My branding thoughts

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The curse of growth for luxury brands

Luxury brands are those supposed to be for few people who can afford them, and that is part of the reason why these segments choose them. Because they are exclusive, they are not available for everyone. There is a lot of psychology involved in why people buy products from expensive brands instead of buying equally good products for a lower price. People would go and buy the expensive Rolex from the shop rather than a copycat. They want to feel that sense of reward that doesn't come if you are not buying the original one (of course, there is still a market for the copies).

But luxury brands face a dichotomy on how good growth actually is. Of course, growth is great, profitability is what they are looking for, but then the challenge comes of being wanted by more people, by new segments, and maybe becoming not that exclusive anymore. 

So luxury brands must be constantly thinking about how to maintain that equilibrium between selling more, but to the right people. Selling more, without killing the brand essence.

As it is well noted in this article by Jean-Noel Kapferer, the question is how to avoid becoming the extraordinary of the ordinary, but remaining the ordinary of the extraordinary.

It happens with many brands that we know are (supposedly) exclusive , but the first thing that comes to our mind when thinking about them is not necessarily luxury. When we find these brands in mass consumer markets such as Ross or Macys, what does our mind end up relating this brands with? In my head, is not luxury.

What happens when non-target customers start wearing your brand? What is the effect on you core-customers who see in you exclusivity, heritage, royalty?

Burberry faced this problem when it successfully expanded its brand to new segments, being able to remain true to its heritage, while at the same time considered a contemporary brand. It was able to attract youths, but faced a challenge when young, non-targeted customer starting wearing their brand. Burberry had to be careful not to alienate its core customers and to keep the brand perception.

As more people use it, and as more different people use it, more visible the brand becomes, which can be good, but more difficult it gets to keep that perception of exclusivity and to maintain brand credibility.

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Innovation & adoption: Netflix, a disruption case

I like Netflix as a study case for product innovation and adoption, as they innovated on different fronts. First on the business model, by introducing delivery  (1999). Then they innovated again on the business model and service they provided, moving to  monthly subscription model for an online streaming service (2007), leaving behind the physical delivery of DVDs.

Lets analyze through Roger Five Factors whether its success was predictable:

Relative advantage—the degree to which a product is better than the product it replaces. This is a no-brainer, having a complete selection of content from your house, on-demand, rather than going to a physical store. Though at the beginning the collection of titles wasn't as big, the convenience of the model payed for it.

Compatibility—the degree to which a product is consistent with existing values and experiences. In an era where everything is changing and moving to the digital world, this might have been a bit of a challenge, but at the same time I think that the early adopters of Netflix were young people open and willing to experiment with these new models. Then, streaming became rule of thumb, and our mental model on how to consume many things changed (subscription models are everywhere, and streaming is also common ground today). 

Complexity—the degree to which a product is difficult to understand and use. Complexity here is zero if we think who the adopters of Netflix were.

Trialability—the degree to which a product may be experimented with on a limited basis. I believe trialability is high, mainly on subscription products that you can try and cancel fast. There is not a high commitment on trying Netflix for a month, nor is the user resigning to use other methods of entertainment.

Observability—the degree to which product usage and impact are visible to others. Though observability of the usage of Netflix is low, word-of-mouth is very powerful, as people tend to share what movies or tv shows they watch. So this kind of makes observability high.

Therefore, analyzing it through these factors, it makes sense that Netflix was a success that got this level of adoption, though it was something disruptive in many ways (business model and service provided). And the fact that early adopters were young people, open to technology and to improving their lives through it probably accelerated the rate of adoption Netflix had, allowing it to move rapidly through the diffusion curve.

Everett Rogers diffusion curve

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Nudging as a strategic response to the pandemic

Nudging is all around us. Personally, I first learnt the word when Richard Thaler won his Nobel Prize. Then I realized that working as a product manager I have been nudging as I studied user experience to enable more transactions to occur on the online platform I worked for.

I was thinking of how good Amazon nudges consumers into make it ever more easy to buy stuff:

- Paying is frictionless in the website or mobile app: just swiping or a few clicks allows you to have your purchase done (unless of course, is your first time buying something on Amazon)

- Selecting products is very easy. Amazon tagged “Best Seller” products or curated lists for specific buying occasions (for instance, birthday gifts list), simplifies the hurdle customers would go on trying to select from hundreds of products

- To rebuy products is also very practical, as they show your past purchases in your account, allowing you to not even go through the searching.

I found this Medium Post that talks how Amazon is implementing different nudges as response to the Covid situation. For instance, nudging customers into buying streaming services, that don't suffer the logistics consequences that other products do. And indeed, go into you Amazon account, you will see they are nudging you into buying things that do not need delivery: software, magazines subscriptions, e-books, e-gift cars, music playlists...you name it!

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Are we really drinking marketing instead of beer?

“People don't drink beer, they drink marketing”(1). This is what Foley said when taking the lead of Heineken US. 

Do people buy marketing, not products? The success of a product in its specific category, can rely in a surprising scale on brand perception and perceived customer experience, leaving aside product quality.

Similar to what we have seen in a completely different industry with Black & Decker and Makita, where having the best product quality was not enough, even in an industry were it seems obvious that quality should be the #1 attribute.

When Heineken relied on “being the best” international beer as sufficient in their marketing campaigns, sales started to decline. 

Van Munching Co. (former Heineken US) mistakenly thought that advertising Heineken on the differences of its competitors was the correct thing to do, rather than communicating the brand experience consumers will find when uncapping a Heineken. Only later Heineken realized that they needed to sell the experience, rather than communicate they have the best quality product. Marketing was needed, not just mere advertising.

Contrary to Heineken, Corona advertised a brand experience, an original local (Mexican) beer that is refreshing and takes you back to the feeling of being relaxed on the beach. The “Mexican Soda Pop”, as Heineken`s main importer in the US company CEO Leo Van Muching Jr. called Corona, didn't do that bad after all. 

I leave here a short article that shows very clearly how Corona´s success relies on great marketing, not on great product.

(1) HBS case 9-502-023

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Black & Decker Corp.

Makita is outselling B&D on some accounts that gives both companies equal shelf space because of their brand perception on a particular customer segment: the Professional-Tradesmen. In those accounts that are main channels for this segment, B&D has less sales than Makita, who owns 50% of the market vs 9%  of B&D (Table A).

Why is B&D performance on this segment lower than in other ones, for instance, the industrial segment? It is definitely not product quality. I wouldn’t expect shares of two segments to be similar, though it is interesting to understand why they are so different. One reason is that the buyer, owner and user of the tools is different between each segment, therefore who makes the purchasing decision in each segment has different attributes in mind. For the Industrial segment, the companies buy (purchase power) through distribution channels who usually recommend what tools and what brands to get (influencers on the purchase) for each job. The users are employees of the firms, who use but do not own the product. For the Tradesmen segment, it is the professional the direct buyer, owner and user of the tool, therefore  there is a sense of perception of the brand and how professional he looks when using that brand. This is the main reason why the B&D performs so good in one segment and not in the other: each one looks for different attributes on the product.