Building a Specialty Brand in the 21st Century

Here at CB Capital, we are a firm believer in working with strong consumer brands. Our investors like them, and understand how to analyze, cultivate, and assist brands in staying at the forefront of various consumer and societal trends.

For our brand clients, we understand that your consumer brand wants loyal, sophisticated, and high-margin consumers. These sophisticated consumers must have purpose, and your brand must fit their purpose or what they stand for, whether it is a lifestyle option (Whole Foods, Nike, Starbucks, etc.), part of an overall movement/statement (Tesla, Apple, etc.), part of a niche culture (Lululemon, Urban Outfitters, Burton, Active Ride Shop, etc.) or recognized as the best in class (Amazon, Google, Goldman Sachs, etc.). Once your brand becomes part of your consumers’ lives, it is sticky. Your brand will ride the waves of their successes. Marketing becomes word-of-mouth, and your products will sell at a premium.

On the other hand, you do not want fickle or gullible consumers. Most of these folks have no solid belief systems and cannot be trusted to be long-term, loyal consumers. These consumers are not only fickle, but will only dilute your brand. Sophisticated, generous, and loyal consumers would not be wearing or consuming the same brand as these folks. Many of these folks also do not play fair—returning items to stores they have worn for a night, etc. True, sophisticated and responsible consumers/citizens do not engage in this type of practices.

As an aside, there are certain sub-industries and industries where there still exist numerous brand-building opportunities. The fast casual, healthy and organic restaurant industry in the U.S. comes to mind, as well as lifestyle brands that serve various niche consumers–we believe that brands catering to anti-establishment, individualistic but responsible ideas will continue to garner a premium in the 21st century. For other industries, it is mostly a race to the bottom. These include traditional/mass retailing, the PC/server industry, as well as traditional full-service and casual dining chains.

To create and manage a brand successfully, we must understand that a brand name is part reputation, part familiarity, part psychology, and we must also understand the unquantifiable thrills or sense of belonging that a consumer feels when he or she purchases something that bears his or her favorite brand name. The concept of a brand name first arose with the advent of advertising and mass media in the 1930s—further compounded by the adoption of the 40-hour workweek, allowing consumers more time to enjoy the things that they bought. It is not a coincidence that Disney’s success took off during the 1930s, as for the first time, the middle class had idle time to watch films. To this end, Interbrand’s ten factors of creating and managing a brand are timeless. The information in the below figure are taken verbatim from Interbrand.

Figure 1: Interbrand’s Ten Timeless Factors for Managing/Valuing Brands

Internal Factors

External Factors

Clarity: Clarify internally about what the brand stands for in terms of its values, positioning and proposition. Clarity too about target audiences, customer insights and drivers. Because much hinges on this, it is vital that these are articulated internally and shared across the organization. Authenticity: The brand is soundly based on an internal truth and capability. It has a defined heritage and a well-grounded value set. It can deliver against the (high) expectations that customers have of it.
Commitment: Internal commitment to brand, and a belief internally in the importance of brand. The extent to which the brand receives support in terms of time, influence, and investment. Relevance: The fit with customer/consumer needs, desires, and decision criteria across all relevant demographics and geographies.
Protection: How secure the brand is across a number of dimensions: legal protection, propriety ingredients or design, scale or geographical spread. Differentiation: The degree to which customers/consumers perceive the brand to have a differentiated positioning distinctive from the competition.
Responsiveness: The ability to respond to market changes, challenges and opportunities. The brand should have a sense of leadership internally and a desire and ability to constantly evolve and renew itself. Consistency: The degree to which a brand is experienced without fail across all touchpoints or formats.
  Presence: The degree to which a brand feels omnipresent and is talked about positively by consumers, customers and opinion formers in both traditional and social media.
  Understanding: The brand is not only recognized by customers, but there is also an in-depth knowledge and understanding of its distinctive qualities and characteristics. (Where relevant, this will extend to consumer understanding of the company that owns the brand).

Building a Strong, Trustworthy Brand in an Age of Low Corporate Trust

London Business School Professor Daniel Goldstein remarked in a March 2007 (pre- financial crisis) Harvard Business Review article that “Research shows that customers may prefer a recognized brand even if it has clear shortcomings—even if, in certain circumstances, it’s dangerous. Consumers in a recent study believed that airlines whose names they recognized were safer than unrecognized carries. On the whole, this belief persisted even after participants learned that the known airlines had poor reputations, poor safety records, and were based in undeveloped countries. In other words, a lack of recognition was more powerful than three simultaneous risk factors.That was the pre-financial crisis point of view—when trust in corporate brands, corporate leaders, and mainstream advertising was still high.

Although already declining, consumers’ trust (especially the sophisticated and potentially loyal consumers that every specialty brand wants) took a nosedive as the financial crisis accelerated in 2008. Americans suddenly realized there was a dearth in global leadership, in all levels of society. Your financial adviser failed you. Professors did not predict the downturn. American consumers no longer trusted mainstream brands and traditional marketing/advertising campaigns. Americans initially cut back on spending; then became more selective as the U.S. economy recovered (many industries, such as the casual dining industry, are having a difficult time responding to this). Brands responded to the economic crisis by running for cover (the weaker brands went out of business), by first attacking its supply chain (i.e. cutting costs) and laying off workers. While this helped profit margins in the short-term, this is the wrong strategy in the long term. During recessionary times—and with Americans becoming more selective in their spending—the competition for sophisticated and loyal consumers becomes even more intense. Combined with the growing distrust in mainstream brands and advertising, Brands will need to find better ways to engage and respond to its consumers’ ever-more selective needs and high standards.

