In Israel Too, the Death of Brands as We Know Them

Once ads told us who used a brand and what the story was. Today it’s all told on social media and price rules, so the big chains are hurting.

Sivan Klingbail
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 In this 2008 file photo, shoppers walk in front of a Abercrombie & Fitch store in San Jose, Calif.
In this 2008 file photo, shoppers walk in front of a Abercrombie & Fitch store in San Jose, Calif. Credit: AP
Sivan Klingbail

In April, Abercrombie & Fitch decided to wave bye-bye to a flagship symbol – half-naked young men wandering about. It was a big decision for the apparel chain, whose models had been swanning around since the ‘90s. The business press gushed over the company’s unique concept and strong brand.

It was also a gesture of desperation. Sales had been declining for three years and in the last one the chain’s stock had tumbled 33%.

Unhappily for Abercrombie & Fitch, the models’ vanishing act did nothing for the share price, which sank to a five-year low in August, a month after the models went away.

The company has joined a growing list of fashion chains in trouble because they can’t adjust to the market. Once the list was highlighted by older names like Gap and Levi-Strauss, which had trouble keeping up with changes in taste. Another new name on the list is American Apparel, not long ago the hipster garb of choice but more recently a declarer of bankruptcy as its sales and share price tumbled.

How does a once-market-leader like American Apparel reach the brink of the void? The usual explanation is that consumers wearied of American Apparel’s extreme campaigns and the price exacted by the bombastic statements of its founder and former CEO, Dov Charney. But is that the whole story?

Trendologist Lidewij Edelkoort, a leading voice in fashion and design, has a different idea. Speaking with online magazine Dezeen, she declared the death of fashion as we know it. Or rather, of brands.

In fashion in recent years, price is everything, says Edelkoort. The chains can no longer answer the basic need for which consumers walk through the door – the opportunity to define themselves.

Whose fault is that? Edelkoort blames marketing, which turned fashionistas into slaves of the financial institutions and hostages of the shareholders. Marketing is controlled by greed, not vision.

That’s why marketing has no innovation anymore, she explains, adding that the ties between fashion magazines and commercial interests exacerbate the trend. New brands don’t get editorial coverage because the companies don’t buy advertising yet.

And consumers are no longer slaves to fashion marketers, Edelkoort says. If anything, they want fresh ideas; they’re looking at clothes like once upon a time, not at brands.

The future isn’t likely to generate more brands but rather rental clothing, Edelkoort predicts. Your hair, your tattoo – these are the things that define you, not your clothes, she told Dezeen, and dismissed the traditional role of brands.

Getting sentimental

Edelkoort focuses on fashion, but through it trends in other areas of marketing and branding can be seen. The whole world is struggling to cope with commoditization – whole industries once considered ruled by brands are becoming ruled by price.

This is happening in home electronics, too; manufacturers spent decades and fortunes building a brand so consumers could easily identify their products. Consumers were supposed not only to recognize quality but even feel sentiment toward the brand.

That was the deal. Manufacturers were supposed to invest in the brand and consumers would buy it because they considered it superior to unbranded goods. Manufacturers reaped market share and profitability. A brand’s strength was reflected in the premium the manufacturer could charge for it compared with competing products, while not losing market share.

These days, investing in branding may not promise a thing. Brands that seemed invincible collapsed overnight or were dragged into price wars with cheapo rivals. What happened to Israel’s mobile communications companies as competition arose happened around the world in clothing as consumer tastes changed – and cheap became in.

Last June, accounting firm Ernst & Young identified what it called a radical change. It published a report showing that when shopping, 89% of Americans stress price and 82% quality. Only 25% cited brand or loyalty.

Once upon a time, business schools taught the story of Partner Communications — under the Orange telecom brand in Israel. They taught how an $18 million investment created a brand with great appeal.

Partner also provided real value for customers; it was the first mobile operator to launch texting and overseas roaming. Orange became identified with businessmen; for years it had a strong brand for which people paid a premium. But after the cellular reform led by then-Communications Minister Moshe Kahlon, it too bled customers to cheaper competition.

Brands lost their power as consumers became more rational, says Prof. Itamar Simonson of the Stanford Graduate School of Business. A year ago Simonson and colleague Dr. Emanuel Rosen published the book “Absolute Value” on brands’ changing fortunes in the digital era.

Consumers are rational, they claim, in contrast to what Simonson himself argued in papers published since the ‘80s. This U-turn by Simonson, one of the world’s leading experts on consumer behavior, reflects the intensity of the change in recent years.

Before the Internet, consumers were irrational, he tells TheMarker, but back then they had limited information and brand was a way to ensure they were buying reliable products. It reduced risk. But today information is accessible and decisions can be based on knowledge, not feelings.

