Brands like Peleton, Our Place and Away, to name a few, all operate on this idea of elevating your social status. But as the economy starts to turn, people see their investments going down, they hear about rising inflation, they see layoffs in the news, and everyone starts to “feel” less wealthy. Young consumers start to think that maybe that paying premium prices was never a great idea, and that now it’s time to be more intentional about spending.
A “brand” is a differentiator that helps companies stand out from the competition. But brands are not multipliers that change the fundamental business models of product companies.
We will continue to see hot brands pop up and take the popular narrative by storm, but I think that the hopes and valuations for these brands will be lower than we’ve seen from the famous brands that emerged in the last decades.
The time of hype and optimism about business models and how companies can sustain growth have changed. And brand-only plays can easily be attacked by challengers to the space who are able to differentiate themselves on any number of dimensions.
As the pace of innovation continues to increase, any small edges will be competed away more quickly than ever. Just look at the craft ice cream category. Ben and Jerry’s used to command a premium above brands Friendly’s and Hood. Now, Van Leeuwen, Tillamook, Jeni’s and more are distributed widely taking the top of the market pushing Ben and Jerry’s down market.
In every industry there will be new competition pushing existing companies to be cheaper, in a race to the bottom. But the new competition is just as susceptible to challenges, and their prices will compress lower, narrowing margins for everyone.
In summary, brands are powerful, but if a brand is all you have, there will always been another one on the horizon to challenge you and steal market share. Use the brand to get attention and build a defensible business.