The Great Brand Shift: A Death of the Middle
Companies that succeed in a digital world are either using new technologies to provide incredibly low priced and convenient solutions, the Amazon and Walmart model. Or, they are creating a highly personalized experience that builds an actual connection with the customer.
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In almost every category we’re seeing a divergence of companies to one end of the spectrum or the other. You’re seeing this in travel for example: with the rise of AirBnB many people who are looking for purely the most economical way to stay are choosing to, and are willing to simply rent out a room in someone’s home to save money. And on the other end you’re seeing a flourishing of hotels and resorts that are focusing on providing a high-end and one of a kind customer experience that customers are willing to pay a premium for.
Other categories that are following this shift are food, personal care products, and even in B2B where companies that succeed either have a one-size fits all SaaS product or offer the polar-opposite: a high-touch and relationship driven service.
Is this the death of the middle?
Companies who’ve found themselves split between one side and the other have faltered. The most prominent example being traditional big-box retailers like Sears, Barnes & Noble, and JCPenney.
This shift has resulted in a “smiling-curve” representing the profit distribution across many industries. Previously there was a generally even distribution but, in the post Great Brand Shift world, the middle has been squeezed out leaving all of the value to the companies who are able to dominate on the ends.
This is because to be on the ends you must excel at providing a specific type of value. To look at Barnes & Noble as an example, they failed to compete with Amazon on price or convenience, but they also failed to compete with the boutique bookstore that creates a unique atmosphere and superb customer experience for book-lovers. This left Barnes & Noble, like many others, in the mediocre middle. They were not the best at anything, which meant they were left with nothing.
How to stay out of the middle and capture the riches of the ends
I began to make this realization through observing our positioning in the marketplace at MGR. I wanted to make sure that we stayed true to being on the strategic partner/strong customer relationship end, and not get caught in the middle. As I noted earlier, the B2B space has not been immune from such shifts. The space has gone from an even distribution of profits spread between tool-makers (SaaS), coordinators (the middle) and enterprise-partners (custom software solutions, full-service agencies, etc.) At least that’s how I’m going to refer to each type of company. In the past you had companies who might have called themselves agencies or advisors or consultants that acted as coordinators. They would often purchase SaaS products on their client’s behalf, coordinate/contract out work to full-service agencies when it came to production or ad creative, and would advise businesses on any other solutions they needed.
But really, they didn’t do anything themselves. These coordinators were the B2B world’s equivalent of the mediocre middle. The SaaS and the enterprise-partner companies realized that they didn’t need the middle-men and that they could go directly to the business themselves.
As SaaS products evolved and became easier to use, coordinators became needed less and less by the end client. On the opposite end, coordinators often would communicate strategy or coordinate custom software solutions between enterprise-partner companies and the client. Seeing as the coordinators were not creating value in the chain, and often interfered with communication, enterprise-partner companies were incentivized to try and cut them out.
The reason coordinators were able to exist for so long, and still exist somewhat today, is because they were able to provide some value to the SaaS and enterprise-partner companies. Coordinators acted as a secondary salesforce that would bring new leads and clients to other companies, and in exchange those companies would sometimes offer discounts or commissions to maintain the relationship.
The problem with this business model is that the coordinators were not actually providing value to the primary client, only to other businesses in the value-chain. Which meant as clients got savvier and technology became easier to use, the value the coordinators were sucking out of the chain by acting as middle-men became ever more apparent. Thus, like lemons on a mid-summer’s day, they’ve been squeezed. Just as many companies across almost every industry that occupied the middle have been over the past decade.
If you want to stay out of the middle you must focus on providing value to the end customer, and you must become tremendously good at doing a particular thing. You must treat mediocrity like a disease carrying rat, avoid at all costs and kill it if it gets too close.
Using data to build relationships
All of this brings us back to my initial point, in a digital world you’re either one-size fits all convenience, or you’re building deep customer relationships through a one of a kind experiences. The convenience/Amazon approach has been discussed to death and I think most people are familiar with how Amazon provides value at this point.
What’s discussed far less, meaning where great opportunity lies, is on using the same core principles as Amazon but flipping the customer interaction on its head. There is still an innate desire for human connection, and customers are often willing to pay a premium for it. The winners that emerge will be the brands that can leverage data and algorithms to build and maintain customer relationships at scale. This can be done by using data to get a deep understanding of customers on an individual basis then, creating content and offerings that speak directly to that customer.
Back to the bookstore example. A boutique, cozy, unique corner bookstore could never compete with Amazon on price or convenience, but they don’t have to. They need to focus on providing the experience of sitting down with a warm cup of hand-made coffee, talking with a book sommelier about fantasy novels, and a host of other things that Amazon can’t do, that they do exceptionally well. The brands who can execute the digital equivalent of that experience are the ones who will win. The brands who don’t will find themselves in the middle, and well, I think by now we know what happens to those get stuck in the middle.