Off Kilter.

Volume 112: Be Big, Be Special.
Searching for the signal in the noise of brand marketing and design.

1. Be Big, Be Special.

Tl:dr: A cack-handed attempt at explaining brand effects.

“You’re not big, and you’re not special” is an old put-down said to people who do particularly idiotic things. Well, turns out that when it comes to brands, big and special is exactly what we’re gunning for.

When I started this business, I was a voracious reader of all things brand. I read about strategy, design, identity, advertising—all of it. I inhaled the likes of Aaker, Kapferer, and Kotler. And I dallied briefly with snake oil sellers like Godin, purple cows and all.

And then, after a while, I stopped. The books were boring and repetitive. Too much of what I was reading was rooted in the world of CPG/FMCG rather than building brands for corporations where you don’t represent a product but a culture and system of human endeavor. And, way too often, what I was reading about and what I was experiencing in practice were profoundly disconnected (Notably, I remember reading about GE as a superlative example of a master brand, even as I was working with GE to help fix its terribly atomized reality.)

Eventually, I concluded that while much hot air was expended on the topic of brands and branding, there wasn’t much worth paying attention to.

And then, the internet changed everything. Well, not really. But the rise of digital did lead to a much more robust and analytical look at how brands work, what makes them tick, and how they help drive growth. And as much as the theoretical postulations of Aaker, Kapferer, and Kotler had faded in my memory, a new generation of thinking from the likes of Sharp, Ritson, Binet & Field, et al. captured my attention as they blended old and new and empirically researched concepts into what might loosely be labeled a modern unifying theory of brand. However, as fun as this has been, the challenge is that it’s all a bit complex to share with your average client, especially those that aren’t brand geeks like I am. Unless you’re talking to fellow geeks, the moment you bust out terms like salience, reach, memory structures, mental and physical availability, penetration, positioning, brand spend, activation spend, distinctive assets, attention, share of search, ESOV, etc., you may as well turn out the lights because your audience has long ago fallen asleep.

So, while it may be viewed as heresy by the puritanical wing of the marketing science community, there remains a need to explain this stuff more simply for people who don’t live and breathe it every day.

Here’s how I simplify when talking to clients, especially non-marketers.

If you look at the positive effects brands have on business - purchase preference, price premium, etc., you can boil these effects down to how big you are and how special, which you can conceptually plot onto a chart (hey, I’m a consultant. There’s nothing we love more than a whiteboard and an erasable marker so we can draw charts)

The biggest benefit comes from being big - brand scale gives you more awareness, reach, preference, and availability. It also tends to increase trust, as trust generally goes up as you become better known. (assuming you haven’t done anything terrible.)

However, not all brands are big. Some don’t want to be. Some never will be. Some aren’t there yet. Here, we find that being special is what brings a benefit. Successful smaller, more niche brands typically have something special that helps them stand out. (Note, we could talk about differentiation, distinctiveness, innovation, purpose, positioning, etc., here, but then we quickly run slap bang into the “too complicated” bucket. Special, as broad and as vague as the term may appear, is much easier to digest).

Often, with very young brands, being perceived as special is a lead-in toward scale, where being special for someone rather than not special for anyone is key to growth. (This closely mirrors a “wedge” product strategy for anyone focused on startup culture.)

Typically, this ephemeral specialness declines as businesses grow and brands expand in both scale and scope. The larger the potential audience, the broader the surface area of the brand, the bigger the business, and the more management focuses on efficiency, the harder it is to be special. By definition, the natural forces of scale tend to make brands blander, more generic, less innovative, more broadly defined, and thus harder to connect with at any more than a surface level. For many brands, this isn’t a detriment. I don’t want Cascade to be something I feel emotionally drawn to; I want it to be a mental shortcut to clean dishes. However, just because maintaining specialness is difficult doesn’t make it impossible. Notable exceptions are Apple and Disney. One of the management strengths of both has been the ability to sustain the perceived “specialness” of their brands, even while operating at massive scale, enabling both to drive volume at a meaningful price premium.

While smaller brands often look toward what makes them special as a stepping stone toward greater scale, we see the reverse from large brands that already have the scale and now seek greater specialness.

