building invincible brands
The ultimate moat will be how well a brand understands the changing consumer, in the context of their lives and its interaction with technology, writes Ambi Parameswaran, Brand-Building.com.
The average selling price of an iPhone is $500 more than the pricing for its chief competitor Samsung, according to research by Canaccord Genuity, making Apple earn over 90 per cent of the profits in the smartphone category and rack up a cash hoard on its balance sheet.* What makes customers choose a product over others despite its high price? It is, in most of the cases, directly influenced by the brand’s thorough understanding of the customers’ changing preferences.
Warren Buffett once said, “In business, I look for economic castles protected by unbreachable moats.” With Game of Thrones (GOT) making castles once again a much-sought-after asset, his words sound a lot more contemporary than we would have thought a decade ago. But can businesses be really protected by ‘moats’ like the castles of GOT? Well, the castles of GOT do not get much protection ever since the Dragons took to the air. Competitive advantage, as described by Michael Porter in his eponymous book, has three legs. You can have a competitive advantage if you are a low-cost producer (producing in bulk, may be), or you are a truly innovative company (churning out new products like a rabbit), or you are focussed on serving your customers better than anyone else.
You can have a competitive advantage if you are a low-cost producer (producing in bulk, may be), or you are a truly innovative company (churning out new products like a rabbit), or you are focussed on serving your customers better than anyone else.
So, it finally boils down to price (lower the cost, lower the price you will charge for the product), newness/innovation, or exemplary customer service. With disruptive technologies rising even faster, like the dragons in GOT, will those competitive advantage-based ‘moats’ be able to survive in the long run? Just as rideshare disrupted the automotive industry, or accommodation-sharing is disrupting the traditional hotel industry, the new competitor you will face may come from the most unknown of places. Imagine you feeling safe with the wide moat around your castle and your look-out guy spots the dragons? Think of Elon Musk (who built a payment wallet PayPal) taking up the charge for electric cars. As my friend explained to me over a rather fancy lunch at New York, overlooking the Trump Towers, there is just too much capital waiting to be invested. And a lot of this capital would fall into the category of ‘patient capital’—capital that is ready to wait for ten or twenty years to demand a return. In contrast, I was once told that the real estate sector in India especially, is funded by highly ‘impatient capital’. You get the contrast. So, what can protect your business? What can be a potential ‘moat’? Brands have proven to be able to withstand the trial and tribulation of time. In the text book Strategic Brand Management, Professor Kevin Lane Keller has listed a set of industries (mostly in packaged goods) where the market leader has not changed in the last ninety years or more. Take toothpaste, it is Colgate (Crest did give Colgate a fear in the US for a decade). In soft drinks, it is Coca-Cola. In chewing gum, it is Wrigley’s. In chocolate, it is Hershey’s. In paint, it is Sherwin Williams. In tea, it is Lipton. In toilet soap, it is Dial (it was Palmolive in 1923). In soup, it is Campbell. A similar analysis could be attempted in India but since the country started seeing real competition in many categories only post 1990, we may fall short in our listing. But nevertheless, in India too, it has been Lifebuoy in soaps for over half a century (Santoor seems to have overtaken the long-term number two, Lux, last year); in toothpaste, it has been Colgate; in chocolate, it is Cadbury; in tea, it is Tata Tea (as Sangeeta Talwar tells us in her new book The Two Minute Revolution, Tata Tea edged past Unilever’s Brooke Bond for the first time in 2007); in paint, it has been Asian Paints (for over 40 years). Even after the acquisition by Coca-Cola, Thums Up rules (from 1977). The same analysis may not work if you get into other categories. A few exceptions stand out. In cars, it has been Maruti Suzuki for more than a few decades. In motorcycles, it has been Hero (earlier Hero Honda). In banking, it has been State Bank of India. In life insurance, it has been Life Insurance Corporation of India. We will soon run out of such perpetual leaders as we delve into other categories like refrigerators, televisions, washing machines, air conditioners, ceiling fans, cookers, mobile phones, laptops, and watches (Titan overtook HMT in the ’80s). In services, the leader board has changed many times; take airlines, telecom, mutual funds, etc. So, is there a formula by which we can say with a reasonable amount of certainty that a strong brand can be a perpetual moat around the business? How did the packaged goods brands manage to build such strong leadership positions and were able to defend it for decades? I think the answer is not as simple as we may assume.
Ambi Parameswaran is an independent brand strategist, author, and founder of Brand-Building.com. His latest book, SPONGE—Leadership Lessons I Learnt From My Clients, released in July 2018.