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GLOBAL 2016: Cross Category Trends

Disruptive forces challenge brands and old assumptions

Millennial attitudes felt across most categories

Blurring Borders
Rapid market developments blur borders across categories
Categories organize the world of products and services with neat borders and boxes, like a Victorian museum. Because categories present the world as static, they are less useful – even dangerous and vision limiting – in a modern world that is dynamic, collaborative and interconnected. Successful brands respect category borders when they make sense and ignore them when necessary. The borders of many categories are blurring.
Most major car brands have introduced car-sharing services in anticipation of a transition from carmaker to mobility service provider. Societal factors driving this category shift include increased urbanization, an inclination to share rather than own, and the desire to live in greater harmony with the environment. The FordPass program, for example, glimpses a future when the car brand becomes a transportation concierge, organizing each segment of the customer’s journey, arranging for car rentals, train tickets and other transportation alternatives, taking all the hassle out of getting from place to place and making the brand synonymous with that frictionless experience.
The bifurcation of the technology category into business-to-business and business-to-consumer segments is increasingly inaccurate. As sales of smartphones, tablets, and laptops slow, B2C brands are eager to sell more of them to their enterprise customers. Conversely, B2B brands seek to introduce more consumer devices into the workplace to satisfy the expectations of their young employees. Mutual interest has produced partnerships such as those between Apple and IBM, Cisco and SAP. Amazon, the world’s largest B2C online marketplace, also leverages its enormous computing power as AWS, Amazon Web Services, primarily a B2B cloud-storage company.
The term “telecom providers” no longer describes the brands that are transforming from commodity businesses, delivering voice and data communications, into entertainment and content businesses. Similarly, “oil and gas” no longer best describes a category in which many of the brand leaders are increasing their focus on natural gas and renewable energy. The pace of drilling will resume with a rise in oil prices, but oil and gas brands are likely to emerge from this oil shock more intent on being seen as energy brands. That change has potential branding consequences. Until now, oil and gas brands communicated primarily to the influencers who could impact important exploration contract decisions. With a broader energy focus, brands will be closer to the consumer; consequently, strengthening consumer-facing brands could become a higher priority.
Local Brands
Better quality local brands challenge multinationals
Local brands are emerging as challengers in Brazil and Russia as the economies slow and consumers seek less expensive options. A similar phenomenon is happening in both China and India, where the economies continue to grow at a relatively faster pace. Along with the desire for less expensive products, several other factors drive this trend, which is especially evident in FMCG categories. First, local brands have gotten better in quality and marketing, in part because they have learned from multinational competitors. Second, consumers increasingly prefer local brands for nationalistic or other reasons. In India, for example, consumers feel that local brands better understand and respond to the country’s rich diversity. Finally, consumers in these fast-growing markets also look for brands that act as partners in helping to build the nation. To many consumers, local brands seem more likely to pursue this purpose.
Market Fragmentation
Increase in diversity drives niche brands
The competition from higher quality local brands in fast-growing economies links to another trend: the fracturing of the mass market in developed economies. Few modern nations are as homogenous as they were during the rise of the mass market after World War II. Migration enabled by the open borders of the European Union has changed the demographics of EU member countries. Even in the US, a nation of immigrants, the newest arrivals enrich the country’s diversity because they are more likely to come from Latin America or Asia rather than Europe, the primary place of origin in the nineteenth and twentieth centuries. The need to serve the various cultural and ethnic preferences of these consumers provides opportunities for new niche brands as it presents challenges for established multinationals.
Youthful job applicants seek purposeful brands
Most brands seek to recruit and retain youthful energetic talent. But there is a disconnection between the values some young people bring to the workplace and the perceptions they have of certain categories. In general, young people want to work in an organization devoted to making the world a better place, or at least one that does minimal harm. Categories with reputational baggage are at a disadvantage. Young people are drawn to technology brands. But even in technology, the brands most perceived to stand for innovation and higher purpose have the greatest employment appeal.
Brands are responding to this challenge. Citi introduced several options to better match the needs of young people seeking to balance career with social action priorities. Some insurance brands are expanding into human-resource consultancy work because human capital is at the heart of so many twenty-first century businesses. Meanwhile, the competition for talent is occurring not just among categories or companies, but also among countries. Some of China’s technology leaders are setting up innovation centers in places like Silicon Valley and New York in an attempt to recruit talented millennial technologists.
