Great experiences boost brands in interesting times
A year ago, this report ended by noting that the only thing that would be certain about 2018 in the US would be uncertainty. No one should take a victory lap for prescience. It was obvious then, as it is now, that the US is going through a period of massive political turmoil. Not since the Nixon administration has such uncertainty reigned over Washington. A special counsel investigation, multiple convictions of political players, a mercurial president, and raging controversies over the #MeToo movement make for highly unsettling times.
But for all the chaos in the nation’s capital, times are also good for the nation as a whole. Fueled by a tax bill that slashed rates on corporations and wealthy individuals (with more modest cuts for the middle class), the American economy is booming. Unemployment has dipped under 4 percent. GDP growth is at 4.2 percent. Consumer confidence, especially among Republicans, is sky high. As of September 2018, the S&P 500 was up 10 percent year-to-date. And the BrandZ Top 100 Most Valuable US Brands added 15 percent to their value in 2018, an impressive haul for a country with such large brands.
However, traditional brands are finding the US an increasingly challenging environment—each looking over its shoulder as an army of disruptive newcomers seeks to upend their industries. Smaller, nimble companies are filling new niches, often focusing on providing distinct experiences that remove pain points in commerce and enable Americans to live better, simpler, and healthier lives.
Larger brands are responding by making significant data, digital, and marketing technology investments to get ahead of a consumer landscape that is fragmented and hard to predict. Many are launching direct-to-consumer arms as they seek to interact directly with consumers, gather first party data, and ward off an increasing and multi-faceted threat from Amazon.
While marketers often discuss disruption in terms of technology and business models, the more determinative long-term arbiters of their fates may be economics and demographics. The US is in the midst of a multi-decade trend that has seen a deep erosion in the buying power of the traditional middle class. While median household income in the country is now over $61,000, the real news is that for most people those rises are barely or not keeping pace with inflation.
According to one oft-cited study, nearly all of the economic gains since 1980 have been netted by the top 20 percent. In 1980, only 4.3 percent of American households earned more than $150,000 per year (in constant 2017 dollars). Today that number is 14.7 percent. In 1980, a third of all households earned a middle class income of $50,000 - $100,000. Today, that number is just over a quarter. And 40 percent of American households fall below $50,000.Meanwhile, buying power has gotten squeezed. Healthcare now accounts for an astonishing 18.2 percent of GDP (in neighboring Canada, it’s roughly 11 percent). In 1980, the average per capita spending on healthcare was $1,008. By 2016 (the latest year for which CDC data is available), it had ballooned to $10,348. The average cost of a college education at a public university, which is often seen as a gateway to a better life, is $140,000. And the cost of housing has soared in recent decades, with the median price of a new home at $320,200 as of August 2018.
The Top 100 rankings reflect this, with many brands no longer aiming at the middle. The list, for example, features a warehouse retailer (Costco), which heavily over-indexes on people at the upper end of the income spectrum. It also has a luxury car maker (Tesla) and a bargain retailer (Walmart). Burger King, an ubiquitous fast food brand, has grown its brand value by 20% year over year, at least partly due to the success of its “barbell” strategy of offering an inexpensive value menu together with decidedly premium options.
Just as importantly, American consumer taste is fragmenting. While most Americans have seen their paychecks stagnate in real terms for a generation, they are still well off by global standards. Many are able to selectively afford at least some premium goods. The Apple iPhone is certainly a high end product, but that doesn’t mean that young people buried under college debt won’t buy one. Being lower income doesn’t rule out a Levi’s or Yeti purchase. In fact, consumer choices are often defined by how people see themselves and want to be seen by others, with some willing to buy the same food products at Kroger’s that they could find for a substantial discount at the Walmart next door.
Muddying the picture further, American consumers are engaging more and more on different and fragmented platforms. One indication of this is that the fastest growing brand in the Top 100 is Netflix, which is benefitting from cord cutting, or Americans’ growing perferencefor à la carte entertainment over traditional all-in-one cable packages. The second fastest growing brand, PayPal demonstrates consumers’ increasing desire for quicker, less cumbersome e-payments. In fact, the payments category showed strong gains in all of its brands, as people are increasing their use of ecommerce and mobile purchasing.
In response to all this disruption, American brands have deployed some of the most sophisticated advertising technology platforms in the world, often with access to individualized (though randomized) buying patterns that can finely detect preferences. They are using them to uncover the real motivations behind consumer behaviors, looking at where people economize and where they splurge. So, with challenges come solutions, but only the nimblest of brands are taking full advantage of them.
US brands declare independence (from the US)
Overall, the US is home to some of the strongest brands in the world, accounting for roughly half the global top 100. At a total brand value of $3,646,159 million, the top brands grew their value by a healthy 15 percent in 2018. And it’s getting a lot harder to be a Top 100 brand, with the #100 brand this year, Chiptole, 32 percent more valuable than its counterpart last year.
Why? The most significant revelation of the rankings this year has to do with the Vitality Quotient, or vQ, a BrandZ measurement of the health of a brand. It found that innovation is no longer the sole driver of meaningful difference. Instead, top brands are winning through a combination of innovation and brand experience (a BrandZ measure of how well a brand meets a consumer’s needs when and where they arise).
This makes sense. Today, Americans are engaging with brands in more and more places, and if they see a brand as innovating in these spaces while also delivering on customer experience, they rewared it. Brands in the Top 100 that exhibited high scores on both measures grew 2.4x more than those that didn’t.
American brands are also contending with an environment marked by a sharp deterioration in Brand USA. In the BAV’s Best Countries report, a widely respected measure of country brand strength, the US has fallen from #4 to #8 in just 2 years, almost certainly because of the global unpopularity of the Trump administration and its policies. This is quite a steep fall for that measure.
Typically, as countries go, brands go, but that is not happening in the case of US brands. That may be because in many ways, brands like Apple and Google are not thought of as American. They are so entwined in people’s lives that they have gone international and now belong to everyone.
Several data points illustrate this. The US ranks poorly in the BAV survey terms of distinctness and difference. At the same time, its top brands show massive scores for meaningful difference. While the country itself is seen as familiar and boring, its brands are seen as distinct and shaking things up every day.
That’s likely because much of what makes the US different—including its brands—is quickly adopted by people around the world. To get the point, one only needs to look at the thriving Moroccan rap scene or the fact that more people in India will soon be using Facebook than there are people who live in the US. Activists around the world with no sense of irony will organize an anti-Trump protest using Facebook, pay for a blank sign with a Visa card, write slogans on it using a Sharpie, and then share pictures of it on Instagram.
As a result, American brands are thriving in a way completely disconnected from the political turmoil in the country. This shows that if a brand is meaningfully different enough and focuses on delivering a great brand experience, it can become a force of its own, transcending nationality and belonging to everyone.
Moving forward, iconic American brands may find 2019 more challenging. From an economic standpoint the tax cuts, which included a one-time incentive for companies to re-shore their overseas profits, may result in higher interest rates, leaving consumers less confident. The healthcare system will continue to be a vexing problem that erodes purchasing power. And the political scene will likely remain toxic and unpredictable.
However, if 2018 is any indication, America’s great global brands will continue their march forward, independent of the chaos behind and relentlessly innovating around the experience they provide and improving in a country that is becoming more connected—though less unified—every day.