The diminishing utility of brands in industrial marketing

Ed Marsh | Nov 18, 2015

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Conflating value with utility

"In North America consumers say they trust only about a fifth of brands....about half say they trust small companies to do the right thing, compared with just 36% who say the same of large ones....Of the top 100 consumer packaged-goods brands, 90 lost market share in the year to July" Economist, 14 Nov 15 'Authenticity is being peddled as a cure for drooping brands

From a GAAP perspective brands will remain valuable for some time.  Accounting for goodwill is so thoroughly ingrained in execs and investors/owners that it won't soon change.

Practical reality, though, is well ahead of GAAP.  While industrial marketing has failed to adapt, in practice the value of brands is rapidly diminishing.  

There are two reasons.

Information symmetry

Brand used to be a proxy for research and trust.  In a world where sellers held an edge through information asymmetry, buyers would stick with a satisfactory solution once it was known.  That significantly enhanced the value of brand - lifetime value was baked in to the first transaction as long as a company didn't screw up.

Today, however, the barrier to extensive and rigorous research of alternatives is so low that there's no functional reason not to at least "see what else is out there."

Increasingly our persona research for industrial brands finds that even long-time and "loyal" repeat customers turn to the internet to research "what's new" before a repeat purchase.  The goal of this research is a bit different than for the first purchase.  As long as a product has met expectations, the goal isn't to change.  But there's a very clear intent to make sure that something new will appear on the radar before renewing the commitment to the existing brand of habit.

Companies now have to earn every order - not just the first one that establishes the relationship.

Faith in the system vs. the vendor

Rising generations of corporate buyers have more faith in the collective wisdom than in a single brand.  They rely on user reviews and aggregate information to make their decisions.

Many factors contribute to this, and every individual weighs decisions in a decidedly personal way.  Yet there are trends we can observe.  The ubiquity of user reviews, for instance, means that buyers are no longer beholden to vendors' own promotional perspective.  And as IHS finds, rising use of social media by engineers opens new channels to solicit unvarnished feedback.

What does this mean?

Obviously this changes things for companies that have invested heavily in building strong brands.  And clearly there is value in being the one people think of first as they begin their research.  But the utility companies derive from the brand is diminishing, and just as they should begin to prepare for a slow-down before it occurs, they should similarly prep for a post-brand world.

Planning should be based on three principles.

  1. Humility - accept the fact that you should and must earn every order.  Build a marketing and sales approach around continuously providing insightful, worthwhile educational content that will help your target buyers do their jobs better.  Their loyalty to your brand will be a byproduct of your efforts to address their selfish (not bad, just reality) interests.  Don't pound your chest, cite marketshare statistics and expect that to do anything other than generate skepticism.
  2. Sticky - make it easier for them to buy from you again, than to change.  But the key to this is not to do so artificially.  In other words if you try to lock a customer in with proprietary elements that will breed distrust.  But if you create a product service system, for instance, that simplifies procurement, operation and maintenance, they'll stick with you because it's in their corporate best interest.
  3. Innovate - no news flash here, but one that established brands that are more focused on maintaining rather than growing often miss.  If you've got to earn every order, then you've got to have the best solution every time someone looks.  Incremental innovation may be enough between a pair of orders, but over a long-standing customer-vendor relationship, disruptive innovation will be key.  That's how your upstart competitors will unseat you - and therefore it's a defensive imperative in addition to a key growth approach.  What will challenge most companies is that this is no longer just about the product.  It's increasingly about the business model (industrial sharing economy) and about the operational impact (IoT.)

The branding process remains critical

A couple quick notes before you jump down to the comments section to vent.  Obviously there are iconic brands which command respect and garner business.  But increasingly each experience and interaction either reinforces the brand, or is dissonant.  Moments of dissonance are the small catalyst needed to prompt buyers to explore alternatives - since now the barriers to doing so are so low.

If you have a notable brand make sure you absorb the lessons of Brian Solis' (@BrianSolisX The Book to preserve your position.

But if you don't have a notable brand, the point is that you can grow in ways that would have required strong brand in the past.

And the process of branding remains critical.  Understanding, internalizing and articulating (from an empathetic customer perspective) who you are, what you make, why they should care, etc. remains an important business process.  And to the extent that a "brand" is the embodiment of that fundamental business clarity, it remains important to you and your customer relationships.

But it will never again be as important to creating new relationships.

Industrial marketing is at the nexus

At this point, hard-core product companies may agree, but discount the role of marketing in this process.  That's a legacy reaction founded in a world when marketing produced bingo cards in mail out decks.

The market research and communications functions which are critical to managing this transition typically fall within the marketing scope.  So it's natural that marketing needs to take this lead.

But that means that marketers can't be brand snobs, they can't obsess over vanity metrics and they must be strategic business people with financial and technical chops.

That's a tall order - and one that most companies can't yet satisfy.

The good news is you can coast on brand a bit longer, and that will buy you time to put the right marketing resources in place.

Will you?

Want to chat about how to position your company for success in a post brand industrial marketing world?  I'll give you a call.

 

image - materialicious