BACK IN FEBRUARY 2006, when a Yelp member named Brenna F. reviewed the Seattle restaurant Machiavelli, nobody thought twice about it. And if someone did, we doubt they imagined that it would have any impact on chain restaurants like McDonald’s or Applebee’s. Brenna gave Machiavelli three stars (out of five) and wrote: “Good pasta, reasonable prices, and cozy seating. Go here with friends, but not with a first date.”
Ristorante Machiavelli is one of more than a thousand restaurants in the city of Seattle. You’re unlikely to read about it in Gourmet magazine, and it doesn’t have the advertising budget of a chain such as Olive Garden. But Yelp helped Machiavelli (and other small restaurants) gain something that, up until recently, was the exclusive asset of big brands.
After Brenna F. posted her review, it took almost two months before another person reviewed Machiavelli. Megan D. gave the restaurant four stars in April and pointed out that the portions were large. The third review was posted in August by Rachel B., who recommended the Caesar salad and the baked chicken. Slowly but surely, the trickle of reviews added up to create a clear picture of Machiavelli: You should expect a line (especially on weekend nights); the spinach ravioli is worth trying. So are the tuna carpaccio, the olive bread, and the penne with roasted red pepper. Overall: good, straightforward Italian food at very reasonable prices. Machiavelli today has around four hundred reviews, and reading through just a few of them, you get a good idea of what to expect.
And this is where big chains are impacted. In the past, having “a good idea of what to expect” was one of their important advantages over small restaurants. You always know what to expect at Subway or McDonald’s. But when you know what to expect at small restaurants through Yelp or Zagat, brand names are becoming relatively less important. In the old days, consumers often had a hard time assessing quality before making a decision and had to rely on cues such as the affiliation with a chain. This gave rise to much of what we know as marketing. When quality was hard to predict, a brand was a simple shortcut that told you what’s likely to be good and what isn’t. But when you can quickly tell how good or bad something is, based on more reliable sources than just the name, brand has a reduced role as a quality signal.
To further examine the link between Yelp reviews and brand names, let’s discuss some research by Harvard professor Michael Luca. Luca became interested in the impact of reviews on business a few years ago when sites such as Yelp just started to pick up. Many were skeptical about this phenomenon, seeing reviews as a niche activity of a small group of people. It wasn’t clear at all whether sites like Yelp had any impact on the bottom line. Luca picked the restaurant industry as a good domain to study this. To seriously examine the impact reviews have on business, he knew he needed to put his hands on restaurant revenue data from some big city. He contacted the state of New York but had no luck. He started going down the list of large U.S. cities and was turned down again and again. After months of disappointments, he finally found a city that was willing to cooperate—Seattle. Armed with revenue data for all Seattle restaurants, Luca got to work. Showing a correlation between ratings and revenues wasn’t too hard, but this wasn’t enough. The fact that restaurants that get high ratings also get high revenues isn’t too surprising and may not be related to their presence on Yelp. He wanted to be able to demonstrate more than that.1
To examine any causal relationship between Yelp reviews and restaurant revenues, Luca took advantage of the way Yelp displays its results. He knew that Yelp (like other review sites) doesn’t display the actual rating average, but they round it up or down. For example, if a restaurant has a 3.24 average, Yelp rounds it down and users see three stars. If a restaurant has a 3.25 average Yelp rounds it up and users see 3.5 stars. So focusing on restaurants just around those rounding thresholds could be insightful. A restaurant with a 3.25 average is virtually the same as a restaurant with a 3.24 average. If its revenues are significantly higher, this may suggest that it’s related to its 3.5-star rating that users see on Yelp.
