Saturday, February 21, 2009
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.