The Future of Branding - Driving Forces:
Driving Forces
The Future of Branding - Driving Forces:
By: Bliss Nancy, David Assaf, Franco Henrique, Kirkwood Alistair, McClelland Ruth, McCullough Sean, O'Day Jerriann
Driving Force I – Media Fragmentation
What:
This is the fragmentation of traditional advertising media with the emergence of non-traditional forms of media and other alternatives in communication that reach consumers and create brand value. These include interactive electronic media, event and sports sponsorship and product placement in movies etc. It is increasingly difficult for advertisers to reach consumers.
Why:
Growth of cable and satellite television stations leads to more choice
Cost of advertising on network television prohibitively expensive
Enablers:
Technological advances – cable, Internet etc
Massive increases in computer power
Cost of communications reduced
Increase of market segmentation as a corporate strategy
Demand for niche programming and media
Introduction of remote controls and video recorders giving consumers option to opt out of advertisements
Inhibitors:
Mergers and acquisitions by large media groups
Big businesses buying up Internet companies
Growth of spam
Paradigms:
More choice for the consumer leads to information overload
Predictability:
If Alexander Graham Bell had been asked to predict how the telephone would take off a few years after he developed it, one doubts he’d have come even close to recognizing its future potential. Media fragmentation has increased multi-fold with the opening up of the Internet. The Internet as a means of advertising brands (products) is still in its infancy and the outcomes are both numerous and diverse.
Influence:
Forming Alliances if only with companies with similar quality standards to create brand awareness more effectively and economically, for example, Jaguar Cars are marketed with Pirelli tires and Birds Eye Lasagna with Ragu sauce.
Experts:
Ashton Adams and several other Branding gurus all accessible on-line.
Major advertising agencies, for example Saatchi & Saatchi.
Timing:
Cable and satellite late 70s to early 90s
Video recorders and remote controls 80s
Internet mid 90s onwards
Links to Other Forces:
Globalization of brands
Group identification
Possibilities:
Personalized advertising aimed at single individual
Driving Force II – The Globalization of brands
What:
Globalization describes the expansion of national and regional markets, communities, laws, cultures, values, and politics from a local (regional or national) arena into a broader, international arena, ultimately spanning the planet. As this process occurs, these items (markets, communities, laws, etc.) become standardized as they interact, influence and combine with their counterparts from other parts of the world.
Why:
First, there is the increasing competitiveness of international business – markets within specific countries became saturated. To continue growth, corporations turned to international markets. Second, to gain economies of scale - investments in R&D, production, marketing, and administrative activities, can be distributed among many countries – and expansion cost become smaller. Third, with exposure, consumers acquired “globalized” preferences and, thus, product markets also became global.
Enablers:
Technology – computing power reduced the cost of information/analysis and transactions. The Internet will continue this push, since it is inherently global and inexpensive.
Communications – access to information about other areas in the world (via Internet, telecommunications, and other sources) has increased, as has the ability to communicate with people (employees, partners, others) ‘over there’.
Deregulation – barriers to international trade and communications are falling and/or standardizing. The WTO (World Trade Organization) and GATT (General Agreement on Trade and Tariffs) were very important forces behind it. Countries have also deliberately reduced trade barriers, liberalized trade and investment controls, and removed obstacles to direct foreign investment. Increasingly, governments believe that such policies promote economic growth and national welfare.
International Finance (rapid capital flows) – Technology developments allowed banks and other financial players to fund/enable foreign expansion and to track various investment opportunities around the world
Inhibitors:
Fundamentalism and intolerance – a rejection of Western values and hence technology, as represented by the US and European multi-national companies and banks that have lead the global economic expansion. Further, the belief that one’s own race, nation, social group is better than any other cause the rejection of any “foreign” ideas and things.
Protectionism – governments increase trade barriers in order to improve their trade balance with other countries. They can also increase barriers for foreign trade to foster the national industry, and for foreign investments to avoid multinationals to send their profits back to their country.
Paradigms:
Old - Tacos in Mexico, escargot in France, hamburgers in the USA
Protectionism / Local versus Regional versus International / State sovereignty
New - any type of food, almost anywhere (McDonald’s in Moscow)
Free trade / Global trade links / Network of regions, independent of the state.
Predictability:
High - Globalization has been around at least since the 1950s, and has been increasing. Further, the enablers have been growing more and faster than the inhibitors.
Influence:
Low/High - Very little influence by individuals or smaller companies whereas large, protected companies may be able to influence local governments to ‘close’ borders or implement trade barriers.
Moderate (decreasing) - Governments can implement protectionist policies; however, there is risk that the country’s competitiveness and standard of living will be left behind. The WTO can also limit the possibilities of what a government can do.
Experts:
Michael Porter, Lester Thurow, Bruno Solnik, Levitt, Quelch and Hoff.
Timing:
Ongoing – until 2005 it should intensify even more in most regions of the world.
Links to Other Forces:
The financial community
Brand extensions
Media fragmentation
Possibilities:
First, economies of scale (please see the enablers’ part above for more details), since the internet is global by nature and cheaper than most media. Second, a global brand has more credibility, as people believe that as it is already successful in many countries, that is a good indication of its quality. Third, it’s quicker, easier, and cheaper to introduce a new product that has an established global brand.
