10 trends that impacted category value change
1. RETURN TO REALITY
Planning for tomorrow but making sales today
Car brands, which a year ago peered into a crystal ball in search of a future about mobility, looked closer to home and responded to the immediate needs of consumers, many of whom bought large, gas-consuming SUVs, even as they proclaimed their concern about climate change. Similarly, the oil and gas brands continued drilling, while shifting to gas and renewables. Both cars, and oil and gas brands operate in the same tension: sustaining a business based on supplying customer needs today, while anticipating, and helping to create, the world that customers say they want to live in tomorrow. And both industries require long-term strategic planning, heavy forward investment, and complicated bets that rely on consumer research, climate science, and unknowable geopolitical factors.
2. TAKING A STAND
Geopolitical upheaval leaves no place to hide
Until last year, most brands could avoid cultural discord. The surprise outcomes of the UK Brexit vote and the US election made avoidance more difficult. Because people in the UK, US, and elsewhere were evenly split, brands potentially risked pleasing half of their customers and alienating the other half. Niche brands that shared the values of their customers had less of a dilemma. Mass brands with clearly articulated purpose and values had more permission to speak out. Even then, however, it was safer to frame a point of view in a larger societal context, rather than in divisive politics. Brands across categories could not ignore the power of people to express themselves in the voting booth—or at the cash register. Even oil and gas brands, which typically communicate primarily to a narrow group of influencers, thought more about their consumer-facing brands and the power of consumers to influence public policy.
Faster value growth depends on Purpose
Geopolitical discord, and the question of whether brands needed to take a stand, made Purpose more important. Consumers, especially young people, expected brands to have a clear Purpose, often a higher Purpose about not only improving consumers’ lives, but even improving the world—or at least not harming it. Purpose needed to be the foundation for future growth, not a retrofitted explanation for past growth. BrandZ™ Vital Signs, a new brand health assessment tool, found that Brand Purpose serves as the foundation for four other Vital Signs: Innovation, Communication, Brand Experience, and Love. Brand with a clear Brand Purpose (seen as making lives better) grew three times faster in value, on average, over the past 12 years.
Brands combine competencies
The emergence of technologies such as the Internet of Things and autonomous cars accelerated collaboration between business-to-business and business-to-consumer technology brands. Car and technology brands linked to improve connectivity, using smartphone data to personalize cars with adjustments to seats, steering wheels, and entertainment systems. Sometimes category disruption or brand ambition required more than collaboration, as when e-commerce giant Alibaba partnered with Bailian Group, a Chinese retailer that operates over 5,000 stores. After many collaborations to build up its e-commerce strength, Walmart, with over 11,000 physical stores, took the next step and acquired the e-commerce startup Jet.com.
5. CITY CENTRIC
Mutual interests define markets
Global and local combined in a new way. As evidenced by the Brexit vote and the US national elections, political opinions that divide nations also reveal cross-national affinities. Similarly, when shopping for products or services in categories as diverse as apparel, banks, beer, cars, and insurance, young people living in Brooklyn, Shanghai, or the Shoreditch section of London share more in common with each other than they do with people living in rural areas of their own countries. These cross-national affinities represent large potential brand opportunities. Brands looked at their markets through this new demographic lens.
6. CONSOLIDATION/ FRAGMENTATION
Categories defy laws of physics
Opposite market forces pulled on categories that consolidated at the same time they fragmented. In beer, AB InBev and SABMiller combined, while more craft beers appeared. In insurance, Ace purchased Chubb at the same time that new InsurTech brands proliferated. In oil and gas, Shell digested recently acquired BG, but smaller operations developed fracking technology to drive down the threshold for profitability, which was critical with historically low oil prices.
7. PREMIUM/ LUXURY
Commoditization drives brands to premiumization
Brands shifted to the premium—even luxury—end of the market to avoid category commoditization and build margin. Beer and personal care brands introduced premium products globally. Mass brands in the car category featured safety and entertainment technology that a few years ago would have been available only in luxury models. In 2017, luxury brands comprise over half the BrandZ™ Car Top 10 ranking, compared with just over a third in 2006. During those 12 years, the proportion of luxury brands in the Personal Care Top 15 shifted from around a third to almost half. Even luxury became more luxurious. Hermès, one of the most exclusive luxury brands, increased 18 percent in value year-on-year, significantly surpassing overall 4 percent category growth.
Young pursue retro as antidote to modern
At the same time young people sought the newest, fastest app, they also expressed a need to slow things down. As young people listened to digital music with earbuds, they bought more vinyl records. While taking photos with smartphones, millennials desired a cool vintage SLR camera. Craft beer and craft cola represented this retro style. Clothing from the 90s was “in.” And high-top sneakers were popular. Adidas increased in value 58 percent, more than any other brand, in part because its classic sneakers were perfectly on-trend.
Brands seek sellable moments
Proliferation of choice, price promotion, and the entrance of niche disruptor brands are among the reasons that loyalty was difficult to cultivate. In addition, loyalty was not always fashionable. For self-expression, apparel customers preferred to mix and match, curating a personal style rather than wearing the same brand or designer head to toe. Similarly, personal care shoppers looking for the newest products chose from a wide selection of brands. Responding to this purchasing promiscuity, brands tried to reach consumers at the exact right moment to trigger a sale, increasingly on mobile.
10. RETURN OF THE STORE
Interactive and smaller, stores are back in style
E-commerce still rules. Retailers in mature markets continue to close excess real estate. But stores are back. Physical stores—smaller, convenient, interactive, and loaded with technology—became an important expression of brand experience, especially in categories like apparel and luxury. Adidas launched a women’s studio with fitness classes in London. A Lululemon Lab store opened in New York. The online eyeglass brand Warby Parker opened more physical locations. Despite the rise in FinTech, bank branches remained an important way to personalize the consumer relationship and build trust. Shell gas stations continued to become a place for shopping on the way home or for dropping off or picking up parcels. Even Hermès experimented with pop-up stores. And the ultimate confirmation that physical stores are important came from their nemesis, Amazon, which opened a book store and prepared to open Amazon Go, its chain of automatic-checkout grocery stores.