Saturday, February 21, 2009

Is The Internet Undermining Brand Profit?

I've been reading opinion online that suggests that the internet by it's nature is undermining the brand and by extension reducing profits of companies. Before the internet allowed people to search for goods and services globally, there was less downward stress on price. The internet throws many industries into the abyss of being just a commodity. Ebay and other auction sites make the only relationship a person has with a brand solely commodity based. Commodity is the enemy of profit.

You see it all the time - service and goods providers openly boasting how they can provide what you need for the cheapest price. Any business they pick up will be lost next time when the buyer finds it for even less someplace else. This is a never ending downward spiral.

The manufacturing industry has seen this model with with reverse auctions from customers. With global competition comes a reduction in profit from the shear scale of it. In years gone by, you competed in a market where the standard of living was on a level playing field. Today that dynamic has changed. In some sectors, a particular price is lucrative where in others it is inadequate, but commodity being what it is, there is no relationship to bank on and price wins out at the expense of profit.

Building a strong brand is one way companies are combating this issue. Companies like Apple have successfully leveraged brand to offset a reliance on price based promotion. If companies are successful in building strong relationships with customers, price is not the main impetus for purchasing. If the brand is powerful, then profit has fighting chance.

While the internet offers a broader audience for a brand, it is a double edged sword. There is probably no better reason to strengthen your branding efforts and using the power of the web to nurture a relationship with your buyers. Ignoring the brand relationship with eat away at your profit margins unendingly.


Meheer said...

You absolutely... banged the nail in the head.

I think the problem is with the appraisal systems that have conquered the Internet. They absolutely undermine.. the brands potential.

Id like to know your insights on my comment.

Ed Roach said...

Appraisal systems take the brand out of the equation because brands are hard to valuate. It is not tangible and are not located on a typical spread sheet.

In order for appraisal systems to incorporate brand they would have to establish a value on reputation. Your brand's strength helps determine future potential. Appraisals deal with the here and now.

If the appraisal systems incorporated brand as part of the valuation, they would be more accurate. By not including it, the brand would be viewed as having less value - a diminished potential.

Some brands are worth more simply because of their reputation. It is this reputation that carries them through the tough times. Take away brand and you are lessening a company's potential to survive and profit.

- thanks for commenting Meheer.

Meheer said...

That being said... It must also be stressed that potential brands and sometimes even established brands often take consumer's voice rather lightly.

I'd like to talk to you about a project I am working on. Id appreciate if you could Contact me on my email associated with this account.

Ed Roach said...

Do you think maybe businesses are nervous of customers? I can't think of any peers of mine who have ever surveyed their clients.

I emailed you this evening.


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