Indeed, Luca’s research showed exactly that. There was a jump in revenues that followed those discontinuous changes in rating. Overall, every additional star on Yelp was associated with about 5 percent increase in revenue. Luca looked at the revenues of all restaurants in Seattle between 2003 and 2009, which allowed him to observe a market before and after the introduction of Yelp. What’s most interesting in our context is this: He found that Yelp had a large impact on revenues for independent restaurants like Machiavelli, but chains experienced a decline in revenue relative to independent restaurants in the post-Yelp period. “Higher Yelp penetration leads to an increase in revenue for independent restaurants, but a decrease in revenue for chain restaurants,” he wrote. With the rise of an alternative source for information, brands became relatively less important.2
There is another important effect of the growing reliance on experts, users, and various useful information services (such as price comparison sites) and the corresponding declining impact of brands. Brand names tend to exaggerate the real quality differences among products. If you focus on brand name when considering a headphone or even an artificial sweetener, your prior beliefs tend to categorize products with a broad brush and tend to amplify presumed differences between good and bad brands. And unless the brand you choose is extremely different from what you expected, you’ll tend to confirm what “you knew all along” (consistent with the classic confirmation bias). User and expert reviews tend to level the playing field. True, reviewers may also be swayed by brand names to some degree. However, reviews are often based on actual experience. Moreover, to offer their target audience added value, reviewers may want to highlight things that differ from the layperson’s expectations. In reality, quality differences are often much smaller than perceived brand differences would imply. Accordingly, reviews that are based on actual user experiences will likely reflect the limited quality differentiation among products. You may think that the music sound produced by Brand X is so much better, but reviews of Brand Y can cause you to rethink your brand-driven decision and take a closer look at Brand Y, which costs less and evidently sounds just as good.
Are we saying that this is the end of brands? Of course not. We’re saying that the power of brand as a main cue for quality is diminishing. Brands still have some important roles that are not likely to go away, and as we discuss later, in categories such as those involving fashion, status, or little thought, the rate of change is likely to be slow. As David Aaker and other scholars have pointed out over the years, brand equity has four components: awareness, perceived quality, mental associations, and loyalty. Two elements out of the four are hit the hardest in the new era: perceived quality and loyalty (we discuss loyalty in the next chapter). And as we mentioned earlier, there are domains that are much less affected by the new information environment, and for those categories, all components of brands are still important. But for categories where consumers rely on the opinion of others, and especially where there’s little ambivalence about things like features or performance, we expect this trend to reveal itself at full strength. In the age of full access, the impact of brand equity will diminish as a result of the growing reliance on more accurate quality information.
THE GOOD OLD DAYS
A key reason why brands were so powerful was that they served as a signal for quality. If a company had one product line that was known for its high quality, the company could easily use its brand to introduce other products and line extensions. A strong brand could even save a mediocre product, at least for a while. Here’s an example: In the early 1980s, Emanuel worked on the Kodak account as a copywriter in Israel, and one morning the local distributors called an urgent meeting. A few weeks earlier they had received a sealed package from Kodak’s headquarters in Rochester, New York, with clear instructions not to open it before a certain date. When the day came, they opened the package and saw a thin, neatly designed new camera that, the promotional material indicated, was going to revolutionize photography. Now, under a veil of secrecy, the distributors were showing the camera to the agency people. It was called the “The Kodak Disc.” Instead of a roll of film, this camera was loaded with a flat disc with fifteen small exposures. It was incredibly easy to use. You didn’t even have to advance the film, because the disk would automatically rotate after each shot.
Advertising people are easily excited and this was no exception. There were a lot of oohs and aahs in the room. . . . It was a neat gadget. With all the enthusiasm, though, not much attention was given to the pictures that the camera produced. They were okay, but a bit grainy.
Not long after that meeting, the product was launched worldwide with big fanfare. The ads emphasized ease of use, better success rate, and fun, all under the reassuring umbrella of the Kodak brand. The results? Very nice sales (in Israel as in the rest of the world). In the first year, Kodak shipped more than 8 million Disc cameras worldwide. Competitors rushed to the market and things looked promising.
Yet a few years later, the product was discontinued. It was those grainy pictures. In the end, they weren’t good enough for most consumers. The Kodak brand stood for high quality, so people relied on it and bought the camera. But the Kodak brand could carry things only so far. Eventually enough people heard about those grainy pictures from friends, or noted the grainy results when shown family pictures.3
Could you imagine this product surviving for so long in today’s environment? We doubt it. We could just see the product reviews by users: “I love this camera. Hate the pictures!” or “Why is Granny so grainy?”
