Why Brands Still Have Power
Q&A with Dartmouth’s Kusum Ailawadi
Dartmouth Professor of Marketing Kusum Ailawadi has a special interest in the strategic interaction and balance of power between manufacturers and retailers. At MSI’s May conference, “The Future of Marketing in a Multi-Screen and Multi-Channel World,” she will discuss how brands fit into the multi-channel ecosystem.
Are brands losing their power today?
The simple answer is that branding remains the way for a product to signal quality, credibility, and trustworthiness to the consumer—online as well as offline. It is true that bad news—and for that matter, good news—travels much faster and is harder to control. But that doesn’t mean that the brand is dead. Brands have as much power online as they do offline.
First, consumers look for information, reviews, and advice from many sources online—from their social networks, but also from review websites and intermediaries like Trip Advisor and Expedia and Yelp. For consumers to trust these digital intermediaries, they have to build brands of their own. In that sense, the brand is more important.
Second, despite the fact that search is supposedly costless online, research shows that there is still stickiness to preferred websites. Even consumers who go to a price comparison site, presumably because they are price sensitive, often don’t buy the lowest price option, choosing instead to buy from the website they prefer and trust.
Third, where a consumer searches is driven by her brand loyalty. If she wants to buy a pair of running shoes, she might do a search for “running shoes” on Google or on Amazon, or she might do a search for “Nike Vomero” running shoes, or she might go straight to the Nike website. In all these cases, someone’s brand—whether it’s Google’s or Amazon’s or Nike’s—is important.
What should brands consider as they move to online channels?
Every manufacturer should think very carefully about where they want to be online. Getting into the wrong channel or into too many channels not only creates acrimony when you back out, but the longer-term impact on a brand can be devastating. The brand can lose control over how it is priced, merchandised, displayed, and that loss of control is not contained to the one channel that it mistakenly entered.
For example, the premium performance running shoe brand, Asics, got into the warehouse club channel in a year when it may have had excess inventory. Soon after, the consumer could find Asics in Costco at $29.95! What does that do to the brand’s ability to keep its $80-and-up price point in the running market? The lost control and equity are very hard to recapture.
Whether and how to sell on Amazon is an extremely important strategic decision. Strong brands still have the power to decide how they want to do business with Amazon. Amazon needs them at least as much as they need Amazon. There are plenty of variations in how major brands are approaching the Amazon issue.
P&G’s strategy is to partner with Amazon by letting them ship straight out of P&G’s warehouses. This improves efficiency, but you can see why P&G’s traditional retailers like Target are really mad. They already have to combat Amazon and they see this as getting in bed with their competitors!
Samsung is taking a different approach. Their strategy is to bolster Best Buy as much as they can—for example by supporting the Samsung store-within-a-store.
What do you see for the power of brands in the future?
Brands need to figure out how to use their power without using it up. Paul Farris, my long-time co-author on issues of retailer and brand power, and I think of this in three ways.
First, the perception of potential power can be more powerful than the actual exercise of power. Second, if you use your power to the extent that the other party has nothing to lose, the relationship is not sustainable. Powerful retailers like Wal-Mart and Amazon, as well as powerful manufacturers like Apple and Nike, have to tread carefully here. Third, as brands figure out how to deal with their partners in the multi-channel world by restraining one channel or supporting the other, or by utilizing new intermediaries, they have to keep track of the regulatory environment, which is in flux. One example is the change in the law with respect to Minimum Resale Price Maintenance. Another is how regulatory agencies analyze multi-sided platforms which are so common in the digital space.
Finally, it is important for brands to understand their real sources of power. Otherwise, they can give up their power without even realizing it. Here’s an example. Trader Joe’s sells almost entirely private-label products. This has helped them build considerable consumer loyalty and protected them from the power of national brands. But more and more national brands have started to show up on the shelf at Trader Joe’s, presumably because the chain wants to expand the pool of consumers who shop in their stores. But I think that benefit may be far outweighed by the many ways in which introducing national brands will tie their hands.
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