Changing brand economics

Changing brand economics

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Consciously or not, many brands are now running a freemium model. They are giving away a lot more than they used to, particularly across social media, just to keep up with the changing competitive landscape. And they are hoping to recoup on that significant content investment when consumers do buy. So has any of this changed the fundamentals of brand economics, or has it merely altered the manner in which brands achieve visibility?

By way of a sanity check, I went back to this paper from some years back to assess what still holds true.

Some things about brands haven’t changed

Brands continue to simplify recognition and selection, and to instil trust in a world bulging with options. They continue to offer a simple way for time-poor consumers to filter the choice set. Consumers still buy because they identify with what some brands stand for – although one could argue that the criteria themselves may be shifting, particularly with younger buyers, as ethics becomes an important judging point.

Brands continue to draw on the associations they generate to seek extension and licensing opportunities, and my assessment is that this exploration of brand “green-fields” shows no sign of slowing down as brands look to broaden reach and multiple returns through a single relationship. But we are also seeing major brand portfolio managers like P&G focusing their assets much more specifically within set categories. It will be fascinating to see how these contrasting strategies – intensification and diversification – play out in the years ahead in terms of returns.

Brands continue to build value through emotion – but there are two changes in dynamics here that I think are worth noting. Firstly, the nature of the emotion generated. In a less connected world, brands sought to build emotional connection on a more one-to-one level through reassurances around quality and features. In theory, buyers saw an ad, were convinced and acted. Today, as quality becomes more consistent or at the very least more tiered and defined, brands must look to generate likeability at a highly collective social level as well, and the timeframes within which passions, good or bad, can grow has condensed enormously. These macro-attitudes can significantly affect the trending power of a brand – making it hot or not.

Secondly, while globalisation and technology now see prices flatten more quickly in many sectors, closing the gap between market-first pricing and the rest at faster rates, the power of big brands in terms of critical market influences such as visibility and reach has never been greater. The shift referred to in the paper as “a transformation of the commodity economic model to a branded one” is intensifying and with it comes a fundamental power shift borne of the different value equations of the front-runners and the also-rans.

Brands and commodities

Both brands and commodities are necessary it could be argued. Brand leaders take the market to new places and therefore keep it interesting, but lower-level participants (the commodities of the sector) add choice, entry opportunities and to some extent price variation and pressure. Here’s the big difference though. As commodities become more plentiful they become less valuable (in response to supply and demand), but as brands become bigger, they become more accessible and influential. That’s because, in the words of Professor Byron Sharp, they increase their “physical and mental availability”. It becomes easier and easier to keep buying them.

Assessing brand valuation

So how much is a brand worth today? Something. Is it the 30% of stock market value that Millward Brown has claimed? It may well be. But in reality, I think too many commentators are mixing their metaphors. Brands are driven by emotion and it’s hard to put a price (and a value) on emotions because they can change so quickly.

The valuation that the market puts on a brand and the valuation that a consumer accepts in a brand (through the premium they are prepared to pay) are also vastly different sums. The first is expressed in billions of dollars; the second may be just a few more cents or dollars at a time. And the fact that brand valuations can vary so much perhaps says less about the science of brand values and more about the volatility of the power of brand overall. Brands carry more or less weight on different days in different circumstances for different people. I think the lack of definition around the numbers reflects that.

Ultimately people buy what they buy and pay what they pay for all sorts of reasons.

Brands have a key role to play in clarifying choice and defining expectations. But increasingly the ‘wisdom of the crowd’ is influencing those perceptions for good or bad – and it’s interesting to think about how this popularist dynamic complements and contrasts with the demand for growth and returns from brand owners. If it’s hard and controversial to value what a brand is worth as an asset, it’s much harder to value what the many moods of the people that make up a market are worth to a brand at any given time.

Brand economics as tides

Instead of evaluating brand economics as a static expression of worth, perhaps we should view them more as tides: tides of value that run high, low or static depending on category, inclination, new product initiatives, reputation, social chatter, competitive activity and so much more. The brands that read and ride the tides will prosper. If brands are indeed as dependent as emotion as we think they are, then the top performing brands will find more astute ways to adjust to the emotions of consumers – capitalising and defending as the moods dictate.

That to me is why the freemium model is so relevant. It’s not actually about selling or giving away. The investment is not in the content itself, but in what the content makes possible (which is also where I think a lot of content strategies get it wrong incidentally). Connection through valued content, and the conversations and interactions that sparks, is one more way for brands to read and ride the tides: it helps them see and trace something of what they are worth to consumers on any given day. Will that mean more dynamic pricing based on social sentiment across a wider range of sectors in the years ahead? I’d say – almost inevitably.

Photo of “Low tide at Staithes”, taken by Paul, sourced from Flickr


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