Incidentally, one group of people that was quick to take advantage of the grainy pictures were salespeople at department stores. Always the masters of relative tactics, they used the Kodak Disc to sell 35mm cameras by placing their respective pictures side by side on the counter. “Usually when I show shoppers the better-quality 35mm picture, I can talk them into spending a little more to buy the 35mm camera,” one sales clerk explained.4
One of the key functions of brands was to serve as a launchpad for line and brand extensions.5 The main reason for relying on an established brand name is rather straightforward—facilitate acceptance of the extension based on the perceived equity of the core brand. This, of course, assumes that consumers judge the extension’s value and quality based on its name; but if consumers rely less on the name and more on its absolute quality, the advantage of a brand or line extension strategy is becoming less significant and may tilt the balance of pros and cons in favor of using a new name for each product (possibly still linked to the parent company’s name).
Of course, the virtues and roles of brands extend well beyond serving as quality signals, and these other, nonquality functions play an important role in certain categories and under certain consumer evaluation processes, such as when consumers do not have access to better information sources or product quality is a secondary consideration. For example, we don’t expect brand names to lose their impact anytime soon in the fashion, cosmetics, and vodka categories, though you’ll be surprised to see how many reviews and comments there are, for example, about the “SHANY Professional 13-Piece Cosmetic Brush Set with Pouch” (816 on Amazon as of April 26, 2013). However, in most categories, quality signaling is a key function of brands, the one that is supposed to drive consumers’ expectations and willingness-to-pay, so there is little doubt about the typical impact of better information about absolute quality and the resulting (diminishing) effect of brand names.
BRAND VOLATILITY
An examination of leading brands during the twentieth century has revealed a remarkable stability in many categories. This might change in categories where quality is important and where people rely on other consumers and experts. Stability of leading brands was possible when brand names were a primary quality indicator and thus a key decision factor, especially in categories with limited product differentiation. But since brands usually have no monopoly on quality or features, it is highly unlikely that any brand will consistently rank at the top. As a result, the market performance and shares of brands where quality plays a key role will fluctuate much more than they did when brands were key decision drivers and actual quality was hard to figure out.
This will work differently across categories. As we discuss in later chapters, the key is the importance of quality in a category and whether people rely on other consumers and experts. Things also may work differently in categories where prestige, status, and emotional link to a brand play an important role. In domains where objective, spec-based quality is not the issue, we can expect lower fluctuations in brand equity. So fashion brands of handbags or scarves (of the likes of Louis Vuitton or Hermès) are on safer grounds. However, if quality is important and can be specified, even prestigious brands are not immune. Mercedes-Benz is a prestigious brand, which also receives excellent ratings from experts and consumers. But what if its quality ratings start to slip? We expect its popularity and prestige to decline accordingly. No claim to fame is safe.
Furthermore, we expect the weight of brand status and prestige in consumer decision making to decline in categories where consumers can assess quality. In class-conscious cultures such as in East Asia, especially in places where the progression of the shift from relative to absolute is slower, brand status will continue to play an important role, but that will change, too, as better information about quality becomes widely available.
Think of brands like Myspace, AOL, Xerox, Palm, or Toshiba, which at some point looked invincible. Toshiba held the number-one ranking in laptops until 2002. Not anymore.6 It’s hard to accept that what happened to these companies can happen to today’s stars. But it will if something better comes along. Take a look at Nokia. In the last quarter of 2009, it had 40 percent of the cellular market, and the brand was admired in the industry. As this book goes to print, Nokia’s market share is 17.9 percent and continues to slip.7 And if you think that leading brands like Samsung, Apple, or Google are immune to this, think again. Jimmy Durante said it best when he sang: “Fame, if you win it, comes and goes in a minute.”
