A crystal ball conversation
Vice President – Cultural Insight Added Value
Chief Global Analyst Millward Brown
J. Walker Smith
Chairman The Futures Company
WPP brand experts gathered in New York for a session about the future
of brands convened by BrandZ™. The following remarks are excerpted
from the wide-ranging conversation of J. Walker Smith, Chairman, The
Futures Company; Nigel Hollis, Chief Global Analyst, Millward Brown;
and Joanna Franchini, Vice President – Cultural Insight, Added Value.
Finding connection in a splintered world
J. Walker Smith: There is an identity crisis in the world today. Every demographic is creating a context in which people feel a need to redefine identity. At The Futures Company we refer to something we call “Big-Tent Branding,” which asks: What can your brand do to be inclusive in a twenty-first-century way? That means we are all different but we are all the same in that we can gather together under the same big tent.
The splintering of identity is great, but it isn’t satisfying the human need to belong. There is a shattering of a sense of connection. We encourage this shattering in our marketing because we are engaged in hyperpersonalization, which is not about connecting people in context; it’s about finding a context in which we can connect with an individual. So how do you do the twenty-first-century version of inclusion?
One of the reasons for Nike’s success is that it says it’s not just about connecting you with our brand; we’re actually putting you in touch with a community of runners, so we facilitate people-to-people connections, not just brand-to-consumer. How do you hyperpersonalize and give people a sense of belonging to a broader narrative that’s shared with other people? That is the big opportunity in the marketplace today.
Nigel Hollis: It’s about creating cultural experiences. Increasingly, that’s going to be really important for brands to leverage, if they can. I think there will be a few “big tent” brands and many splinter brands, just like there will be a few big global brands and many local brands. Ever since we started getting intelligent recommendation systems we have built inertia into the system, ensuring that people stay with the familiar rather than seek out the new.
Joanna Franchini: I agree with the idea that people want to connect with other people. But I also think that we’re not giving enough weight to the idea that people do use brands as a way to express their values. Nike is speaking in a culturally resonant way. Their latest iteration of their brand ethos is “Find your greatness,” which takes it from a brand for elite athletes toughing it out to a brand for the everyman who’s just trying to make it through that last quarter-mile. That tonal shift makes the brand more culturally relevant to today’s world, and to a broader group of people.
Programmatic consumption changes brand building
Joanna Franchini: There was a time, perhaps 30 years ago, when manufacturers had the power because they owned all the customer information. With the advent of scanners and the emergence of big box stores, the power shifted to retailers. In today’s world of big data, the platforms tend to own the data rather than the brands sold on those platforms. Think about Amazon. If your product is sold over Amazon, Amazon controls your access to the customer data.
Nigel Hollis: It matters because if you are a major brand, someone could invent a similar brand that can be found through the platform, at a lower price, and take away enormous market share. The platform is the access point.
Joanna Franchini: There is so much information coming at us all the time that we need to delegate decision-making.
J. Walker Smith: The benefit of programmatic consumption is that you get time back. So the opportunity for marketers is that you get a chance to reinvent how you build a relationship with people. It won’t be through the old purchasing process, because that process will be increasingly automated by marketers using algorithms or by consumer algorithms. So what do you do to rebuild the emotional connection with brands? It will be a different kind of world.
Nigel Hollis: Don’t you think people will get bored in this world? Do consumers really want a relationship with a brand? They want relationships with other people. If all my algorithms suggest I’m keenly interested in four things, that’s all I ever hear about. The unusual will never make the cut.
J. Walker Smith: So how do you build serendipity into a programmatic world?
Nigel Hollis: Exactly, I think this is an awful future. And I think we’re already seeing some of it. A lot of the splintering of culture that we’ve been talking about is to do with technology.
Joanna Franchini: That’s a bit dystopian. The strongest connections are with other people. And word of mouth remains the best form of advertising. I’m influenced if a friend posts about a product that I may not have considered. I think it’s about how sophisticated brands get about being relevant and at what moment. The technology is not yet there; we remodeled our bathroom months ago, but I still have the bathroom sink we bought following me around the Internet.
Nigel Hollis: Are there brands that can leverage serendipity?
Joanna Franchini: Birchbox does that now. And if you think about why someone buys into a subscription box, it’s because it offers a delightful collection that surprises me every month. That’s the insight. Even if it’s two ounces of a body wash I’m only going to use once, there’s something about that surprise element.
Nigel Hollis: You would have two sets of brands then?
Joanna Franchini: The “automatic” products are commodities that secure a spot in the marketplace, but once consumers are passively interacting with them, there’s no need for them to actually be branded in the way we traditionally think of brands. You could ship detergent in a white box.
Nigel Hollis: I actually don’t think that you would be able to ship the detergent in a white box. I think that what’s being sidelined is the huge amount of effort that brands put into being visible in stores, and the instant recognition of packaged goods in a grocery store that triggers the habitual purchasing behavior. Automatic products will throw huge emphasis on the key decision points where someone actually does deliberately think about, “What detergent am I going to choose when I get around to setting up my household?” And the fact that Amazon will soon sell its own-brand products, including detergent, to its Amazon Prime members puts Amazon at the head of the queue.