How do you build brand value in an age of low corporate trust, and among an unprecedented increase in marketing channels?  As early as 2010, Eric Schmidt remarked that every two days, the world created as much information as we did from the dawn of civilization up until 2003. Naturally, traditional (TV, newspaper, etc.) advertising is dead, especially among sophisticated, younger consumers who are also selective in their consumption of media. It is not surprising that Forrester Research sees 1) social media, and 2) mobile marketing, as the two most promising marketing spend categories  over the next several years:

Figure 2: U.S. Interactive Marketing Spend Forecast (source: Forrester Research, Inc.)

forrester interactive marketing

The rise of social media not only changes how we communicate; but how Brands could communicate to their consumers. The most effective manner for Brands to engage their consumers—and to build brand value—is no longer B2C (i.e. Business-to-Consumer, or one-to-many). Most of our clients no longer believe in this marketing model. Rather, our research have found that social media is—for the first time—empowering many “influential” consumers who could be strong advocates for their favorite brands. For the first time, the rise of Big Data and easy-to-use collaborative tools allow consumers to engage in more dynamic, one-on-one interactions. The key for Brands is to gather and then harness the power of their most influential consumers to promote awareness and help close sales.

In other words, Brands first transmit their message to their most influential and dynamic consumers, who also provide active feedback to their most-loved brands. From hereon, the Brand begins to lose control of the messaging, as much of that process is now dependent on its influencers.

Figure 3: Key to Brand Building in the 21st Century (Source: CB Capital Partners, Inc.)

21st century marketing

For certain Brands, losing some or all control of its messaging is a scary thought, especially in today’s age of “viral” campaigns and consumer activism. But it is precisely because of this latent power in consumer (influencers’) activism, aided by social media technologies, that injects such power into today’s market campaigns—all at very little cost. An extreme sample is what we have labeled as the “Veronica Mars Model,” where through the power of modern social media marketing and fund-raising, the ROC of a project could literally hit infinity (covered in a recent blog post). This new way of marketing is all the more effective because it keeps Brands actively engaged with their influencers and thus keep them on their toes.

Building a Strong, Trustworthy Brand in a Globalized, Self-Actualizing World

Segmentation, especially for specialty brands, is an important and delicate exercise. Done correctly, your Brand will thrive. Done incorrectly, it is a waste of marketing dollars at best. We learned in Marketing 101 that segmentation based on demographics (income, education levels, etc.) no longer works (the major exceptions are certain film genres and the video gaming industry). Demographics data is easy to gather, and in the by-gone “Mad Men” era, high-income/education, nuclear families may have aspired to similar material brands, but this is no longer the case. We like to describe the evolution of consumers’ needs—on a global basis—using a modified version of Maslow’s Hierarchy of Needs, overlaid with a time line showing the impact of globalization on consumer trends since the end of WWII.

evolution of consumer decision making

We can be forgiven for citing Maslow’s Hierarchy of Needs, since we live and work in southern California. With the evolution of the consumer decision-making process, it no longer makes sense for a Brand to segment and target its market using demographics when its potential market is global, and when individuals no longer identify with their fellow citizens. For example, I teach an upper-division public policy class at UCLA. My U.S. students are very culturally aware and most of them identify themselves more closely with other global, young, and well-educated citizens—not with their fellow Americans. Repeatedly, CB Capital’s experience with our clients and our research show that:

1) Traditional segmentation and marketing methods no longer work. Clients who adopt social media and community outreach efforts wisely have been very successful, while keeping marketing costs low. For years, one of our clients has developed residential communities through feedback from focus groups and local surveys, versus traditional demographic methods. Through unique designs catering to the needs/tastes gathered from this feedback, our client is able to sell his homes for a premium, while keeping construction costs relatively low. His communities are integrated into nature, and are aesthetically pleasant. On a recent visit, we met a young family, older and younger couples, and large social groups. Clients who do not understand this evolution still embrace traditional advertising, which has no feedback loop, while outcomes cannot be measured.

2) Consumer spending in the 20th century was driven mostly by material needs. Aspirational spending meant paying for “expensive” brands which provided a sense of belonging to the Bourgeoisie. Such consumer mentality still exists in China and India  today (where a Starbucks coffee, an iPhone, or a VW means you have “arrived”) but are slowly becoming passe. Today–as the above figure reminds us–premium consumer brands are based on the concepts of self-identification, self-actualization, along with a sense of belonging within a group of like-minded, distinct individuals with similar life philosophies.

The successful 21st century brand will need to understand and adopt the marketing concepts and consumer trends as enunciated by points 1) and 2) above. Otherwise, it is simply a race to the bottom, as many 20th century “brands” and concepts are fast becoming commoditized.  In the latter case, “brand building” will be a waste of money. We are mindful of these facts and strive to only work with clients with strong, defensible, 21st century brands.
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