Just recently, I’ve been working with a large market-leading brand. Looking at its vast reams of research, it has all the benefits of scale. Simply put, the top of its funnel is wider and captures more potential opportunity than competitor peers. However, what’s interesting is that while it outperforms at the top of the funnel, it underperforms on the way through. For some reason or another, this brand wastes a greater percentage of potential sales than its peers, which means something not special is happening in the experience.

Now, I’m not going to get into how we’re addressing that problem here other than to say it’s a problem of not being special enough to enough of the right people. But the point is that when we boil things down to questions of how big your brand is and how special people perceive it to be, it opens up a richness of conversation that’s useful to have.

Brand scale is often a factor of how large your business is, how much and how well you spend your advertising budgets, how well you manage distribution and access, and the level of resources you throw at PR. Specialness is often a factor of your value proposition, how distinctive your experience is, how innovative and desirable your products are, how hard they are to substitute, and how well you engage people through creativity and storytelling.

In sum, it’s not just size or specialness that matters; it’s the interplay of both.

Oh, and as a final aside. While you can be incredibly successful by being big and not special, your chances of success if you’re small and not special are slim. This is why for very young brands, unless you have gazillions of VC dollars behind you, you should start by focusing on what makes you special to your customers before considering how to drive toward scale.

2. Patagonia Raises The Bar On Purpose.

tl;dr: Even at 83, Yvon Chouinard continues to carve his own path.

I believe deeply that business has a duty of care to the world it exists within. It should pay decent wages, it should pay taxes, it should be run with long-term value in mind (not just quarterly results), and it shouldn’t take shortcuts that potentially kill people and the planet.

I’m not alone. It’s a huge reason why the concept of purpose in business has taken on a life of its own in recent years. And, for years, Patagonia has been held up as a paragon of purpose. With good reason. It’s a great brand. It makes great products. It’s been consistently daring in its iconoclasm. It does a lot of good things (assuming we look past the fact that it’s de-facto extractive purely because of the business it’s in), And it makes VCs feel good to wear its badge on their chest.

And now, in an ultimate act of purpose, it’s been given away to a charitable organization where “the earth will be its only shareholder.” Thereby raising the stakes on purpose and demonstrating the gulf between the truly purposeful and those for whom it primarily exists as an advertising tactic.

Across all of my experience, it’s been easy to spot the difference between a company spouting “brand purpose” nonsense versus a truly purposeful company. The former like to think they can use purpose as a “pathway to profit,” primarily through schmaltzy social cause “purposevertising” that typically has little or nothing to do with their core business. In contrast, the latter use purpose to sacrifice what they view as harmful profits entirely in support of their core business. And now, Patagonia’s profits will be used exclusively to support environmental causes. (As an aside, the made-up controversy over Yvon Chouinard and his family avoiding taxes on the deal is nonsense. Just because someone believes deeply in the environment doesn’t mean they can’t benefit from the same tax loopholes other billionaires shouldn’t have access to either.)

So bravo, Yvon Chouinard. You stuck to your rebellious ways to the end. You carved a unique path for yourself and your corporation. And you’ve mightily raised the bar for others. Over to you, Unilever.

3. Buckle Up.

tl;dr: Economic signals look grim.

I’m no economist, but I did study it at university and have a passable understanding of the subject. And, while it’s an old joke that if you asked 20 economists a yes or no question, you’d get 20 different answers, there’s currently a frighteningly high degree of consensus that the future ain’t looking pretty.

Inflation has been on everyone’s lips in 2022 as Covid-fueled supply chain disruptions, changes in consumption patterns, global financial stimulus, a war in Ukraine, and climate change have all made themselves felt.

This has led to a cost of living crisis around the world. And while there are a bunch of concerning signals, consumer indebtedness forbodes a grim story ahead. Consumer credit card and buy-now, pay-later debt seem particularly concerning, while car loan payments in the US are now pushing past $1,000 a month. To massively over-simplify, there seem to be a couple of things going on. First, poorer members of society have been hit hardest by inflation in essential goods, such as food and energy. As a result, they’re increasingly making these purchases using debt, with almost 40% of all US buy now pay later transactions being for food. Second, folks further up the income ladder who had extra discretionary funds during the pandemic are supplementing with debt as stimulus funding ends and inflation bites into their discretionary buying power.