Web Resources:
http://www.utexas.edu/ftp/coc/adv/research/papers/MButler.html
http://www.ltbn.com/Articles/art13.html
http://www.smu.edu/~rmason/cbandwww/Chinapresent.html
Driving Force III – Brand Extensions
What:
The development where new products are introduced using the name/association of existing brands. Examples of this trend include Virgin which has a long list of diversified companies and products all using the Virgin name and Coca Cola introducing diet, caffeine-free and flavored versions of the original product.
Why:
Companies seeking to diversify, increasing competition and the need for quick short-term success.
Enablers:
Rise of niche consumers
Specialized advertising
Technological advances
The difficulty to differentiate
Inhibitors:
Over proliferation of brands and weakening of image
Increasingly cynical marketplace
Decreasing brand loyalty in many categories
Predictability:
Trend likely to continue, as consumers seem comfortable in accepting it in the face of information overload but this may be problematic for some brands which could be weakened.
Influence:
Companies will continue cashing in on the image of brands
Timing:
Ever increasing from the 70s through to the present day
Links to Other Forces:
Globalization
The financial community
Fitting in the group
Driving Force IV – Growth of private labels
What:
The growth of private labels or low-priced imitators of product leaders has increased substantially. Often these products are manufactured by the companies that own the brand leaders themselves running the risk of ‘robbing Peter to pay Paul’. This trend is particularly evident in the U.S. and Western Europe.
Why:
More price sensitivity in mature markets
Retailers have gained more power in recent years and can dictate terms
Enablers:
Less brand loyalty trend for staple goods
Price wars amongst competing stores
Supply chain improvements
Inhibitors:
Mergers and acquisitions of competing companies
Move towards electronic commerce based home shopping
Predictability:
Electronic commerce will influence this trend (probably negatively) – to what degree is unsure.
Timing:
Took off in late 80s with EDI developments between suppliers and retailers
Links to Other Forces:
Commoditization
Driving Force V – Fitting in the Group
(Note: the observations have a decidedly western perspective)
Le Corbusier's notion that form follows function seems to have withered away in today's competitive global marketplace. Function has become less of an issue as products have reached, within range, basically the same standards; there are not really "bad" products that are able to survive on the market. Not only has form become a deciding purchasing factor, but also who else is buying the same form has been guiding our purchasing habits. The "look" of the thing, the "feel" of the thing, the "personality" of the thing, the value of the thing, and the association of the thing, have all become reasons why we decide to purchase what we do. And synchronizing one's look, feel, values and personality with some idealized group has increasingly directed our purchasing habits. We want to fit-in, and brands offer simple and clear paths to follow to get to the group.
While our parents (or grandparents) bought things based on what they needed, what they could afford, what was available in the vicinity, later generations have become preoccupied with having the clothes, toys, cars, etc. that identify them as the "cool" people, the rich people, the successful people. While this may have always been a preoccupation among the elite's of societies, the media and increased disposable income has facilitated an extension through a number of social economic levels.
Enablers:
Increased wealth or disposable income has given more leverage to how and what we buy.
As daily chores became easier, more leisure time allowed the opportunity to consider more frivolity in our lives (post war generations). A more materialistic society then evolved which now looks for the means to purchase more and more of the "right stuff" by working more and more.
Unmonitored advertising to a new generation of consumers has allowed marketers to mold "fit-in fiends".
Increased availability of a wide variety of brands: it is now possible to get practically anything, practically anywhere. Equally, it has been possible for the media (first with radio, then television, then Internet) to bombard with information on the groups one would like to be identified with.
Enlarged reference groups: when once it was the immediate or extended family, friends and neighbors with whom we had physical visual contact, now it has been enlarged to include people we may never see or meet but with whom we easily interact electronically.
Inhibitors:
A financial crisis similar to the Depression of the 1930's would force consumers to rethink what and how they buy. Likewise, a disaster (e.g. environmental) or large-scale war may not only financially limit our purchasing, but may force a wake-up call to reevaluate what is important in our lives: material goods or other.
A growing suspicion of marketers' intentions or a feeling of being manipulated may cause a backlash against the feeling that certain brands will fit you in.
Paradigms:
Old: Buy it because it does the job, I need it, and I can afford it.
New: Buy it because of how it helps to define who I am.
Predictability:
Although faint signs of reversing trends (not to be a cookie cutter image associated with a particular group) sometimes emerge, the imminent end of materialism in the developed world does not appear to be a worry that companies bombarding us the latest "must have" items need to lose sleep over. More often than not, the rejection of fitting in simply results in a new group (e.g. punk or grunge).
Influence:
Companies have capitalized on the social trend of identifying with groups and of purchasing to demonstrate membership by recognizing the trend and by directing their marketing to influence the niche markets of the group members or wannabes. Niche magazines (GQ, 17, Vogue etc.) offer ready-made segments in which to promote brands and their qualities.
Experts:
The plethora of consulting companies specializing in branding, niche marketing, etc. might be expert sources of insights as to why and how we buy what we buy; social scientists and consumer behaviorists for the same reasons and perhaps with a less biased slant.