“Sometimes a brand can have some quality products and some products that aren’t such good quality,” Simonson says. “Consumers grasped that relying on brand was usually a mistake. Now they tend to use direct, more credible gauges of quality.”

Advertisers lose control

One who isn’t eulogizing the death of branding is Prof. Barak Libai of the Arison School of Business at the Interdisciplinary Center of Herzliya. “They’re not dead, they’re sick,” he says, though he accepts Simonson’s underlying assumption.

“Before, there was an agent filtering the information for me – the brand. Today I don’t need it. Take for instance the role Sony played in electronics. When you bought Sony, you knew you were paying more but getting a quality product. Today that’s not necessary. I can ask my peers online what each product gives me.”

So maybe the companies were simply measuring the wrong thing?

“Companies looked at brands and asked if they were generating higher cash flow by dint of a pricing premium. That’s a mistake; the premium is just one part of a bigger picture,” Libai says.

“Another part is loyalty and the ability to obtain customers. The ability of brands to achieve loyalty and charge a premium was based on consumer ignorance – I don’t know what each brand in the market gives so I choose what I know, or what was built as the brand.”

Availability of information isn’t the only challenge marketing people face now. Changes in consumers’ attention span is another. Israelis may think most of their countrymen still favor the TV, but actually their attention is distributed among several screens. So the attention awarded to ads is much lower than in the past.

“Once the ads told me who uses the brand and what its story is,” Libai says. “Today the story is told on social media. Thirty years ago, marketing people made the story. Today it’s created in interaction with the people around the consumer.”

Even if we do see the ad, we probably don’t believe it. A Maala-Globescan survey published in March shows that Israelis’ faith in business is very low. The data show that even if Israelis paid attention to the story the marketing people wanted to tell, they’re not buying it. “Some brands are barefoot,” Libai adds.

Give me value

Marketers face two more challenges, says Libai. One is millennials’ tendency not to be brand-loyal. They’re not afraid to try things and switch, “They’re seeking thrills and replacing anything,” he says, adding that the branding they like may not lie in the product, but the retailer.

Stephie Knopel, founder and CEO of the startup Personal Heroes, has been tracking the change in brand status for years. “Digital culture changed the rules and raised questions about the behavior of brands and the gap between what they say about themselves and how they work,” she says.

Millennials want the products to do what the manufacturer says they’ll do. A brand should take a step back and let the consumer express himself with it, not serve as a billboard, she says. That’s a change that many companies, mainly the big ones, don’t get.

But there’s a flip side.

“Systems of social influence are based on the principle winner take all,” Libai says. “Everybody is influenced by everybody else, and in a world like that there are fewer successful brands, business trends are stronger, and a brand that makes it will be very powerful.”

Take Facebook, Waze, GetTaxi, Uber or tween clothing chain Brandy Melville. They grew from the grass roots, the consumers. They invest little if anything in advertising and the people love them because they give them real value.

The rise of discount brands sharpens the observation that the marketers’ big problem is the new paradigm: It becomes very hard to charge a premium. “What’s cheap isn’t necessarily bad,” Libai says.

Prof. Oded Koenigsberg of the London Business School, an expert on pricing, avoids categorical conclusions.

“I would hesitate to say the model is broken. Brands existed before they were called that. A brand is just another dimension of a product that’s stressed more or less depending on the state of the market, the customers, and just as importantly, management decisions on where the company invests,” he says.

“Sometimes the decision not to invest is a mistake. Ultimately it’s a trend and trends are usually circular. In 10 to 15 years it will be the other way around.”

So can companies charge a premium now?

“Certainly. They do. Apple does and it isn’t alone,” Koenigsberg says. “The question is whether they will do so in the future. Maybe less, but I’d be very surprised if they didn’t.”

Libai uses Apple to demonstrate the opposite point.

“Apple is still a strong brand .... It invests a lot in innovation but it’s in the minority because it’s very hard to compete with an Android world. Apple managed to create genuine value but did so in no small way by closing its operating system, which is the exception that does not prove the rule,” he says.

“IBM used to have a strong technology brand but ultimately it crashed. Today LG and Samsung are similar. The brand almost doesn’t matter.”

Einat Yoznat-Ravid, CEO of Yehoshua-TBWA, believes the market lost its way in the last couple of decades; it was flooded with products that went for premiums but didn’t always deliver value. If a company charges premiums now, it has to provide value beyond the basic need for the product.

Maybe the question isn’t whether branding is dead but whether loyalty is. “The big challenge companies face is to adopt a new ethical code of openness, dialogue and listening,” she says.

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