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Digital Platforms: Threats and Opps for Brand Experience
Digital Platforms: Threats and Opps for Brand Experience
How can brands leverage digital platforms for differentiated brand experiences?
Tmall, Facebook, Amazon, WeChat, Airbnb… time and time again these names come up in discussions about brands’ digital futures. For many brands, one of the main questions they seek to answer has to do with their fit into the eco-systems that these platforms create: in other words, their brand relevance to new digital behaviors.
This question while important often hides the key point of brand differentiation: how do brands maintain their uniqueness and create differentiating experiences in an age of platform domination? How does a single brand exist and stand out in a world where Tmall, WeChat and the like monopolize attention and commoditize brands?
In this article, we will seek to answer these questions, providing both theoretical clarity to the conundrum of digital platforms and laying out some practical principles for action.
The Strength of Platforms and Aggregation Theory
While definitions vary, platform businesses are generally characterized as having the 2 following basic characteristics:
1. Enable connections and exchange between different actors: platforms exist as an interface for exchange. Tmall provides the tools and infrastructure to connect merchants with consumers. Facebook enables connections between publishers and audiences. Airbnb connects owners of un-used real estate to travelers.
2. Benefit from network effects: the strength of platform business models is linked to the fact that they benefit from network effects. Simply put: the number of participants on the platform increases its value for users, thereby triggering a virtuous circle that powers exponential growth. To take a simple example: the more merchants use WeChat pay, the more users will adopt it, which in turn will encourage more merchants to join, and so forth.
Over the past 10 years, platforms have gained strength through a phenomenon known as aggregation theory. Broadly put, aggregation theory refers to the epicenter of the value chain moving away from supply and distribution and towards user experience and aggregation.
In the traditional value chain, suppliers and distributors interact either through direct ownership (e.g. apparel stores) or close collaboration (e.g. FMCG). Multiple distributors compete with one another while suppliers maintain a high degree of control over the brand experience.
In the digital age value chain, the aggregator owns the consumer relationship. The aggregator commoditizes the suppliers, and bargaining power switches to the aggregator because of its ownership of the consumer experience and attention.
As shown by the visuals above, the new paradigm sees aggregator platforms leverage their ownership of the customer experience, and their near-monopoly on consumer attention, to commoditize suppliers. This new reality profoundly impacts the way brands operate and deliver value.
The Consequences of Platforms on Brand Experiences
Platforms are a near-perfect symbol of the conundrums brought about by digital transformation in that they present both tremendous opportunities and worrying challenges.
On the one hand, platforms have greatly facilitated access. Tmall, WeChat, Amazon and the likes make it incredibly easy for brands to reach consumers on a broad scale and in a cost-effective way. An e-commerce platform like Tmall offers what is essentially a turnkey solution to reaching over 800 million online shoppers, something that would have previously required either a costly physical retail network or heavy investment in an independent e-commerce website. By facilitating access, platforms also make it a lot easier for new entrants to scale and disrupt previously ossified markets.
The flipside though is the commoditization of brand experiences and loss of control over the customer relationship. Loyalty is to the platform more than to the brand, and brands’ offerings become standardized within the platform environment. It is a well-documented phenomenon that Amazon search terms are moving away from brand-related keywords to generic product related keywords. Consumers look for “batteries” more than for “Duracell” or for “black top” more than for “Zara”. In addition, platforms’ ownership of consumer attention makes it increasingly complicated for brands to bring consumers outside of the platform eco-system and towards a branded digital environment, where the brand is in full control of the user experience and resulting user data.
So what options do brands have to navigate these treacherous waters and come out ahead?
4 Principles for Action
1. Develop your platform strategy: the reaction of many brands in the face of the rising power of platforms is one of fear and mistrust. This reaction, while understandable, is misguided – and in the end, unproductive. For better or worse platforms represent a fundamental shift in the economic order and a new division of labor between product/service providers and distribution players. Rather than falling into denial, brands must develop a clear strategy across 2 fronts:
- Leveraging the potential of existing platforms: when Burberry first set up shop on Tmall the move was met with skepticism and a healthy dose of mockery. Since the opening of their storefront, though, the brand has proved that a good platform play boosts reach (in this case reach to lower tier cities where Burberry does not have a retail presence) without completely disregarding the brand experience.
