The playbook to develop strategic brand moats – Brand science

Fabien Di Marco

  • Founder and Managing Director, Tzu & Co

Fabian is an experienced digital marketing and business strategist. He has been a global consultant for some of the world’s largest and most recognized brands, like Qantas and Western Union, as well as B2B behemoths like Amcor and ICL. Fabian works primarily in the retail, finance, insurance and travel industries for large scale clients and businesses.

Warren Buffet is an unlikely ally for marketers. But his belief that companies need strategic moats that increase their value in the market while acting as barriers to competitors can offer marketers a new playbook for branding and growth.

In the rush to transform digital customer journeys, modern marketers can sometimes overlook how brand value is conveyed at every touchpoint – from the intangible like brand perception to the experience under the form of use of products and services. The ability of a brand to differentiate itself from its competitors, to establish its unique value and to retain loyalty is the result of the diffusion of this customer experience throughout the value chain.

And it’s not just Berkshire boss Hathoway who believes in the value of strategic moats. The professor of management and organizations at New York University, Sonia Marciano, defines a defensible strategy according to several criteria that can be applied to marketing. This includes hard-to-replicate brand attributes, high-value customer relationships, networked customer advantage, and the adoption of continuous innovation.

Brand attributes as strategic moats

For a business, economic moats act as barriers – defensible, high-barrier-to-entry initiatives and attributes that separate it from its competitors. They are lasting differentiators in the market and are rewarded by suppliers, customers and company shareholders through company preference, loyalty and valuation.

For competitors, moats are differentiators and obstacles that are difficult to simply replicate on a comparable basis. For customers, these are brand attributes that are difficult to replace with another brand. They add value to your business.

Apple has developed its ecosystem to connect someone’s phone, computer, and other devices to their digital life in the form of contacts, music, TV, email, and more. It creates one of the ultimate hurdles for competitors through the way it locks down customers on all devices and services. And friction for customers looking to switch to the alternative, who risk losing the simplicity of integrated experiences, rewarded for their brand loyalty across all extension lines.

What makes the Hermès Birkin bag, sold for thousands of dollars for a few hundred dollars to manufacture, worth the price for customers? The quality of materials and workmanship can only explain part of it. In essence, it is the perceived value of the bag that derives from the iconic brand and its association with French actress Jane Birkin. The value of its particularity and the exclusivity conferred on the customer is defined and held by the brand. Switching a person to a low-cost brand like Target, for example, costs them due to the loss of identity as a person.

Another big economic divide that many marketers are all too familiar with is Google’s search reach and its advertising activity as a result of it. An economic divide can also take the form of an iconic brand (think Channel), omnipotent retail (think Amazon), or cult status (think Levi’s).

It’s not just the global and highly recognizable retail brands that have strategic moats. There are many examples of local businesses developing a strategic advantage, often in a market dominated by large, often global, competitors.

Online beauty retailer Adore Beauty has made customer centricity an obsession that informs all of its decisions. Its personalized beauty tutorials and guides developed as podcasts, videos and blogs directly address customer concerns without being a hard sell. It’s now a valuable content ecosystem that would be difficult for another brand to simply replicate, as the content is imbued with Adore’s customer service ethic.

High-stakes customer relationship

Brand attributes, whether it’s a luxury bag, iconic jeans or a cool gadget, will go a long way in cementing a high-stakes customer relationship, where making the wrong brand choice is. a risk for the buyer. The consideration depends on the degree of friction and risk involved in purchasing an alternative for the buyer.

While a customer can switch from a brand to a competitor with little friction or “cost”, the product or service is indifferent to the customer and, therefore, retention is volatile. However, if a customer perceives a risk of “losing” something by purchasing an alternative, brand retention and performance increases.

In Adore’s case, while it sells many of the same products as its competitors, its popular loyalty program is upping the ante. If a customer purchases from an alternative, they risk losing loyalty points and perks, such as free express shipping.

Marketers help build differentiation in the product and customer experience, where they can also create things that prevent a competitor from gaining territory.

A high-stakes customer relationship can protect the brand from competitors and inject value into the minds of customers. It’s like Buffet said: “If you have the power to increase prices without losing customers to a competitor, you have very good sales.

Network customer advantage

Amazon is one of the defining examples of how the network effect brings value to customers. It is by no means the only one and brands don’t need to have its size and reach to create a network effect customer advantage.

Simply put, the network effect is a phenomenon where more people or participants in a network improve the value of a good or service. The more people who join the network, the greater the benefit for them. A good local example is the online housewares site, Temple & Webster, which has strived to increase its value to customers by adding more suppliers to its platform which is building the product line that attracts more. of customers. Retail brands don’t always have to be Ikea’s size to win.

Having a wide range of products is not a stand-alone attribute – it is part of a smart and strategic business design. How? ‘Or’ What? Temple & Webster offers an innovative drop shipping model that allows suppliers to ship products directly to customers. A lot can go wrong with this model, but T&W has made it a strategic advantage by doing it right – an impressive achievement.

The network effect is about successfully creating a flywheel, where the value or experience for customers increases as more and more customers join or use the service. It’s a tough business, but when successful, the model can accelerate growth and act as a defensive game, as customers lose that value by leaving the network.

Innovation is BAU

All brands must evolve and innovate. This is essential for growth, especially for brands with homogeneous products (think private health insurance or retirement). When Elon Musk said in a 2018 earnings call that “the moat is lame,” he might have scored a point. It’s no surprise that the man behind Tesla believes the pace of innovation fundamentally determines a company’s competitiveness.

Yet innovation can actually be seen as a key part of building a strategic moat, rather than a single replacement, as the PayPal co-founder would have us believe. But, like Musk’s space game, there should always be room for lunar innovations.

Take the example of Temple & Webster. As competitors catch up with the demands of many newly created digital consumers, it is investing in lunar innovations such as AI and augmented reality projects that could have the potential to grow the business exponentially. These innovations harness the value and diversity of data that Temple & Webster has generated through transaction volume and customer behaviors over many years.

The value of the brands’ strategic moats

To be successful in creating gaps around the business, marketers must realize the value they add to strategic brand building and the role that customer focus and product differentiation play in it. It can allow brands to benefit from a controlled market share or from a growth in market share, from higher profit margins and from trusted players that allow breakthrough innovations, as noted by the shareholders of Tesla and Amazon.

Marketing isn’t just about advertising and pre-purchase communication. It requires a connection with other parts of the business – execution, sales and customer service. Brands are realizing this and are shifting their “typical” marketing role to reach areas such as customer support and sales. Some create environments that better combine disciplines to work together rather than in silos.

Strategic gaps create differentiation that acts as hard-to-replicate barriers and reinforces the value of the brand experience. They offer brands the luxury of driving prices, rather than reacting to them. It is rewarded with better returns from more loyal and loyal customers. This is appreciated by both customers and shareholders.

Marketers can apply the lessons of these online retailers to their own marketing strategy and chart new avenues for growth.

Tags: brand strategy, marketing strategy, marketing leadership

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