Brand Equity can be thought of as the value of consumers’ opinions about your brand. The higher the value of your brand in their mind, the more equity you have. Brand Equity gives you the ability to take chances — your customers will go along for the ride and as long as you continue to provide value in line with your Brand Image (another topic), they won’t mind a few failures along the way.
One of the clearest examples of this right now is superhero movies. When making the first Batman movie way back 1989 Jack Nicholson turned to Michael Keaton and said “after this, we can make a few crap movies and it won’t matter.” (paraphrased)
You can release a really bad superhero movie (Daredevil, Ant Man), and it only damages the franchise brand a little bit — you still have the success of … The Avengers, X-Men, etc. to trade on (and I hear the Daredevil TV show is pretty good).
Don Peppers and Martha Rogers outline a ladder of trust in their book The One to One Future. The lowest level is, say, what you reserve for the guys selling counterfeit handbags in Chinatown in New York — you eye them with trepidation, and you pay cash because you don’t even want to hand over your credit card. The highest level is “intravenous” trust — when undergoing surgery you trust your doctor to prescribe medications to you on the fly without your conscious consent — you allow the company to charge you without you even knowing what you’re getting.
Brand Equity can be thought of as Trust Level x Size of Customer Base.
A lot of brands are moving into this intravenous trust territory — online clothing companies that ship you “curated” boxes of clothes and you “only pay for what you keep” etc. For a lot of people, Amazon is on this level, or close to it — you order almost without thinking.
Cashing in on Brand Equity
When you have a lot of Brand Equity, the temptation is to cash in on that value. To turn out cheap crap to make a quick buck. This is the sort of thing Disney does really well — they’ll license their brands to people who make everything from umbrellas to sunglasses to flip flops (jandals).
And for the most part — people know that the $5 plastic kid’s sunglasses that they buy at the dime store aren’t really made by Disney, so Disney doesn’t risk a lot in doing this. This is because Disney’s brand isn’t so much in consumer packaged goods as it is in movies & theme parks. Disney is in the business of selling the dream of Disney.
Disney would never allow their name to be put on an inferior movie — that would be trading on their brand equity to make a quick buck. Well okay there’s “Straight to DVD” (Disney Home Entertainment) which is — again, an acknowledged second tier.
If your brand is consumer packaged goods, however, you run a real risk when trading on Brand Equity to make a quick buck in consumer packaged goods.
Craftsman Tools, was once considered a premium tool maker, and their reputation has slipped in the past few decades as the quality of their tools declined. As a hypothetical, let’s say at the height of their Brand Equity, Craftsman licensed their name to a plastic and rubber goods company to make gardening gloves, toolboxes, trash bins, etc. A logical brand extension that complements their line of hammers, wrenches, and screwdrivers, but that plastic and rubber goods company turned out inferior goods. This would damage the Craftsman name.
Craftsman could have spent the time building up a plastic and rubber goods division, or vetted their licensee better, but they decided that releasing a line of cheap rubber goods with the Craftsman name was a good way to make a quick buck.
When you have a lot of Brand Equity, the temptation is always there to cash in on in to make a quick buck. The problem if you the erode Trust Level and Customer Base, you can experience an outsized reduction in Brand Equity.
Amazon’s Brand Equity Fumble
Amazon has tremendous Brand Equity right now, and has for quite some time. Not only do they have something like 2/3 of American households signed up for their Prime service, they have something close to Intravenous level trust with their customers — heck when I buy something on Amazon half the time I just buy whatever has the most/best reviews and I know better.
Amazon’s “Grow at all costs” strategy has served them well, but recent ventures like Project Dragonboat — courting Chinese sellers who are flooding the market with cheap goods — is beginning to erode Trust in the Amazon brand. Sellers are able to exploit Amazon’s Brand Equity to make a quick profit. There is little to no incentive for Sellers — other than fear of Amazon’s wrath in the form of account suspensions — to not try to game the system.
One of the more obvious ways sellers game Amazon’s system is with Review Manipulation. They’ll hire hackers to buy hundreds of products from them & ship them to random addresses around the country. Those hackers will then leave reviews. Or they’ll hire college students to buy their product & try it out — those students are reimbursed for the item & paid a small amount for the review.
