Services May Be an Exception to the Declining Power of Brands
Marginal Revolution cites a James Surowiecki article on branding, arguing that increased information flow, particularly over the Internet, is reducing the power of brands. This seems right to me. Brands exist and command premiums for many reasons. One role of brands is that they serve to reduce risk - without any other information about a product, many people would likely assume an electronics product from Sony to be more trustworthy than a no-name brand with the same features, and might be willing to pay a premium for the Sony product. However, with all the review information on the Internet, people may be more comfortable buying the off-brand, if it has good reviews, and saving the Sony premium.
Of course, brands serve some communication roles that are likely not threatened by the Internet. For example, high end brands like Prada or Gucci have power because they allow the owner to communicate things about themselves to others.
I would argue that, even with Internet reviews, brands will continue to be powerful in the service sector. In fact, with the growing complexity of some service offerings and the increasingly high standards of consumers, they may be more important. Why? Consistent product quality is much easier than consistent service quality. A no-name product maker can get high quality product all over the world from one single factory -- all they have to do is to get that one location right. This is much easier to do than with McDonalds, where there are thousands of locations, or even in our business, where we have hundreds of locations. Service quality happens in real time, often in many dispersed locations miles away from supervision and the management staff.
Also, in many cases, service failures are more critical and are harder to correct than product failures. If my printer does not work, I get mad and box it up and return it for a new one. But what happens if FedEx fails me on a critical shipment? Or worse, what if United Airlines fails on me mid-flight?
An interesting way to prove this is to go to a site like epinions. Service reviews are generally much more variable than product reviews. Compare Fedex, who's review is a mix of the lowest and highest scores, with this Apple Ipod, where reviews are much more consistent. Even when products get a mix of low and high scores, often the low scores are driven by service and support and not the product itself. In positioning their brand today, does Dell emphasize the product or their service around the product?