Timing:
Post war boom offering more economic freedom, social mobility, and more widely attainable "model" lifestyles
Eighties "me" generation always wanting more
Increase with each expansion of media access
Links to Other Forces:
Media fragmentation
Brand extensions
Driving Force VI – Commoditization
What:
Commoditization describes the non-differentiation evolution of products across many industries. Products are either becoming identical or so similar as to not even make a difference to the consumer. This is occurring most predominantly in certain industries such as automobiles, as well as in many technology products. Often what is found in a GM is the same chassis and engines as a Mazda, for example. Is there any real difference in many of the mainstream computer brands where most of their parts are purchased from the same supplier?
Why:
Whereas competition was traditionally based on a product level, it would seem that consumers are placing more emphasis on the service aspects when making purchase decisions. Producers are constantly divesting their production capabilities in order to focus on the higher margins frequently offered in its service divisions such as design, financing, consulting, etc. As such, outsourcing is playing a significant role in the supply of these traditional producers, hence supplying the exact same or similar products to multiple customers.
Enablers:
Logistics: Lessons learned from companies such as Wal Mart have spurred incredible innovation in the field of logistics. Enterprise tools have become available for production companies, which has made outsourcing of production a more attractive proposition. Such tools as EDI, ERP, etc. have driven companies to focus their efforts on higher margin business units, usually service oriented.
Technology: Products have become more complex, more difficult to repair & maintain, thus requiring expert service. The rising need for such services has made providing such services more attractive to business savy companies.
Capital: Funding for new businesses has been extremely high in the recent past, allowing rapid entry and increasing competition into capital intensive industries that have been providing exceptional returns. The spur of competition has driven margins lower, making production an undesirable business for many industries.
Communication: Access to service support through telephone lines as well as the internet have spurred a significant build-up of service oriented businesses. Traditional producers have been using these mediums to provide access to consumers.
Inhibitors:
Economics: Costs of establishing an appropriate infrastructure in fossil (mature) firms creates a barrier in going to an outsourcing model.
Protectionism: Manufacturers may find it difficult to divulge sensitive knowledge to outsourcing partners for fear of losing proprietary technologies our capabilities that can be accessed by competitors.
Paradigms:
Past Salesperson’s lead point: Our products are the best in the industry
Future Salesperson’s lead pitch: Our follow-up services are the best in the industry
Predictability:
MEDIUM – The move towards homogeneity between products and diversity among services is a relatively new phenomenon, perhaps littered throughout history, warming up in the Eighties but not becoming a real “movement” until the Nineties. Humans are strange beasts; it will not be easy to predict their reaction to knowing that any product they choose from any manufacturer will be nearly identical.
Influence:
LOW - Certainly those producers who choose to rush against the winds of change must aggressively attack their competitors, probably to little avail and only cornered to one single entity. “Slam” advertising may be one method of defending their positions. For example, if the highlight of a competitor is its superior after-purchase support, then a rival without such support could say something to the effect of: “the reason they offer such wonderful support is because they know they just sold you an expensive piece of crap and you will be needing it. Our products are of the highest quality, we work to improve our products so that you will never need to use our services.”
Or just convince all the major consulting firms in the world that the real money to be made is in production rather then services. They will develop a new buzzword that will reinvent business, as we know it and all the producers will return to production.
Experts:
Commerce Departments that track the division between services and products as they relate to GDP and other economic indicators. Consumer Behavior experts that can provide insights into how people will react to the changes.
Timing:
2005, when I assume everyone will have certain expectations about the service levels offered for products they purchase (even the Dutch). I like this year particularly because I would expect that nearly everyone in 1st & 2nd world countries will own some form of a computer, which I think will be one of the predominantly commoditized products (Intel Inside!?).
Links to Other Forces:
Growth of private labels
Possibilities:
It is quite possible that the rate of competition could accelerate due to this movement. If commoditization continues, the services will become ever more important (to a point). Because many things will be outsourced, new entrants have lower barriers to entry because offering services has less upfront capital costs.
Driving Force VII – The Financial Community
What:
The merger and acquisition frenzy of the 80s and 90s led financiers to discover undervalued companies from which profits could be made. As an off-balance sheet item, brands became vitally important as primary undervalued assets. Acquiring companies could increase its intangible asset base and amortize its assets.
Why:
Fuelled by the belief that strong brands resulted in better earnings and profits for companies thus leading to greater value for shareholders. Example – Nestle bought Rowntree for $4.5 billion, five times its book value. Such transactions have recognized the value of brands and intensified the need for sustaining brands.
Enablers:
Changes in accounting and financial reporting practices
Relaxation of borrowing criteria to assist in purchases
Snowball effect of profiteering – everyone looking to do the same
Inhibitors:
The economy as a whole
Accusations of profiteering
Companies being more bullish in valuing their intangible assets
Predictability:
Cyclical in nature with the fortunes of national economies being a major influence
Timing:
Mid 80s onwards
Links to Other Forces:
Globalization
Brand extensions
March 28, 2004 at 12:52 AM in Internet evolution | Permalink
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