When we presented the concept of this book in academia and industry, no proposition generated more resistance than the idea that brand (and correspondingly, brand loyalty) is becoming less important. Many think that, if anything, the abundance of information makes brands even more important. Their argument usually goes as follows: Consumers cannot handle all the information available on the Internet, so they give up and just select the brand they like most. Earlier we presented research regarding the robustness (or lack thereof) of the choice overload problem, but let’s take a closer look at the idea that the amount of information that one might consider leads to greater brand reliance. We’d like to make three points: First, the suggestion that consumers have to either process much of the available information or just ignore it altogether (and simply select their favorite brand) grossly misrepresents the many better intermediate options available to them. Most consumers are likely to find the information equilibrium that fits them—the amount of information they feel can help them make better decisions. For many consumers, the readily available summaries will be helpful and sufficient. How much time or effort does it really take to see the average rating of a product by fellow consumers (on Amazon, for example)? And while some consumers may not need the in-depth product analyses contained in expert reviews, they can certainly manage the bottom-line list of pros and cons. It’s true that consumers often look for shortcuts, and that in the past brands served as such shortcuts. It’s simply that today there are new (and more diagnostic) shortcuts and quality indicators, such as star ratings, review summaries, and other bottom-line icons. In the past few years we’ve seen the ongoing development of additional tools that help consumers succinctly but rather accurately assess overall product quality or certain features of interest without having to delve into all the details and sources. (For a selection of those tools, go to this book’s website, www.AbsoluteValueBook.com.)
Second, the notion that, time after time, consumers continue to disregard the information available to them and keep selecting blindly, based mainly on the brand name and its past glory, greatly underestimates people’s ability to learn and desire to make good decisions. And third, the limitations of brand-based choices could not be more transparent on the Internet—while some brands do get, on average, better reviews than other brands, one cannot ignore the evidence that, holding the brand constant, there is usually great variability across products under the same brand umbrella. For example, while Microsoft has had great product successes, it has also had well-publicized failures. Choosing based on the brand without paying attention to the specific evaluations often leads to regrettable mistakes. Thus the position that brands will remain as or more powerful as quality signals can be rejected based on at least three key factors: First, this argument oversimplifies the ever-expanding set of information sources available to consumers. Second, it greatly overestimates the information overload problem. Third, it ignores the existence (and the ongoing improvement) of search, sorting, and summation tools that can usually address the information problem quite efficiently.
Of course, in some cases brands will remain influential as quality proxies (in addition to their other functions). First, there are product categories where people don’t bother to search for information, and in these domains brands will continue to serve as a proxy for quality. Second, there are segments that don’t yet take advantage of the available information, and for these audiences, brand will continue to be important. Keep in mind, though, that things can change rather quickly: New technologies may introduce absolute evaluations in domains that seemed to be immune to the shift. Similarly, a segment that wasn’t equipped with assessment tools may adopt them. We’ll discuss all these issues in Part III.
Brand equity is just one element that will have a diminished role in consumer decision making. Related concepts that have been used to analyze brand performance, such as brand identity and brand personality, will correspondingly become less important. Such stable brand descriptors deserve a great deal of attention if consumers’ product judgments are made largely based on the product name; but once absolute quality can be assessed more directly and accurately, the name and its associated identity and personality will play a smaller role. Moreover, because different products using a given name often vary in quality (broadly defined) and market acceptance, we expect to see faster dilution of brand meaning as consumers learn to evaluate each product based on its own merit. Thus better information and high quality variability across products may cause brands to suffer from a growing multiple personality disorder.
THE DECLINE OF OTHER QUALITY PROXIES
Brand is not the only cue that consumers use as a quality proxy when better information is not available. There are a few others and they will decline in importance as well. Country of origin is one of them. If a watch is made in Switzerland, a car in Germany, or an espresso machine in Italy, “it must be the best.” At least that’s how the thinking goes.
