Brand building – Taking on the big challenges

The trigger to write this post was an excellent article on CMO.com titled ‘Six Legal and Regulatory Risks CMOs Can’t Afford to Ignore’.

http://www.cmo.com/articles/2015/10/12/six-legal-and-regulatory-risks-cmos-cant-afford-to-ignore.html

The CMO.com article highlights the key external factors that can severely damage a brand’s reputation. Starting from social media disasters to over-reliance on big data, it highlights the negative impact of some of the most influential factors transforming marketing and branding domains. But in terms of impact, these factors are still of small or medium magnitude (and in many instances the damage is reversible through prompt decision making).

But the winds of change that are impacting the branding and marketing domains globally go beyond ‘paparazzi clicked photos used on social media accounts’ or ‘deliberate attempts to sabotage rules and regulations’. Digital disruption is not anymore a ‘disruption’ but a hygiene factor in brand marketing.  Class action lawsuits are nothing new and have been around for ages (Erin Brockovich simply speeded up the momentum and consciousness) and the fact that big data is instrumental in predicting consumer behaviour and not brand building has been highlighted in numerous articles.

Let’s take a concise look at five big factors (in terms of impact and magnitude) that are currently impacting and will continue to impact marketing and branding over the coming years:

Economic growth: According to the OECD, a significant slowdown in China coupled with sluggish growth rates in other developing economies, will result in lower global growth rates in 2015 (expected to be 2.9% compared to previous estimations of 3%). Global trade growth forecast is now 2% in 2015, compared to 3.4% in 2014. What does this mean for brands? More price-conscious consumer demand, higher levels of discounting, more fragmentation and negative growth prospects for global brands. Global organisations with presence in multiple categories will witness fluctuating growth rates across categories, which ultimately will lead to more and more brand portfolio optimisation exercises or big scale mergers and acquisitions.

Lifestyle changes: Brands are intrinsic parts of our lifestyles. Brands influence our lifestyle related decisions and to a large extent exert similar levels of influence on our lifestyle-change decisions. The emergence of e-cigarettes is an example of this in action. More recently, consumer lifestyle changes have been driven by strong lifestyle related messages spreading through conventional and emerging media channels. The more exposed a consumer is to information, the more knowledgeable he or she is. Take for example, the decade long decline of soft drinks as a category and the growth of bottled water as a category.

How does this impact brands? A look at some figures for Coca Cola and PepsiCo will highlight the significance of these lifestyle changes. In the United States, Coke’s Dasani water brand and PepsiCo’s Aquafina water brand both witnessed volume growth in 2015, while the respective soda businesses contracted. In sum, lifestyle changes at a significant scale among a global consumer base have the potential to make flagship brands in categories impacted by the change, gradually obsolete. Organisations then need to search for newer avenues of growth – Coke’s ownership of Innocent in the UK and its partnership with the dairy milk cooperative Select Milk Producers in the US are attempts in hedging such imminent risks.

Regulatory pressures: I am talking of far reaching regulatory pressures that can impact whole industries and all constituent brands. Let’s look at some snippets from Vodafone’s 2015 annual report, which highlight the impact of regulatory measures on brand building and marketing initiatives (Disclosure: I don’t have any commercial interest in Vodafone and neither do I own any shares of the company):

– Macroeconomic decline in Europe, combined with the consequences of past regulatory policies, has brought about a sharp reduction in return on capital over recent years

– In South Africa, for example, the significant mobile termination rate (‘MTR’) cuts of the last year had a material financial impact on our business

– While India represents an excellent long term investment opportunity, the present regulatory challenges are hampering economic development

The following article highlights how biased regulatory rules can impede growth plans for brands in lucrative economies like China:

http://www.cosmeticsdesign-asia.com/Regulation-Safety/Can-cosmetic-brands-afford-to-opt-out-of-China-over-animal-testing

Demise of brand loyalty: Brand loyalty as a metric has taken a disturbing dive to the bottom. Loyalty has now become a notoriously fickle metric for marketers to control and manage. Brand proliferation, combined with higher levels of consumer awareness and knowledge, has led to the emergence of the ‘fickle consumer’, who is very hard to please, has shifting attitudes and preferences, is looking for a wide variety of experiences, is prepared to shop around and methodically analyses brand reviews / feedbacks / opinions.

This excellent HBR article outlines how organisations dig their own ‘brand loyalty’ graves through knee-jerk decisions:

https://hbr.org/2015/10/why-customer-gratitude-trumps-loyalty

The increased focus towards providing ‘brand experiences’ along with the product has made loyalty an even harder metric to measure success against. Every brand worth its salt is investing significant amounts of time, money and resources in creating experiences. These brand experiences (physical or online) do aid a lot in the pre-purchase decision making stages, but are they enough for post purchase loyalty (in brand metrics referred to as repeat purchase and estimated as Customer Life Time Value in marketing analytics)? Some brands are able to make the quantum jump in ensuring a consistent post purchase experience compared to pre-purchase expectations (e.g. Apple) but majority fail this jump. The moment a brand fails, the consumer shifts his preferences and brand loyalty declines. In a large number of instances, successfully managing the quantum leap is not enough. Consumers just find an alternative that delivers on their higher levels of expectations (Why do we think Apple needed to develop the iPad Pro? Was it to kill the PC or respond to emerging competitive threats?)

Constant localisation vs. globalisation pressures: Gone are the days when a mass-market brand in a Western economy could have been sold as a premium offering in an emerging market. Globalisation is a knowledge-driven process. Any brand with an intention and opportunity to scale globally, should recognise the fact that the opportunity exists in the first due to global consumer demand. This demand is a proof that consumers across countries have the ability and aspiration to expect consistency in brand values, trust and delivery.

But this expectation does not come with ‘conformance’. Consumers in one country do not want to be sold what consumers in another country have got from the brand. The below article illustrates how super-luxury retailers like Hermes localise store offerings depending on the part of the world where the store is located:

http://www.businessoffashion.com/articles/intelligence/how-will-hermes-find-growth-in-a-slowing-luxury-market

The above trend highlights the increasing levels of globalisation vs. localisation pressures that brands need to face and manage. These pressures are strong enough to cause damage to brand reputation, inconsistent brand delivery and experience, dilution of brand values and equity, extension into categories and sub-categories with poor brand fit, and most importantly, an erosion of brand trust.

For example, Starbucks struggled for 4-5 years in Europe before witnessing a positive growth rate in sales. To succeed in Europe, it adopted the franchise model, which had never been an option in its American operations (in the business press, referred to as Starbucks loosening its grip).

For CMOs and CBOs (is this another fad?), there are significant factors to contend with in their global brand building exercises, rather than focusing only on the number of likes, number of shares, number of clicks or the number of retweets.

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