This was outlined in a recent episode of Glimlet’s Reply All titled The Magic Store. One of the hosts bought an electric toothbrush on Amazon almost without thought (Intravenous level trust) — without realizing that Amazon is a marketplace with multiple sellers, and was shipped the wrong toothbrush. At the end, after a full episode of talking about how sellers are gaming the Amazon algorithm to get better sales, she says “Finally I bought the right toothbrush, it had the Amazon’s Choice badge and everything” — without realizing that Amazon’s Choice is also algorithmic and can therefore be gamed.
Amazon’s review crisis has been exploding in the news lately in outlets like the Wall Street Journal, Yahoo News, and even Bezos owned Washington Post. Earlier this year, they hired a small army of people to post positive things about them on Twitter.
Amazon, the platform that’s always put customers first is risking losing the trust of their customers because they’ve allowed their Brand Equity to be traded for a quick profit.
The Proper Way to Leverage Brand Equity
Amazon’s motto has been, for years, to grow as fast as possible. To take every dime they earn and put it back into the business, almost never turning a profit. The joke was that if Amazon ever turned a profit, Jeff Bezos would fire the people who were responsible for not spending enough money.
They took the “cheap cash” they got from their stock (when they bought Whole Foods their stock went up, making the purchase effectively free) and web hosting and build “moats” around the areas of their business that have a high barrier to entry — by doing things like building fulfillment centers across the country.
And for years that meant offering better and better services — a better user experience, 2 day shipping (and all the warehouses and infrastructure required to support that), now Prime Video, and of course the largest selection of products known to man.
Recently Amazon has started turning a profit — even though they fell short of growth projections (still growing at an astonishing rate). Their profit comes in part from their bourgeoning PPC platform, which, while not yet as sophisticated as Google or perhaps even Facebook’s platforms, is getting more and more sophisticated by the day.
Google — whose largest revenue stream is from PPC advertising — has stated numerous times that their biggest threat is Amazon. 55% of all product searches begin on Amazon, not on Google. Amazon is now 3rd in paid search revenue and some major retailers are switching 50% or more of their ad spend to Amazon from Google.
If you asked anyone even 5 years ago who the biggest competitor to Netflix would be, you’d get answers like Hulu or Youtube — not Amazon, yet somehow Amazon managed to leverage their platform to become one of the top streaming providers in the country.
There are families that are “Amazon households” — all of their shopping is done on Amazon, their groceries are delivered by Amazon Fresh, and their evening’s entertainment is Prime Video.
When Amazon takes its actual equity and uses it to build better products for their customer, they’re taking their Brand Equity and extending it in a way that benefits both them and their customers.
When Amazon takes the trust that millions of users have put into the platform and trades on that equity by allowing their platform to be flooded with counterfeit goods and allowing bad actors to game the system, they’re taking that Brand Equity and cashing in on it for short term gains.
What’s Next for Amazon
Amazon, somewhat famously, gives themselves a “long runway” — they dont’ need to be the first movers. Often they’ll sit back and watch as third party sellers put in all the work and watch for years before moving. After ignoring Apparel for years (though they courted high end brands early on & even lunched a daytime talk show), they just entered the Apparel market 2 years ago. In those two years, they launched 70 private label brands (edit: now more than 120)— seemingly overnight they went from ignoring the apparel market to dominating it.
This seems to have been the approach they’ve taken to what they call Search Rank and Review Fraud — attempts to manipulate the algorithm to position your goods ahead of the other guys in Amazon’s search results. This has been going on in the industry for years — until it’s reached crisis proportions recently.
Amazon has been fairly quiet on this for a while, but they’re now taking action. Through some fairly high profile acts, Amazon has been mass deleting reviews — products with thousands of reviews, reduced to zero overnight, and customers are no longer allowed to leave reviews on those items. Amazon has also started suspending the accounts of the most egregious manipulators.
Other initiatives are intended on cracking down on counterfeits.Their Transparency Program, launched quietly over a year ago, basically gives a unique serial number to every item sold on Amazon — it’s almost impossible to clone a serial number in the way you would clone a UPC code.
While they have a bit of a Public Relations crisis on their hands right now, it’s not worse than that of Facebook and Cambridge Analytica. Pundits who are claiming that Amazon will go the way of eBay or Craigslist — once trusted platforms that are now viewed with skepticism — are probably calling it a bit too early.
Despite the large amounts of press this has been getting, I suspect only people who are really tuned in all things Amazon are really aware of these issues & that in a year’s time, Amazon will have shaken off these growing pains. Yes, 20 years on and Amazon is still experiencing growing pains, and isn’t that the a healthy sign?