Restoring the Power of Brands
by John Hagel III

Existing 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.

The 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 best-seller, The Wisdom of Crowds.  As he reports,

“A 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 price.”

Surowiecki 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.”

Surowiecki 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.

Well, 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?

What’s happening is that brand power is shifting with relative scarcity.  In the first half of the 20^th 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 retailer brands. 

We’re 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?

It 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.

Brand 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.

The Customer-Centric Brand

In 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.

Relatively 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.

In 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.

Two 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:

First, 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.

The 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.

Not 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:

The 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.

While 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.

The organizational transition discussed by these two articles is significant and challenging. It is a necessary transition, but it is not sufficient. 

The real opportunity is to move to a true customer-centric brand.

Is Your Brand Customer-Centric?

Two tests will help to determine whether a company has a customer-centric brand. 

First, 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.

The move to customer-centric businesses will force executives to reassess what business they are really in.

The 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 “Diamonds in the Data Mine” , an article in Harvard Business Review. 

These 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 value.

To 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 “collaboration marketing” in our book, Net Worth.

In 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. Collaboration marketing 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.

Rather 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.

In Net 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.

Bottom 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:

• Establish and strengthen the roles of customer segment managers within the organization
• Develop the tools and skills required to build deep profiles of individual customers
• Develop 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
• to deliver more value to individual customers
• to measure performance of key business processes in serving these customers
• Identify and develop collaborative relationships with complementary third parties that can add value to existing customer relationships

John 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 at www.johnhagel.com.