Country of origin can be a pretty good signal at the absence of detailed information. But it can’t be too accurate as a predictor of quality. We found more than two dozen manufacturers of espresso machines in Italy,8 and it is unreasonable to believe that every single model that these companies produce is better than all the other models manufactured in Germany, the United States, or other countries. Here’s an example: DeLonghi is a respectable brand and Italian espresso machines indeed have a great reputation. But let’s take a look at one particular model—the DeLonghi BCO120T Combination Coffee/Espresso Machine. Out of 130 people who reviewed the product on Amazon.com, 101 gave it one or two stars, many complaining that the product leaked or simply stopped working after a few weeks or months.9 A woman from Ohio wrote a typical one-star review. She said the coffeemaker stopped working after seven months. DeLonghi repaired it but the problem repeated itself four months later.10 Another customer reported that the machine “leaks so much dang water that I literally can mop my floor with the amount of water that ends up all over the place.”11 You don’t have to read all eighty-six one-star reviews to realize that this model might have a problem. So even though it’s made in Italy, you’re not likely to rely on this quality cue when you have access to the actual experience of other consumers.
One of the strongest quality cues that is on the decline is price. When quality was hard to assess, price was a convenient shortcut for quality. “If it’s expensive, it’s probably good” or “You get what you pay for” (which is typically used to explain why you should pay more). Such statements represent rules of thumb that are supposedly based on some unidentified past lesson, but here, too, we see the impact of the new environment. The story of No¯KA Chocolate may illustrate this point. No¯KA Chocolate appeared on the scene around 2004 and immediately gained attention because of its shocking prices. At $309–$2,080 per pound, No¯KA was perhaps trying to position itself as the Rolls-Royce of dark chocolate. But then a Dallas-based food blog published a detailed ten-part series that questioned the company’s marketing claims, evaluated its products, and argued that the chocolate is not worth the price the company charges.12 When we searched online to learn more about the brand, we quickly came across blog entries such as “NOKA chocolate exposed!” and “Noka Chocolate Is A Scam.”13 And as of July 2013, the company’s website has not been active for some time. The high price didn’t seem to do the trick. The fancy logo didn’t do it, either. Nor did that little line over the o that alluded to faraway places. Even the fact that Neiman Marcus picked the product at some point didn’t seem to save it. On the other hand, the blog that reported that No¯KA was actually produced in a strip mall in Texas was read by about 750,000 people in just a few months.14
Two clarifications to avoid confusion: First, the conclusion that price is less important as a quality cue does not mean, of course, that price has a weaker effect on purchase decisions. In fact, the opposite is true in many cases. Once you can assess the absolute values of products, it becomes easier to determine if the value gap between products justifies the observed price difference. In other words, once you can assess absolute values more precisely, you can actually determine if you get what you pay for. As a result, consumers may often become more price sensitive. Our second point is that we’re not claiming that price as a quality proxy will completely vanish. Price and other quality cues will of course continue to have at least some effect on the quality perceptions of at least a portion of all consumers, especially if there is some uncertainty about the available quality indicators. Consider, for example, red wine. Wine lovers can get the taste ratings of the highly influential Robert Parker and other wine raters such as Wine Spectator and Wine Enthusiast. But wine is a matter of taste, and with all due respect to the wine expertise of Robert Parker and his Wine Advocate magazine staff, his ratings may often not correspond to the way we taste the same wines. So despite the evidence that prices are a pretty unreliable (and often costly) quality proxy, we can expect many wine shoppers to use it at least to some extent.
OPPORTUNITY KNOCKS
As we pointed out earlier, the decline in brands as quality proxies means lower barriers to entry for newcomers. Remember Jonney Shih, the chairman of ASUS, who’s taking advantage of this in the high-tech sector? Meet Mark Rosenzweig. He and his company, Euro-Pro, do something similar in small kitchen appliances and vacuum cleaners. Rosenzweig’s family used to be in the sewing machine business in Canada. A few years ago he established Euro-Pro in Boston. Okay, maybe his story is not as exciting as that of one of his competitors, Sir James Dyson, who says he developed 5,126 prototypes before he made the first Dyson vacuum cleaner (and he was knighted by the queen). But Rosenzweig sells vacuum cleaners. Lots of them.
