Three paths for brands: grow, invest, or coast

Has a brand disappointed you lately? Was it a brand you used to like, a brand you had high expectations of?

It may be that that brand is coasting: succeeding based on its former reputation. Coasting is very profitable . . . until it isn’t.

Brands may have become prominent due to advertising and marketing, but they only remain successful because of customer experience. Advertising is the promise. Customer experience is the delivery. Promise without delivery equals disappointment, which is death for a brand.

Let’s look at three paths that brands take.

Growth

Some brands are sterling. They promise and they deliver. They continue to invest to remain at the cutting edge of success. I think about brands like Tesla, Apple, Amazon, Disney, Toyota, Nike, Budweiser and Walmart. These brands have very different value propositions — no one would confuse Walmart for Nike for Tesla. But what they share is investment in that value. They aim to grow. They diversify. They take risks. They renew systems and make bets on trends. As a result, they remain highly valuable.

A brand like this takes customer disappointment very seriously. If you can’t find what you’re looking for at Walmart, you might stop shopping there. If the experience of your iPhone is disappointing — if it overheats, fails to connect, or operates in a way that’s not intuitive — you might look for something cheaper. These brands are paranoid, and their investment profile reflects it.

But they grow. Because they are continuing to invest in new experiences, they keep growing. They may make strategic missteps and stumble, but overall, their portfolio of investments will pay off.

Maintenance and investment

Some brands can’t grow easily. They’re in stable sectors with established competitors. So they do what they must to remain steadily profitable. As a result, they are more likely to be valued for the dividends they create from steady profits than for the growth they create.

Think about a brand like IBM. Except for the pandemic years, its revenue was relatively steady. It continues to be profitable. And it advertises, just to remind you that it’s still doing relatively cool stuff. You may never have heard of Church & Dwight, but it keeps generating profit from brands like Arm & Hammer and OxiClean. Caterpillar is another example: it has paid a regular dividend since 1933, and it dominates the space for heavy construction and mining equipment.

These are professionally run companies. They continue to invest to maintain a steady business that rarely disappoints. As a result, you have a generally positive perspective on their brands. They’re not the next Netflix, but they’re not trying to be. They’re trying to make sure that whatever you expect from them, you get it.

These brands often end up merging. They can profit by getting bigger and more efficient. But it’s dangerous — brands often end up floundering after mergers.

Coasting towards oblivion

The third path for a brand is to try to appear like a brand that is maintaining a reputation, but to do that without investing enough.

In the short run, the brand that coasts is more profitable than the one that is investing. A brand that fails to update its systems or invest in its products will have more profit to share with management and investors. The brand value persists for a while, since disappointment tends to be scattered and sporadic. Brands like this often cut resources for customer service, because there are just not that many people who will get upset enough with their customer service to dump them.

But eventually, these brands fail. Why? Because no amount of advertising can make up for poor products and poor service. A brand like this doesn’t sink slowly, it actually bounces around buoyantly for years, and then having disappointed enough customers, it takes a nosedive.

When was the last time you ate at a Howard Johnson’s? Bought clothing at Sears? Shopped at an A&P? Bought stuff at a Pier One? Bought a Zenith TV set? These brands were fine, until they weren’t. They didn’t invest in staying up to date, they cut systems that allowed them to compete and serve customers, and they went away (or were in the process of going away).

When I have an experience like I had at Lowe’s, it makes me wonder: how many other people are right now, one by one, turning against a popular brand that failed to invest in customer experience?

Is this happening at Facebook right now? How long can it last with all the parent company’s investment going into the metaverse?

What brands are underinvesting and disappointing customers right now? Who is coasting their way to oblivion? I’d be curious to hear what you’re observing.

Oh, and one more thing.

This same analysis applies to nations.

And it feels like America is coasting