Strategies for a discontinuous future.

Wednesday, October 22, 2003

Here's an article from the Journal about a trend that US business should be very, very, very worried about (but aren't). Generic and OEM manufacturers in the third world are increasingly adopting branding strategies.

"...BenQ's branded products now account for about one-third of its revenue, a share that Mr. Lee says is growing. It has released a steady stream of new products -- mobile phones, flat-screen displays, digital cameras, notebook computers -- and launched marketing campaigns in greater China, Southeast Asia, and Europe".

Why is this a concern? Well, right now, businesses here have (broadly) two sources of advantage: brand and innovation. So these strategies directly compete with one of these sources of advantage. In the past, the brand landscape in this country has been very differentiated: superbrands, niche brands, and generics. All of this was carefully designed so one didn't cannibalize the rest.

Now, substitution is about price and relative value. It's not enough to say that consumers won't defect to a Taiwanese brand because it's not as well-designed, marketed, etc. - they will, if the ratio of relative value to price is the same as with, say, a P&G brand. The point is that kind of defection is going to create a massive discontinuity in the brand landscape - by creating brands with the relative value of superbrands (or closer to it) at prices closer to generic brands.

What's US brands' most likely response? More marketing spend, to boost their brand. That's an unfortunate response, because relative value to consumers is also about functionality - not just about brand awareness and association. It's also easily replicable by eastern competitors, so it's a strategically bad move because it can't be protected.

A better response would be to innovate branding itself. Let's face it: the entire concept of 'brand' is kind of played out. It doesn't reach people the way it did, because it's been used, abused and whored to death. Brands were shallow ways to attach associations to goods. What we need now are ways to engineer deep meanings into goods - like Starbucks has done.

You might hate 'em, but the fact is that their marketing strategy is light-years beyond branding. It's not just about the 'experience' or their 'aesthetics' - you're also trading your cash for something with more deeper meaning than a 'brand' - their coffee. They know their coffee, and they know how to innovate coffee.

Besides, competition in the 21st century is going to about platforms - multi-sided cooperative competition. Our current model of 'brand' doesn't begin to enable such competition, because it's focused on the consumer. That's not good enough - a new imperative for branding has to be focused on the entire ecosystem.

Such a 'hyperbranding' strategy would be difficult for eastern competitors to replicate - because they don't have the massive competencies in marketing we do here.

You might think that these guys are adopting branding strategies to ease massive pressure on margins - but that's not the whole truth. Another massive goal is to raise switching costs, (which branding is very good at doing), so buyers can't shift to the the cheapest seller in China, for example. Hyperbranding might do the same thing or better for businesses here.

-- umair // 6:30 PM //




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