How exactly does the new information environment help Mark Rosenzweig and Euro-Pro? It can work in several ways. Sometimes the product search starts online. A customer (let’s call her Julie) decides to buy a new vacuum cleaner and she has a general idea of what she’s looking for—one of those upright models with no bags. She may also have a couple of brands in mind—say Hoover and Dyson. So Julie goes to Walmart.com and starts browsing. In the process she comes across a vacuum cleaner that she’s never heard about before, called the Shark Navigator (made by Euro-Pro). Although the product is not cheap, its price compared to a Dyson seems reasonable, and the product has more than five hundred customer reviews, with an average rating of almost five stars. She reads some reviews from users (some of them used to own a Dyson) who rave about the product. Julie also sees photos posted by some users (for example, a picture of how much dirt someone’s old vacuum collected versus how much dust the Shark sucked in). All this clearly makes her much less hesitant to get a Shark. She knows what she’s getting into.
Another scenario may start at a brick-and-mortar store. A customer goes to Target to get a blender. Next to some familiar brands (like Cuisinart or KitchenAid) he sees a blender called Ninja, made by Euro-Pro. Maybe he remembers seeing a commercial for the product. He pulls his smartphone and looks up some reviews on the retailer’s website, or on one of many apps that aggregate consumer reviews. He might check out the Consumer Reports app and learn that the $60 Ninja Blender gets a rating of 91 (ahead of all other products in its category).15 He is sold.
Other customers may start the search with the Shark or the Ninja brands in mind. Euro-Pro does advertise extensively in print, TV commercials, and infomercials, and some customers respond to these ads by further searching for the brand. Here, too, the abundance of consumer reviews helps reassure potential buyers, especially since Euro-Pro is competing against heritage brands such as Hoover and Cuisinart.
It’s not that brand is not important. As we pointed out earlier, brand equity has value in terms of name recognition, sometimes emotional attachment, prestige or status, and continuity. Our point is that it plays a reduced role as a proxy for quality, which enables new entries. Dyson itself is actually a beneficiary of the same trend. For years observers believed that with entrenched brands like Hoover, the vacuum cleaner market in the United States was almost impossible to penetrate. Dyson broke this in 2002, and others followed. Euro-Pro is not taking over the vacuum cleaner industry, and Dyson is doing very well, but it’s also clear that the Shark Navigator is emerging as an alternative because customers can easily get a sense regarding its performance and durability. When we talked to him, Rosenzweig emphasized that brand is extremely important to his company. What’s unique in these new times is that he as a newcomer can rapidly take market share from established players.16 It seems to work. He told us that Euro-Pro is approaching $1 billion in sales and the Shark has captured more than 50 percent of the market for bagless upright vacuums in its price category. Incidentally, another executive in the same industry takes a totally different position on the importance of brand. In fact, he opposes the concept of brand so much that you’re not allowed to use the term at the company’s headquarters. “There’s only one word that’s banned in our company: brand,” James Dyson said at a 2012 conference. “We’re only as good as our latest product. I don’t believe in brand at all.”
The main point is that both Dyson and Rosenzweig have benefited from lower barriers to entry, which are the result of the reduced role of brand as a proxy for quality. This benefit isn’t reserved to small companies or newcomers. Consider Sony. It isn’t a secret that Sony hasn’t released a hit for years (and hasn’t turned a profit between 2008 and 2013).17 Yet in 2012, Sony got a nice reminder that when you offer the right product, you can succeed even in a domain with which you’re less associated. When the company introduced the Sony RX100 camera, the market quickly recognized it as a superior product for a consumer who wants an upscale, feature-filled pocket camera. Users loved it. Experts raved about it. The New York Times called it “the best pocket camera ever made.”18 Despite its high price ($650, which is extremely high for a pocket camera), it’s been at a top sales ranking in the photo category on Amazon (for a while, the top-selling camera). Maybe not a turning point for Sony, but another example of the fact that for better or for worse, it’s about product.
A DIFFERENT LOOK AT DIVERSIFICATION
The new information environment can also change your outlook on diversification. By and large, conventional wisdom in marketing is that you need to stick to your knitting. According to that view, consumers associate your brand with certain skills, and they will have a hard time accepting products that don’t fit this perception. In other words, if everyone knows that you’re good at making TVs, you can venture into a related category like DVD players, but you have no business going into an unrelated field like washing machines.19
The new reality changes this, too.
