With the big players ruling the roost in the digital space, Jan Döring, Partner at Prophet, shares how traditional brands can strengthen their relevance with consumers in order to stop their demise in this ever-changing, AI-driven digital world.
Are Digital Transformation and AI Destroying Traditional Brands?
Around 20 years ago, something happened that would change retail forever: the birth of internet shopping. It led to an undeniable seismic shift. Suddenly, within a few clicks, we could order trendy gadgets from San Francisco, track down items that were otherwise impossible to find, and even sell your own personal items. It opened us up to a global marketplace that was accessible all day, every day and gave us the feeling that this new-fangled way of shopping from your sofa was bringing us closer together. More seductive and more democratic, we saw the appearance of more and more virtual retailers fighting to offer online customers the best offer and price. But what it also did was open up new forms of distribution.
From here, we have witnessed the unstoppable rise of the oligopolistic supplier structures: Amazon, Zalando, and lately also OTTO, crushing the competition. It’s not dissimilar to what happened in the offline world, when the big trading chains ate the small specialty stores in city centres for breakfast. What this ultimately led to was a reduction in brand diversity, and now, we see history repeating itself in the online sphere. Amazon alone, for instance, handles 40 percent of all online trade in Germany.
How Are Large Companies Using Digital Transformation To Their Advantage?
How are they doing it? Via digital transformation. The large and powerful platforms are increasing their lead through:
- Artificial intelligence
- Optimisation of algorithms
- Collection and analysis of customer data
- Delivering usage-focused, personalised customer experiences
Naturally, this domination has posed an enormous threat for traditional traders and brand manufacturers, who are increasingly losing contact with their own long-term customers. As a result, many have been forced to succumb and, lured by the massive audience numbers, are now selling their products on the web giant’s marketplaces. Smart and sophisticated, the likes of Amazon, et al, bridge the gap between supply and purchase, but also hold the power to directly influence which products are offered, and therefore, sold on their platforms.
With more brands making the move across, the competition is increasing. Now, showing up in the search results is proving even more challenging and impacting brand visibility. Coupled with this challenge, we have also seen the arrival of Alexa and other virtual personal assistants. Voice shopping is quickly becoming a a part of everyday life. Those “little helpers” give Amazon even more power, as they directly communicate with the customer, receive orders, and directly influence the purchase decision (“Amazon Choice”).
Whether it’s loo roll or paper towels, ultimately, the bigger brands are set to fare better than the less familiar. As well, Amazon is scaling their own private label, which features some eerily similar products akin to the bestselling ones on their platform. The example of Rain Design’s laptop stand is a good one, as it had been flying off the virtual shelf—until AmazonBasics brought in a similar laptop stand and cut into Rain Design’s sales.
Brand Relevance & Digital Transformation: Avoiding The Threat of Displacement
So, how can companies and brands defend themselves against the threat of displacement? Leaving the marketplace is not an option. Amazon’s dominance in the eCommerce world is unmatched, and it’s not going anywhere anytime soon.
At Prophet, we believe that a brand is strong and viable if it is perceived as relevant by the consumer and manages to continually earn customers’ loyalty. Each year, we conduct the Prophet Brand Relevance Index® to understand which brands are winning favour with customers by being indispensable to their lives, and by determining what these brands have in common. From this, we have identified four characteristics of what it takes to be a relentlessly relevant brand. Brands should be striving toward these goals in the current digital era, where expanding customer expectations and constant competitive change are needed in order to survive and succeed:
- Be customer obsessed: Brands should be looking to understand what the pain points are in their customers lives, and offer solutions for these instances specifically to make their product or service essential.
- Be ruthlessly pragmatic: Brands need to ensure that their products are available everywhere. There are three highly crucial characteristics to this kind of commerce: Consistency, trustworthiness and reliability.
- Be distinctly inspired: Brands should be looking to build an emotional bond with their customers, understand what they value, and pursue a higher goal that their customers can identify with.
- Be innovative: Brands can no longer rest on their laurels, it’s about constantly evolving, and pushing boundaries to engage with customers in new and creative ways.
In our opinion, brand relevance is one of the central drivers of business growth. If a brand wants to survive against the Amazon algorithms and Alexa, it has to make itself so essential, that in the best case, it is a synonym or byword for a product category so that the customer expressly demands exactly that from Alexa: Kleenex, Band-Aid, Hoover, Xerox are some of the best examples of this. Even in times of fundamental market changes or technological leaps, these brands have continued to maintain their relevance at the top of the market.
Prophet’s 2018 Brand Relevance Index® helps us to determine not only which brands are the most relevant, but the reasonings behind this, including digital transformation.
Traditional brands have been struggling since the digital era began, and we have found that there are four characteristics that can help keep these brands relevant to digital consumers: being customer obsessed, ruthlessly pragmatic, distinctively inspired, and innovative.
These strategies act as a supplement to traditional business plans so that these brands can continue to grow, gain knowledge, and become even more highly relevant in coming years. Download The 2018 Prophet Brand Relevance Index® for all of the details.