Client Story: Similarly, MADJOR is currently working with a large European insurance group on the development of a new service targeted at Chinese families with small children, based entirely on WeChat. Instead of clinging to the traditional consumer relationship model, our client decided to address the question head-on and look at platforms with an open mind, finding ways to establish new revenue streams through platforms.
- Creating your own platforms: some brands have the opportunity to move to the most favorable position in the value chain: that of platform owner. By leveraging existing assets or relationships they create new venues for value exchange. General Electrics is a good example: by setting up the Predix open platform to empower innovation, it positions itself as the go-to standard in the industrial IOT space.
2. Differentiate your brand: for decades many brands have built their success on distribution footprint or media buying power more than on real brand differentiation and relevancy. By commoditizing brands and democratizing consumer access, platforms have leveled the playing field. In an age of infinite supply and instant access, consumer behavior within aggregator platforms is becoming increasingly brand agnostic.
To stand out in this environment, brand differentiation and relevance are more important than ever. We are moving towards a future where a select group of brands will be looked for by name while others will become either an isolated element in a feed or a single result in a generic search term. To make sure that they fall into the first category brands need to double down on clarifying their value proposition, building differentiated products and supporting them with a brand message that stands out and resonates.
3. Optimize your brand experience for platforms: while platforms certainly drive brand commoditization, we reject the notion that it is outright impossible to create strong brands through platforms and differentiate in a platform environment. Brands like 三只松鼠 [Sān zhī sōngshǔ], or “Three Squirrels” (a Chinese retailer selling nuts and other healthy snacks through Tmall and other e-commerce platforms), prove that platforms don’t mean the end of brands but rather the rise of new types of brands created from the ground up with the new digital paradigm in mind.
Client Story: MADJOR recently worked with a large PCG brand to optimize their brand identity for new digital touch points. The brand experience was still designed with traditional 30 second TVCs, supermarket POS activations and print ads in mind. Meanwhile the brand was not being expressed properly on social media and e-commerce platforms because of a lack of adequate assets and internal processes for online brand identity management. Just like this client, many brands still do not optimize their brand experience for digital platforms, treating them as tactical channels for commerce or content distribution instead of placing them firmly at the center of their brand experience.
Client Story: Similarly, MADJOR is collaborating with a fine foods retailer to create a WeChat-optimized purchasing experience that uses the social graph to deliver a unique social shopping experience that would be impossible outside of the WeChat eco-system. In this case, our logic was to think platform-first instead of trying to port online the brand’s traditional retail model.
4. Provide value through signature digital experiences: many clients of ours lament that the dominance of platforms and their monopoly on consumer attention makes it impossible for brands to bring customers into their own digital eco system and provide fully customized, branded digital experiences. It is indeed an indisputable truth that as platforms like WeChat increase their share of online time, bringing consumers outside of these familiar interfaces is becoming increasingly complicated. However here too there is no fatality. Customers are still hungry for unique digital experiences and willing to embrace them provided there is real value beyond the platform walls.
Nike for instance uses its unique Nike ID service to provide value beyond what existing platforms offer and create a differentiated digital brand experience against its competitors.
Client Story: MADJOR recently collaborated with a top high-end cosmetics brand to help them re-think their e-commerce eco-system and identity features such as product engraving or skincare regimen recommendation tools that could be offered on their branded e-commerce site to differentiate against 3rd party platforms.
How Does Your Brand View Digital Platforms?
Platforms are a deceptively simple business model. They represent one of the most important trends at play in the digital landscape and one of the key drivers of digital brand transformation. Facing this trend means acting on 2 fronts: adapting to the new reality while avoiding being swallowed whole by the brand commoditization phenomenon. A complex balancing act for sure but one on which the success of many brands will depend.