Take a look at LG. They make TVs, DVD players, dishwashers, refrigerators, cell phones, and many other things. Now, suppose that you own a DVD player from LG, and while shopping for a washer and dryer you come across a washer/dryer combo from them. “Hmm . . . I didn’t know LG makes washers and dryers,” you say to yourself. In the past this might have ended right here. “Their DVD player is quite good, but this doesn’t mean they know anything about laundry,” you’d conclude, and retreat to brands like Whirlpool or Maytag, which are perceived as based on expertise in this category.
Today, you can read reviews and comparisons or go on YouTube and watch people talk about their LG washers and dryers. When we did that, we found dozens of related videos, some simple demos from recent proud owners who were compelled to share their new LG with the rest of the world, and some more formal reviews of a particular LG washer. In any case, when we were done watching, we certainly had a better feel for these machines. Your preliminary perception as a consumer regarding LG’s skills is much less relevant when you can go online and get the skinny on the quality of the product. (You can visit our book’s website for some links to these videos.) Here’s another example: A consumer was looking for a Bluetooth stereo headset for years, with limited success. “I’ve tried numerous models, some good, some bad (some real bad),” he writes. Then one day, while browsing on Amazon, he came across the LG Tone Wireless headset. “I didn’t know LG even made them,” he said. But LG does make them, and the headphones had more than five hundred rave reviews with an average of 4.5 stars. Again, the perception of LG’s skill set in this consumer’s mind has become much less relevant. He bought the LG Tone and added his own five-star review the following week.
Sticking to the old philosophy of diversification according to perceived skills would not have brought Amazon.com to where it is today. Think, for a moment, about Amazon in 1995—it was an online bookstore and it stayed that way for about three years. They sold books and they were good at it. Adding music and video in 1998 wasn’t such a stretch, but adding kitchen appliances, jewelry, gourmet food, and apparel in the next few years certainly was. It raised some legitimate questions: Why would I want to buy my next dress at a bookstore? What do these people know about jewelry or espresso machines?
Yet people started browsing the stores, and reading reviews from customers who had experienced Amazon in these domains. Here were real people who ordered products and got them on time, returned items that didn’t fit, and, in general, raved about the convenience of shopping online. Suddenly the idea of buying a dress from a bookstore didn’t seem that strange anymore. And Amazon didn’t stop there. They ventured into online video, online storage, and other areas. Amazon has come a long way from selling just books.20 Just imagine what would have happened if Jeff Bezos had listened to marketing consultants who had told him that Amazon should diversify only in ways that match the current perceptions of his company’s skills.
Diversification strategy is a complex topic that involves many other factors. Spreading yourself too thin is one obvious danger and there are others that are beyond the scope of this book. But sticking to the exact expectations that your customers have from your brand should be less of a concern. It’s much less relevant these days.
While working on the ASUS case, we were looking for an example for the thought process that consumers go through when they consider that brand. Surfing the Web, we came across a blog post titled “Why I Bought a No-Name Computer From a Components Firm.” It’s a great little anecdote, but it was the name of its author that surprised us. It was written by David Aaker, who’s perhaps identified more than anyone else with the concept of brand equity. Here’s how he describes the process: In 2011 Aaker had to replace his wife’s computer. He was told by the computer doctor that the PC had a nasty virus and had been obsolete for years anyway. The two brands that immediately popped up in Aaker’s mind were Dell and HP—two companies whose products he used in the past.
“But minutes later, I decided to buy an ASUS computer even though I had never heard of it,” Aaker wrote.
How could that be? Aaker followed the advice of the local expert, the computer doctor, who told him that he had just installed an ASUS for another client and that he liked their price, specs, and service. The computer guy also told Aaker that ASUS has been the motherboard supplier for leading computer brands. Still a bit suspicious, Aaker called his son-in-law (the family’s computer expert), who confirmed the expert’s opinion. Those in the know, who can easily assess the quality of ASUS, made their verdict. Aaker got an ASUS and Jonney Shih made another sale without spending a dime on advertising. When David Aaker buys a no-name computer, you know that something’s happening to branding.21