might think of a local, independent retailer
like a specialty music store or wine store that has taken the
time to get to know you as an individual customer and recommends
products to you each time you come into the store.
the journey from product-centric brands to customer-centric brands,
many consumer companies have locked in on a transitional concept
– segment-specific brands. Think of Nike with its focus on
physically active consumers or Disney (at least as of a few years
ago) with its focus on parents with small children. This is a significant step in the right direction
and it reflects growing awareness of the power of customers, but it is not the destination.
recent articles in business journals illustrate the growing focus
on segment-specific brands. Sloan Management Review in its
Fall 2004 issue features an article on “What
Are Brands Good For?” by Niraj Dawar, a Professor of Marketing
at the University of West Ontario.
Dawar starts out on a promising note by observing that
the role of brands in aggregating customers is being undermined
by information-rich markets where customer disaggregation becomes
more profitable. He then cites two central facts of disaggregation:
the locus of the consumer relationship is likely to shift away
from product brands toward a trusted and credible umbrella brand
. . . . Second, as the consumer relationship shifts to the umbrella
brand, tactical activities . . . are implemented with targeted
consumers or segments rather than at the brand level.
article goes on to discuss the difficult organizational challenges
in shifting from traditional product brands to segment-specific
brands, focusing in particular on the conflict between traditional
brand managers and customer segment managers.
to be outdone, Harvard Business Review ran a strikingly
similar article in its September 2004 issue on “Customer-Centered
Brand Management” by three business school professors. Despite its title, it is clear that the article
is really focused on segment-specific brands: The authors
urge executives to “build brands around customer segments, not
the other way around.” Their recommendations:
first step is to develop a competent cadre of customer segment
managers. The second is to hand them the purse strings.
The third is to track and reward their progress using reliable
metrics for customer and brand equity.
they caution that “brand values must be calculated on an individual
customer basis”, the examples of companies they cite, including
Procter & Gamble, Liz Claiborne and Virgin, suggest that they
are really discussing segment-specific brands. Once again, they
focus on the organizational challenges in shifting from traditional
product brand organizations to customer-segment focused organizations.
organizational transition discussed by these two articles is significant
and challenging. It is a necessary transition, but it is not sufficient.
real opportunity is to move to a true customer-centric brand.
Your Brand Customer-Centric?
tests will help to determine whether a company has a
such brands ultimately require product agnosticism.
If a company is really going to gain the trust of customers,
it must be prepared to offer the products and services of other
companies, even of competitors. This will usually involve a fundamental
re-definition of the business. In the terms introduced in my article in Harvard
Business Review on “Unbundling
the Corporation”, it requires a choice to become a customer
relationship business rather than a product innovation and commercialization
business. Most companies today are a hybrid of these
two businesses (and a third, infrastructure management businesses). This is the underlying reason there is so much
tension when customer segment managers are added to organizations
with more traditional product brand managers.
move to customer-centric businesses will force executives to
reassess what business they are really in.
second test of a customer-centric brand is whether the company
in fact focuses on building profiles of, and measuring performance
with, individual customers. Nike and Disney have great insight into the
motivations and behavior of broad customer segments, but they
are hard-pressed to tell you much about individual customers of
their products. Without profiles of individual customers, it
is very hard to deliver on the promise of configuring tailored
bundles of products and services to meet their individual needs. Harrah’s provides a great example of a company that has become world-class
in terms of its ability to track individual customer behavior
and to tailor its offerings to individual customer needs, as described
in the Data Mine” , an article in Harvard Business Review.
two tests are indeed challenging. But the rewards
are significant. In markets
characterized by intensifying competition and eroding margins,
customer-centric brands provide a powerful way to attract and
retain the attention and trust of customers.
They also build substantial switching barriers, since
competitors will find it very difficult to replicate individual
customer profiles that become the basis for delivering tailored
restore the power of brands, companies will need to master the
techniques required to build customer-centric brands. It won’t be easy. It requires a fundamentally
different approach to marketing that Marc Singer and I labeled
in our book, Net
essence, collaboration marketing focuses on attracting customers
rather than intercepting them with traditional advertising. It attracts customers by becoming more and more helpful to them,
both in terms of evaluating potential new products and services
and getting more value from products and services once they have
been purchased. In part, collaboration marketing programs seek
to become more helpful by mobilizing a broad range of relevant,
specialized third parties to add value to the customer relationship.
challenges the current mantra of “one to one marketing” and instead
views the opportunity as “many to one”, connecting each customer
with as many entities (including other customers) as may be required
to maximize value for the customer. Collaboration marketing represents
a “pull” approach where the marketer becomes so helpful to customers
that they seek the marketer out, rather than a conventional “push”
approach blasting marketing messages out in an effort to find
customers that might be receptive to the marketer’s offering.
than “owning the customer”, collaboration marketing strives to
give each customer the perception that they own the vendor.
To do this well, companies will also need to master the skills
required to capture and analyze detailed information about individual
customers. By serving as the orchestrator, helping to connect
customers with other entities, collaboration marketers develop
richer profiles of customers and their needs and they learn much
more deeply and rapidly about their customers than traditional
marketers who focus on narrow “one to one” relationships. The
good news is that powerful new platforms and tools, ranging from
the Internet to Web services technology and powerful analytic
tools, are becoming available to help vendors implement these
new marketing programs and deliver on this new brand promise.
Worth, Marc Singer and I discussed the kinds of companies
most likely to build customer-centric brands.
As discussed earlier, product companies that make the transition
to customer-segment brands will still face significant challenges
in building true customer-centric brands. Traditional brick and
mortar retailers offer customers access to a broad range of product
and service vendors, but they typically have very limited ability
to compile profiles of individual customers. Direct marketing
and Internet-based retailers often have deeper database marketing
skills, but they (at least so far) lack access to a significant
share of wallet of individual customers. Fiduciaries like financial
service companies and large health care providers may have deeper
profiles of clients or patients, but they are often still governed
by “vendor-centric” mindsets and cultures and their ability to
establish trust based relationships with clients or patients is
typically limited to specific service domains.
Line: A New Type of Brand
The bottom line: brands are not going away.
If anything, they will become stronger than ever.
But they will be a very different kind of brand and companies
will face significant challenges in building these brands.
Here are some early actions that companies should be taking if
they wish to build this new generation of brand:
and strengthen the roles of customer segment managers within
the tools and skills required to build deep profiles of individual
performance measurement systems that enable the company to track
performance with individual customers (including life time value
of individual customers) and aggressively use these systems
deliver more value to individual customers
measure performance of key business processes in serving these
and develop collaborative relationships with complementary third
parties that can add value to existing customer relationships
Hagel is a business consultant and author. His experience includes
senior management positions in technology businesses and sixteen
years as a consultant with McKinsey & Co. He most recently is
the author of The
Only Sustainable Edge, co-authored with John Seely Brown.
He is also the author of the best-selling business books, Out
of the Box, Net Gain and Net Worth.
In 2002, Accenture identified John as one of the top 100 business
"gurus" in the world. In 1999, Business Week named John one of
the e.biz 25 most influential people in electronic business. John
has also received two McKinsey Awards for best articles published
in Harvard Business Review. He has been designated as a Forum
Fellow by the World Economic Forum. John received his M.B.A. from
Harvard Business School and a J.D. from Harvard Law School. He
also has a graduate degree (B.Phil.) from Oxford University, as
well as a B.A. from Wesleyan University. More information is available