Saturday, February 1, 2014

Is the Internet Killing Brands?

internet and branding
For generations, brands have successfully generated demand for goods and services. However, some are now questioning whether the disruptive power of the Internet may disrupt even this, perhaps one day rendering brands irrelevant. We think this is an over-simplification: brands are being disrupted, yes, but they are not being destroyed. While the theory and practice of brand management is changing fast, brands will endure, even if many of the tactics used to build them will not.

Nothing to see here?
For those who believe all of this talk of change is overblown, there’s no shortage of data to suggest business-as-usual for brand advertising. Americans have never watched more TV, and the market for TV advertising has not collapsed. A recent study in the journal of advertising research (Hu, Lodish, Krieger & Hayatithi) showed that TV advertising ROI remains within 15-year norms, returning, on average, 10% over and above the investment made.
Of course, the story is not quite that simple: as Nielsen’s 2012 “Global trust in advertising” surveyshowed, trust-in-advertising in the developed world is in long-term decline. Nor is this a simple linear swap, with traditional advertising being replaced by digital and mobile formats. As the same study shows, all-media advertising trust is eroding, with TV bearing the brunt and digital only partially filling the gap left in its wake. Between 2009 and 2011, global trust in TV advertising declined from a respectable 71% to just 47% worldwide.

Everybody’s talking
Fuelled by social media, trust in peer opinions is rising at precisely the same time that trust in advertising is falling. Nielsen reports that the most trusted source of recommendations (hovering between 86-90%) is a recommendation from somebody a customer knows personally. While this number has always been high, it’s never been higher on an absolute or relative basis. A recent McKinsey study also noted that, unlike advertising, word-of-mouth is the only source of influence that remains critical at all stages of the sales cycle for most goods and services.
The brand is dead?
Despite these challenges, it’s wrong to view these data as supporting the inevitable decline of brands. While brand advertising may be in trouble, brands are not. Quite the reverse, in fact: in the most recent editions of Millward Brown’s annual brand valuation study, we find that brand value as a % of total stock market value continues to rise. In other words, the % of large companies’ total valuations accounted for by their brand assets is getting larger, not smaller.
So what’s a marketer to do? While many in the industry may recognize the increasing importance of word-of-mouth intellectually, more work is required to figure it out operationally. In our experience, the wholesale application of the assumptions and practices of the “golden age of advertising” to the age of social media are inadequate to the task.
Less focus on talking; more focus on being talk-worthy?
Based on our experience with clients who are responding successfully to this challenge, we see tremendous potential upside for those who are re-orienting branding efforts around the design and delivery of exceptional and talk-worthy customer experiences. In the word-of-mouth era, customers do not always repeat what you say to them, but they do talk about the experiences that they are having with your brand. Brands that are at the heart of experiences that matter to their customers can earn their loyalty, their trust, and critically, their recommendations.
In fact, this “customer experience effect” is now so powerful that recent research by Forrester’s Harley Manning and Kelly Bodine showed that customer’s perceived “quality of the customer experience” was the single best predictor of future purchase intent (0.71 correlation) and of likelihood to recommend (0.65 correlation). As Manning and Bodine put it “that’s about as high as correlations get in the real world”.
What’s required here is not just a minor adjustment to how brands talk, but wholesale changes to how brands behave. In the coming years, the companies that succeed best at managing brand value will be those that learn to work cross-functionally to deliver better (and more interesting) experiences; working at the intersection of marketing, operations, customer service, human resource management and, of course, technology. At the most successful companies the “brand” is not just something that marketers worry about in their ivory towers, it’s a design blueprint for the whole company to collaborate on.
At Fabric Branding, we believe that the shift from “brands that talk” to “brands that connect” is well underway. We work with our clients to help them build brands that seize this opportunity. We do this by integrating digital tools into a broader set of brand experiences and “moments of truth”; enriching relationships and creating happier, more loyal customers.

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