“Not long ago, the value of a company consisted largely of its “book value”: physical assets such as factories and equipment plus money in the bank. But today book value accounts for only about a third of the stock market capitalization of the top 150 U.S. companies, down from three-quarters two decades ago. In the new economy, corporate value lies in intangible assets: patents, databases, know-how — and brands,” notes Sebastian Mallaby in his latest column for the Washington Post, A New Brand of Power.
As the importance of brand to a company’s bottom-line has grown, so has the money spent to market the brand. Today companies spend millions of dollars to market to you what kind of cereal is cool to eat and what kind of footwear is “in”. The reliance on marketing (or information control) has provided an unexpected chink in the armor of the behemoths. “As brands have grown bigger, they have also grown more vulnerable,” notes Mallaby. The vulnerability stems from two sources – aware consumers and the distributed nature of the Internet. Consumer awareness, generally limited to certain brands and causes and primarily propelled by NGOs like GreenPeace etc., has put pressure on corporations to reform their practices – e.g. Nike paying its sweat shop employees better or McDonald’s, the erstwhile king of transfat, introducing a line of salads. The other, and by far more challenging problem comes from the distributed information architecture of the Internet that makes it all but virtually impossible to control information, a vital need for brands. As the recent fiasco of AOL, in which a recorded phone conversation with an aggressive sales rep. was released on the Internet, has shown brands are increasingly vulnerable.
A horde of economists and analysts have said that this is a virtually un-pluggable hole and hence committed activists and distraught consumers can launch successful action against brands. Unfortunately, this positive prognosis of the growing influence of consumer power doesn’t always hold true. Yes, the Internet is distributed but users still rely on a very narrow range of websites for their daily information. If the recent mergers and acquisitions on the internet are any indication, the future of the Internet looks a lot more like the current media environment. It may very well be so that the little openness we saw while the conglomerates hesitated to join the Internet bandwagon may just be a small window that will shut down as the media agglomeration gathers pace. More importantly, the channels through which Internet is run is almost all owned by large conglomerates that may change the way information is delivered as in the two-speed Internet where corporate content is prioritized while “some websites” can only be accessible via a special fee, much like cable. The other damning piece to this is that today companies can easily build successful “underground” Internet marketing campaigns by buying ad space on blogs, sponsoring bloggers and starting up their own sites and blogs to funnel propaganda.
The analysts also seem to underestimate the corporation’s ability to spin given their vast resources. For example, “BP” has gone “beyond petroleum” without ever quitting petroleum and McDonald’s is selling salads with dressings that lace them with more calories than some of their sandwiches. Add to this the fact that corporate marketing departments are perfectly positioned to take advantages of the rapid advances in our understanding of cognitive science that are coming our way. And with rapid advances in IT, that allow data mining and cognitive science, they will have a far better understanding of each of us.
Lastly, it is important to realize that information rarely translates into action. A lot of people in this country know that eating fatty food is bad for health and yet they consume it in ever increasing amounts. And thats why consumer awareness hasn’t always translated into consumer action. We all want sweat shop labor to stop but then “Walmart is just to close by” or “the prices so cheap” or “I don’t want to think about it”. Billions of dollars rides on consumer apathy and millions are spent to keep the consumer apathetic. So it is no wonder that consumer chooses against his/her conscience or health. This, unfortunately, is the biggest spanner in the sunny optimism of the brand power enthusiasts. The future doesn’t look bright.