Do we still need brands? Why businesses should take heed of the latest HBR study

By Mark Lowe | founding partner

Third City

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April 22, 2015 | 5 min read

Brands are dying or at least they’re worth a lot less, if we’re to believe the Harvard Business Review (HBR) study published this week.

Unusually in the world of brand theory, the findings are backed by hard evidence. Researchers looked at M&A valuations over the past decade, which include intangible assets like trademarks and brand names. If you make up M&A valuations you can go to jail, so we can be pretty sure they’re legit.

The findings suggest that while the value of brands is falling, the value attached to customer relationships is on the rise. The obvious conclusion is that digital technologies mean consumers no longer need brands to help make choices. Better information increases consumer power and drives down brand equity.

But it’s more complicated than that. For a start, the new industrial revolution is at such an early stage it could be that brands are just temporarily undervalued. And most experts still agree that the relationship between brands and customer relationships is symbiotic rather than parasitic (and there is an even bigger debate to be had over the definition of a ‘brand’, but we don’t have time to get into that here).

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One of these experts, Imperial College professor of strategy Nelson Phillips, unpacked all this nicely for me:

“Very often, strong brands are connected to deep customer relationships especially at the top end of the market. If you’re Aston Martin, you have a very strong brand and you know most of your buyers as they have bought before. The brand and the relationship reinforce one another.

“In other cases a strong brand is not associated with deep customer relationships. For example, Coca-Cola is a huge brand but they don’t have very deep relationships. Although they have many repeat buyers Coke knows nothing about them as individuals.”

Consider this and you begin to see why the valuations vary so much between sectors. What’s true in the service or travel sector might be less true in say, fast-moving goods like food and drink.

But that’s not to say that the new wave of disruptive digital businesses won’t need strong brands. As businesses like Amazon have matured, we’ve seen them place much greater importance on intangible assets like reputation or design. Newer players like Uber have been aware of this from an early stage. Paul O’Neill, the former Apple marketer who now runs advertising agency Homebrew, gave me an anecdote that helps explain this.

“Recently, I was at an incubator event to introduce emerging e-businesses to media owners. Looking at the attendee list, there were some I had a basic awareness of and others, multi-million pound companies, that I’d never heard of. These were all big businesses but they had no real brand.

“So you think, that’s fine, if they’re making money who cares? But remember these are the pioneers, they currently have little serious competition. What they should worry about is what happens when the competition starts piling in. They’ll need to differentiate, to create a stronger emotional relationship with the customer­­­­. That’s branding.”

Mark Lowe is partner at Third City. Follow him on Twitter @markrlowe

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