Different shopping habits need new understanding
Millennials influenced just about every category covered in the BrandZ™ Global Top 100 report. Some of the less understood but impactful attitudes pertain to millennial shopping habits. For example, the millennial dad is not the stereotypical errand boy-man, mindlessly checking off items on his partner’s shopping list. He is often the shopper and decision maker, and therefore a person brands need to get to know better. With the rise of mobile banking, the counter-intuitive surprise about millennials is they sometimes prefer to bank in the physical world first, establishing trust through a face-to-face encounter, before transacting online. Millennials pay for goods and services not only cash, but with other currencies, including their time and their data.
Brand Experience
Across categories, experience is a key brand differentiator
As mobile and e-commerce make transactions quicker and easier, consumers spend less time interacting with brands, and switching among brands is not a problem. In this context, brand experience is critical to the brand-customer relationship. In retail, the physical space becomes an opportunity to more fully express the brand; because consumers spend so much shopping time online, they increasingly expect a unique experience in physical stores. And because retailers have moved more SKUs online, more store space is available to showcase brands and engage customers with retail theatre. In a similar way, banks are reducing their branch networks while also transforming locations into centers for the consultative, high-touch interaction needed to sell more complicated products.
Car dealerships persist, sometimes despite the experiences they provide, with customer satisfaction levels higher when they are being courted as shoppers and lower when they are being serviced as customers. Dealerships exist for many reasons, including state franchise laws in the US, and the benefits derived by manufacturers who can achieve sales quotas by shifting inventory to dealerships. As the car industry evolves, and mobility services become part of what car brands offer, the role of dealerships in providing customer experience may change.
In the luxury category, even for wealthy consumers who can afford multiple items, the purchase motivation is not so much the badge and the ability to show off wealth, but rather the experience of the brand and the understanding of the care that goes into the production and justifies the premium. Connecting with the brand’s heritage adds to the satisfaction of ownership and also signals the consumer’s knowledge and taste.
The term “frictionless experience” now is popular in the marketing lexicon. In the developed world, where people feel they have enough stuff, they value less hassle. Sometimes consumers choose a brand not for what it adds, but rather for what it subtracts – stress. Providing frictionless experience means making even mundane transactions happen smoothly and without aggravation, as when a desired item can be found with one click online or in a physical store without the aid of map and compass. Today, when most brands are of good quality, and consumers take functionality for granted, brand experience is the remaining differentiator.
Purpose may be grand, but it must be genuine
Brands are not abandoning purpose, but in a subtle way some brands seem to be shifting from higher purpose (making the world better), to narrower purpose (making the customer’s life better). The change may indicate that enough time has passed since the global financial crisis, and consumers now need less permission to spend money. During the recession and the post-recession period, luxury brands became more restrained. Now, brand logos have reappeared, along with bolder fabrics. Luxury is focused on the product as well as the more narrow purpose of providing enjoyment.
Coca-Cola exemplified this shift to narrower purpose when it introduced the strapline “Taste the Feeling,” which emphasizes the moment of experiencing the product - the pleasure and refreshment of drinking a Coke. The product-focused slogan replaced the more abstract “Open Happiness.” “Open Happiness” implied that the brand had healing qualities, like the original formulation of Coca-Cola, and that it could bring people together – that it could “teach the world to sing.” The revised strapline makes a more modest claim.
Some brands still put higher purpose at the center of their reason for being. Facebook envisions a world where universal Internet access helps people rise from poverty to greater equality and opportunity. CEO Mark Zuckerberg pledged his personal fortune to help achieve this goal. Objecting to the conflation of higher purpose and commercial advantage, the Indian government blocked Facebook from providing free Internet to people living in rural India. At the same time, social purpose can be particularly important in places like India, a country in the midst of economic and social transformation, where a brand’s commitment to eliminating poverty is more likely to be perceived as genuine as a marketing add-on that gives affluent consumers permission to purchase.
Higher purpose seems to work best when it is a natural extension of the brand’s functionality. In the car category, Volvo returned to its emphasis on safety, a genuine purpose that helped drive sales. Tesla appeared for the first time in the BrandZ™ Cars Top 10 as a brand providing high performance and low carbon impact. Meanwhile, without actually articulating a higher purpose, telecommunications brands in less developed parts of the world, such as the Middle East and Africa, have been instrumental in building the infrastructure that provides Internet access to inhabitants in the most remote regions, often with the inexpensive smartphones of Chinese or Indian brands. Because this technology makes remote diagnosis possible via smartphone, one social benefit of this connectivity is reduced infant mortality.