J. Walker Smith: That’s my headline: Moving from consideration sets to preference profiles. In the past we’ve been trying to get into the consideration set. But when that gets eliminated because everything is automatic, you need to get into that point when the decision is made. That’s when I fill out the profile that Amazon or some other provider then delivers. I’m checking a box and then Amazon knows what to do.
Joanna Franchini: That also says something about partnerships. Because that point can also be when I buy my washing machine.
J. Walker Smith: I think Samsung may have done that already. Appliance brands will partner with certain laundry detergents.
And the replenishment button is built into the machine.
Joanna Franchini: No button required.
Slower global growth will challenge brand marketers
J. Walker Smith: The global economy probably will grow at a slower rate for a few decades. That will put increasing pressure on some of the ways in which we manage our brands. Companies will find it harder to drive the top line because they will have trouble raising prices in a world of lower inflation, where wage growth is slower. There will be more pressure on cost cutting. Business model transformation will be a bigger imperative.
In a world where consumers can’t afford premium everything, they’re going to go cheapest on a lot of categories so they can go expensive on a few. That means you’re not competing only with brands in your category anymore. You’re competing with everything else. We have a whole generation of brand managers who have grown up in a high-growth world of expanding categories and lots of new product introductions and price increases. And now, boom! We’re in a slow-growth world. Will these marketers know what to do?
Nigel Hollis: I am intrigued by this idea of innovation and changing the business model. I’m reminded of the Rolls Royce model of buying and selling aircraft engines. Customers no longer buy an aircraft engine. They buy a service package and Rolls Royce owns the engine. The monitoring system will indicate when the engine needs servicing, so downtime is minimized. Surely, that technology is going to apply to cars and washing machines. I can envisage a future where the service model applies across most categories.
J. Walker Smith: I think that gets to the on-demand economy. In a world in which people are under increasing financial pressure, people will look to be able to afford what they want, and service models will be an opportunity. People may want to buy that slice as opposed to buying the whole thing. It may cost me more over five years to take Uber everywhere, but I can afford Uber in 12 $30 slices. A $300 per month car payment might be too much.
Joanna Franchini: The Bloomberg terminal is a good business-to-business example. It has had a strangle hold on the financial industry for a long time. But now there are several smaller start-ups that offer a similar product with a different business model and at a lower price. There’s a regulatory and infrastructure aspect to some of these businesses that’s beginning to be disrupted. Brands like Uber or Airbnb are able to exploit archaic regulatory systems.
Nigel Hollis: I think the splinter brands will be able to make nice premiums, because one of the things that I observe looking across all of our data is that there are very few mass-market brands that can command any significant premium. If you plot the size of the brand in volume sales against its premium relative to the marketplace you invariably end up with some sort of negative relationship.
Nigel Hollis: If you believe that brands stand for values and association and identity, as you try to broaden out beyond a fairly tightly defined group of people, it becomes really difficult to get them to consider you if you’re charging a premium, because they don’t care as much about the offering as the original group did. I come back to this bifurcation that we’re going to have where the big tent brands may all be value plays. They may be your white box of detergent. Great product. Great price.
J. Walker Smith: If you put technology and economic trends on top of that it adds to the dynamic.
Nigel Hollis: Then there are splinter brands that people will migrate to because there really is something about the brands that genuinely speaks to people’s specific needs or values or identity. We see the same thing in the global and local dynamic. You’ve got these big global brands. People want an Apple iPhone because it makes them part of the global club. You’re in Brazil but you have the same stuff as some guy from the US. I had a conversation with a Brazilian colleague who couldn’t understand the resurgence of the Welsh or Catalan languages. He asked, why would anyone want to learn a dead language? For him, being part of the global scene was what’s really important. But increasingly, there is also a desire for local identity.
Joanna Franchini: I think that these splinter brands will not necessarily be brands for all time. I think they’ll be short-lived brands. They’ll fill a human appetite for novelty. And no one wants one brand to own everything. I recently completed an analysis about the craft phenomenon in the soft drinks category.
Carbonated beverage consumption continues to decline but overall drink consumption is not down. Beverage consumption moments are being distributed over a much broader set of possibilities. Some of the options are about health but others are just about variety. There are a massive number of craft soda players. Where is this going to end up? We could see a lot of acquisition. Or we could see the major brands riding the coattails of some of the craft brands until the trend stalls.
Nigel Hollis: The large multinationals are good at producing at scale, where it is difficult to command a premium, but they’re not particularly good at developing niche brands. There is an organizational issue here. If those companies want to develop splinter brands they will have to go to a whole new model. There is a brand called Epic, a new kind of health bar that includes meat protein and was developed by a couple of runners and purchased by General Mills. So from something with a cult-like origin you have something that potentially appeals to a mass market. What does Epic not have? Distribution. What can General Mills provide? Distribution. It will be all over the country just like Burt’s Bees or Tom’s of Maine.
Joanna Franchini: And what will happen to FMCG or personal care when we start printing our own products?
Nigel Hollis: That’s interesting. For durables you move to a licensing model – and you better have something worth licensing.