At any normal time, this use of debt for everyday items would be concerning. But when interest rates are rising and debt becoming more expensive, it’s a particularly worrying canary in the coal mine.

Inflation is the scourge of the moment, but we should be careful what we wish for. Raising interest rates is the primary tool used to fight inflation, and it’s a blunt tool at best. It’s a bit like using a sledgehammer to make a surgical incision. Yeah, you’ll make the cut, but it’ll be raggedy and imprecise, and it there’ll be loads of additional trauma.

Although the US economy is a frighteningly complex and highly adaptive environment, which makes results unpredictable, the theory behind raising interest rates is pretty simple: Inflation is high because of overheated demand; raising interest rates puts a brake on this demand because it makes money more expensive, and voila, inflation goes down. But, not so fast, as even Chairman of the Federal Reserve, Jerome Powell, admits that high inflation is only partly due to over-heated demand, with other factors playing a significant role.

So, what are the potential knock-on effects of higher interest rates? Well, when you consider that our economy is now built upon a foundation of cheap money, very possibly, chaos.

We’re already seeing an impact on the housing market, where 30-year US mortgage rates have more than doubled in a year to just over 6%. As a result, mortgage originations have plummeted, mortgage lenders have started to go bankrupt, and house prices are beginning to decline in the most overheated markets. (Economists are torn on the depth of the potential decline. Some see it as fairly minimal as people stay in homes they bought or refinanced at minimal rates. Others believe that if the broader economy falls, house prices might decline by 20% or more.)

Next on the block will be zombie corporations. A zombie corporation is one that has so much debt that it can barely cover its debt obligations, which makes it particularly exposed to a double whammy of interest rates going up (debt more expensive) and demand going down (less revenue to cover debt). Following an almost 12-year period of ZIRP (zero interest rate policy), the number of zombie corporations exploded as cheap debt was used to boost shareholder returns. A recent estimate suggests that 20% of the 3,000 largest corporations in the US are now zombies, including meme-stock favorite AMC and pariah of the skies, American Airlines.

Zombie corporations don’t just represent 20% of the largest 3,000 corporations in the country; they also represent millions of jobs and $900bn in debt. If/when these companies start going bankrupt due to an inability to pay, we’ll see mass layoffs, failure to pay loan obligations, and potential contagion throughout the financial system. It won’t be a 2008-level crisis, but it could well be ugly.

If zombie corporations start to fall, we’ll also see the impact spread to zombie households. Those with the weakest balance sheets and high debt-to-earnings ratios will find themselves in trouble, particularly those who also find themselves out of work. In addition, those heavily utilizing credit cards with variable interest rates will be particularly hard-hit.

And, yet, what else is the Fed going to do? It doesn’t have a scalpel; it only has a sledgehammer, and tapping lightly didn’t work because high inflation remains a problem. We’ve been artificially propping up zombie corporations for years. We lack sound regulations preventing corporations or individuals from getting into unsustainable debt in the first place, and every historical indicator says we’re overdue for a recession.

And while I find Elon Musk to be little more than a man-child in his public pronouncements, he’s right when he describes bankruptcies as necessary because it’s been “raining money on fools for far too long.” Unfortunately, it has been raining money on fools, and now everyone gets to pay the price.

Of course, on the flip side, it’s also true that historically, recessions have strengthened the positions of the best-run companies, killed off the worst, and acted as an incubator of potentially robust startups (if you can achieve lift-off in a recession, post-recession growth drives the hockey-stick). And, let’s not forget that there’s an unprecedented $290bn worth of “dry powder” sitting in the VC coffers that they’ll have to start doling out in the next year or so because they don’t get any prizes for not allocating it.

So, yeah, buckle up. I hate to say it, and my wife refuses to let me say it in her presence, but things might be a bit grim in the not-too-distant future.

Thank you for reading all the way through. If this email was forwarded to you and you like it, you can subscribe here.

If you’d like to talk about anything brand related, or even just to have a chat, that would be awesome. Please reach out. I particularly enjoy helping people solve tricky brand problems.

Cheers for now.

Paul
President, Invencion

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