Brands are not dead, but those that don't adapt might be

For almost a century, brands have successfully generated demand for new goods and services and provided a true engine of growth for the global economy. However, the disruptive power of the Internet has shaken things up to the point that many, and many in Silicon Valley, are confidently announcing that brands are now dead.

While we are inclined to agree that branding is going through a truly epochal shift, we don’t agree that brands are dying. Rather, the nature of what brands are, and how you go about managing them, is changing so rapidly that it can seem like they are dying to some observers.

Conflicting data on the health of brand advertising

There is plenty of fresh data available to indicate that nothing substantial has changed in the last 15 years. We regularly see data that Americans have never watched more TV and the market for TV advertising is healthy and robust. A recent study in the journal of advertising research (Hu, Lodish, Krieger & Hayatithi) showed that TV advertising ROI remains within 15-year norms, returning, on average, 10% over and above the investment made. No problem there, it would seem.

At the same time, other data are showing a wholesale collapse of trust in advertising on an unprecedented scale. Nielsen’s 2012 “Global trust in advertising” survey showed a precipitous decline of trust in advertising on TV and in print, around the world. Nor can this just be accounted for by a shift from “old advertising” to digital advertising. Despite being the upstart medium, digital display advertising typically has much lower engagement metrics and trust metrics than its traditional counterparts.

In other words, the decline in trust in traditional advertising is not being replaced by a commensurate rise in trust in digital advertising. All-media advertising trust is eroding, and rapidly: In 2012, the number of respondents in the US who said they no longer trust TV advertising even “somewhat” was the majority (54%) for the first time. In Europe, distrust was even higher (71%). What’s alarming about this trend is not just its extent, but also the speed with which it has arisen. Between 2009 and 2011, global “trust in TV advertising” declined from a respectable 71% to just 47% worldwide.

The brand is dead?

While all of this change can be alarming, we don’t think that brands are dead, not even close. The Internet has clearly moved the goal posts: citizen journalism, brand hacking, peer-to-peer reviews, YouTube celebrities, Yelping etc. These phenomena have proven tremendously disruptive to the practice of brand marketing. However, none of these mean that brands are less relevant than they used to be.

Quite the reverse, in fact. One curious fact about current events is that just as it’s getting harder to build a brand using “tried and true” brand marketing techniques, the rewards for having a strong brand are actually getting larger, not smaller.

For example, in the 2012 edition of Millward Brown’s annual brand valuation study, we find that brand value as a % of total stock market value has continued to rise every year for the past few years. In other words, the % of global large cap company valuations accounted for by intangible “brand associations” is getting larger, not smaller.

These data make it clear that it’s not brands, per se, that are dead, or dying, but that certain assumptions and tactics for building those brands are dying.

So what’s really going on?

Long live the brand!

Perhaps not surprisingly, the growth in peer-to-peer sharing on the Internet has caused trust in recommendations from friends (and even from strangers) to rise at precisely the same time that trust in advertising is falling. Nielsen reports that the number one most trusted source of recommendations (at 90%) is a recommendation from somebody a customer knows personally. While this number has always been high, it’s never been higher on an absolute or relative basis.

It is “peer-to-peer” recommendations, then, and not digital display advertising that are emerging as the true successors to the advertising-driven model of brand creation. With the ongoing explosion of social media and the growth of mobile, this trend is only getting more pronounced.

While many recognize the increasing importance of “word of mouth” intellectually, I believe that many brands have under-estimated quite how big of a shift this is operationally. The result is that many marketers are diligently trying to operate new digital marketing tools using old management frameworks, only to find that it’s just not fitting.

It’s easy to get fixated on social media as a panacea and apply old display-advertising tactics to this new medium and assume that this is enough. (E.g. “promoted tweets” and targeted ads on Facebook). In our view, this is almost certainly not going to tackle the real, underlying issues. It is a hard truth of advertising that, declining as it is, traditional advertising still outperforms digital display ads for recall and engagement. Digital media may have caused this mess, but digital advertising is not going to fix it.

Want people to talk about you? Then create experiences worth talking about.

We believe that the only successful response to the challenge of digital is nothing less than a re-orientation of branding efforts around the design and delivery of exceptional, outstanding and talk-worthy customer experiences. In the word-of-mouth era, customers do not reliably repeat what you say to them, but they do talk about the experiences that they have had with you. Brands that can be at the heart of experiences that matter to their customers can earn their loyalty, their trust, and critically, their recommendations.

In fact, this “customer experience effect” is so powerful that recent research by Forrester’s Harley Manning and Kelly Bodine showed that customer’s perceived “quality of the customer experience” was the single best predictor of future purchase intent (0.71 correlation) and of likelihood to recommend (0.65 correlation). As Manning and Bodine put it “that’s about as high as correlations get in the real world”.

What’s required here is not just a minor adjustment to the marketing department, but a new way of designing and delivering outstanding customer experiences. In the coming years, the companies that succeed at managing brand value will be those that learn to work cross-functionally in pursuit of customer excellence. “Brand” can no longer be something that’s confined to advertising; it needs to be the compelling blueprint for a set of unique and exciting experiences that a company intends to provide for its customers. At the same time, brands that use digital as a tool for growing and managing human relationships will outperform those that see it as just another display advertising medium.

The true power of digital is not as a broadcast medium, but in it’s ability to connect people in new and (hopefully) meaningful ways. At Fabric Branding, we believe that the shift from “brands that talk” to “brands that connect” is well underway and we work with our clients to help them build brands that connect better with their customers. This is less about using digital tools to project a message and image, and more about including digital, appropriately, in a consciously designed set of brand experiences and “moments of truth” that enrich relationships and build happier, more loyal customers.

For further reading, including case studies showing how the best companies go about creating experiences worth talking about, please feel free to take a look at the slideshow that accompanies this article.