LadderingApril 12, 2019
From the end of WWII until the introduction of Google, the gangster algorithm for shareholder value was simple — create a mediocre, mass-produced product and infuse it with intangible associations. You then reinforce those associations through cheap broadcast media, which occupied the average American for five hours a day. The Brand Era grabbed the baton from an out-of-breath manufacturing sector. Firms like McKinsey, Goldman Sachs, and Omnicom built the workforce and infrastructure for a booming services economy. The Brand Era created gurus, marketing departments, and CMOs, and kept black town cars lined around the headquarters of Viacom and Condé Nast.
The introduction of Google spiked PSA levels among the brand industrial complex. Technology fueled by cheap capital is the cancer metastasizing across the brand corpus. There is a strong argument that “they” had it coming. Remember classifieds, Sharper Image, and cabs in SF? Investors, hoping to get in on the ground floor of the next Google, have hurled Benjamins (times 100 million) at a marginally better product until it became (or not) exponentially better than traditional products.
The new uber-algorithm of our age is a 100x better product, enabled by technology and fueled by cheap capital. Elizabeth Holmes may or may not be found guilty of fraud. The more interesting question is what would have happened if Theranos had secured another $1 billion in capital. Vision is Latin for “fake it till you make it.” The lines that distinguish vision from fraud? Lying, and not closing your series D.
Brand = Irrational
Brand, on the other hand, is Latin for “irrational margin.” Buying a Porsche or a Birkin bag makes no sense, or at least the prices we pay are certifiably loco. But the intangibles surrounding the steel and leather objects make us feel younger and more attractive, which leads to irrational decisions that are driven by the third brain — not the ones in your head or your gut. The third brain, the genitals, is void of common sense. Brands have no time or patience for people who are rational.
Apple is the last of the Jedi, the original gangster brand. Unlike other hardware firms of the 80s and 90s (Dell, HP, Microsoft), Apple jumped from the tech sector into the luxury sector and justified its irrational margins through the old-fashioned, and dying, art of brand management. For decades the Cupertino firm foisted underpowered, overpriced products on us so we could believe we, like Muhammad Ali and John Lennon, were part of a cohort that thought different. No, we iPhone owners don’t ruminate uniquely; we spend $1,250 on a product that costs $450 (over 60% margins) so we can convey to others we are members of the global affluent creative class, who can afford luxury products that signal worth to potential mates.
Positive / Negative Light
One of the powerful tools of brand management is laddering. Note: the previous sentence is a lie; I invented the term, or am using it in a different sense than its original definition, and am hoping it becomes taxonomized into the schematic of brand building. (Further note: I’m not entirely sure what “taxonomize” or “schematic” mean.)
Apple’s key attribute isn’t privacy but the dimension that NYU Professor of Strategy Sonia Marciano would say has the greatest “variance.” Android phones submit data to Google 10x more frequently than iPhones communicate with Apple. Apple has walked the walk here, refusing to help the FBI unlock the iPhone of a terrorist. The wrong thing to do, in my view, but disciplined brand management.
Traditional marketers believed that the cause and effect of branding were broadcast advertising and a price that outpaced the quality of the product. Amazon, Facebook, and Google are the antitheses of that model. Big-tech brands, sans Apple, instead are utility-like monopolies that are either free (Facebook, Google) or offered below cost (Amazon, Uber). As the sun passes midday on the Brand Era and we enter mid-morning of the Monopoly Era, Apple will pass the baton of the most valuable firm in the world.
Google and Facebook are products that established monopoly power through genius code sitting on top of media, a business ripe for disruption. Amazon is another monopoly that made the jump to lightspeed with near-zero cost of capital. In sum, cheap capital is kicking the crap out of brand management. As a result, a handful of monopolies are enjoying, well … monopoly power and rewards.
Walmart, sensing their opportunity to clap back, responded:
Mr. Brooks’s answer: “Keep it to yourself.”
Life is so rich,