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Is a lack of trust killing big brands?

Is a lack of trust killing big brands?

Strategy

Aug,2018

Declining brand loyalty is a tale we return to every few years. Now the current generation are taking the brunt of the blame, stereotyped as a fickle bunch who flit from brand to brand and buy based on morals; having a general distrust for corporate and big brands.

But is this true? And are big brands really struggling? I’d argue no to both questions.

A world with trust in crisis

The 2017 Edelman trust barometer went as far as to say that trust is ‘in crisis around the world’. Last year marked the largest drop ever recorded in trust across government, business, media and NGOs. The world has gone through a lot of widely-spoken upheaval in the past year and the report suggests this has affected more than just our purchase decisions.

Added to this, there have been claims that people, especially ‘young people’, are rejecting bigger corporate brands. Instead giving their loyalty to more niche brands which match their morals and individualism.

A new online grocery retailer in the US has capitalised on this lack of trust to build its own brand. It’s called Brandless, and as the name suggests, sells absolutely no branded products. There’s no logo on any product, just detailed product information. They claim they can sell all high-quality products for just $3 each because there’s no brand name to bump the price up. They appear to argue buying from them is choosing value and quality of product over a brand name. And they’re expanding at a rapid pace.

However, I would argue that, in the case of Brandless, the simple fact that their products do not have a brand and only a uniform design makes them branded. If they grew too big, and a lack of trust in corporations really did lead to a downfall in sales, they would suffer from this too.

Even Amazon have jumped on this trend by releasing products, like their own label of unbranded batteries, which quickly became the market leader in their category. Although Duracell used to be the market leader in America, Amazon is arguably the bigger brand. An own label battery from them is the same thing as an ‘Amazon’ battery, utilising Amazon’s existing consumer base to further the awareness of this product.

Is this lack of trust substantiated by a mass rejection of big brands?

The research would say no. Brand rejection is actually very low, and the main cause of it is unfamiliarity.

Sharp et al. (2008, 2010) have previously shown that newer (smaller) brands tend to have a skewed customer base with younger category buyers, and updated research from Anesbury et al. (2017) has shown that this is still the case, though less so than previously documented.

But as brands grow, this skew disappears.

Although the current perception is that smaller niche brands are growing a larger and more loyal base of customers than big brands, the Double Jeopardy Law debunked this a long time ago. This Law shows that smaller brands have fewer buyers and lower loyalty from those who buy from them than large brands.

The latest research supports this, showing only 1 in 10 small brands have higher loyalty levels than expected, and even then don’t exceed the loyalty levels of large brands. Looking specifically at UK brands this still holds up, with the majority of small brands tending to underperform in expected loyalty metrics.

So are big brands actually dying?

Well, no.

After seeing a declining market share amongst 90% of the top brands, critics have been quick to place the blame on the death of loyalty. As Byron Sharp has pointed out countless times though, loyalty is often not what we expect it to be. The average Coke buyer purchases once every year not once every shop; they will even purchase rival brands like Pepsi.

A recent report by Sharp has shown that, whilst some leading brands are losing market share and others are gaining, those losing out have generally done so within growing categories. Their sales revenue is increasing.

Apple is a great example of this; although they’ve lost market share they have a high profit margin so have still managed to show a ‘dramatic growth’ in sales revenue.

New brand launches also aren’t cutting into big brand territory, with no evidence of an onslaught of new brands stealing market share from bigger ones. Again, this is more evidence of the Double Jeopardy Law at work.

Is research methodology the problem?

When researching for this blog post, most of the opposing views I found to Sharp were based around studies measuring individual’s opinions of themselves as opposed to an examination of true shopping habits in terms of sales.

Other studies which actually focused on sales data, rather than qualitative survey answers, of FMCG brands in both the UK and US have found that over the last 6–13 years there has been no general decline in brand loyalty, backing up Sharp’s views.

But who wants to portray themselves as someone bound by habitual purchases and influenced by advertising, rather than someone who sticks to their morals and only supports brands with a purpose?

Sure, we might all be moving towards supporting the odd niche brand, but that doesn’t stop us from picking up a bottle of Coke every now and then.

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