Brand or business model power?

Yellow Tail offered more than a new brand, however: in the United States, it provided a new business model based on distribution. This was the number one problem to be resolved in the United States, bearing in mind that there are three levels of distribution there, as opposed to only two in Britain. The revolution was the business model. In Britain, where Yellow Tail arrived years after Jacob’s Creek, its strategy did not work. It was Jacob’s Creek that enjoyed the pioneer effect with itsnew business model.

Easyjet and Ryanair are more than just new and reassuring brands at low prices. They offer a radically different business model, that the regular airlines are unable to copy, since it is so widely opposed to their own model. This is why British Airways failed with its subsidiary, Buzz (it was perceived as a subsidiary however independent it actually was). In contrast, British Airways exploits to the fullest the structural advantages of the ‘hub’ business model, which offers great flexibility to international travellers.

The fundamental lesson to be learnt here is that the brand is not a self-sufficient asset. By itself, it can do nothing: it is therefore conditional. It only produces its effects in interaction with the business model that supports it. This is the case for all successful new entrants: Dell, eBay, Google, Zara and so on. Take textiles as an example. Everyone emphasises the extraordinary rise of the Zara brand worldwide, providing high fashion at low prices.

To make this possible, however, it was in the mode of management that Zara really innovated. It managed to destabilise all those low-price competitors, such as Promod and Kiabi, that ran on different business models and therefore were not able to adapt. Zara is based on the fast turnover of small stocks of each item. The shortage of each garment is organised as a system of desirability promoting regular customer return to the shop. It treats the shop as a theatre stage, does no advertising, and has a remarkable system for eliciting qualitative information on the latest customer expectations.

On the other hand, unlike its competitors Zara does not manufacture its clothing in China, in which case it could expect only two deliveries per year. It needs greater flexibility, which can only be obtained through a swarm of dedicated SMEs producing goods close by. In mass consumption goods, it is notable that German-style hard discounters offer a better quality/price ratio than cheap products launched by the supermarkets in an attempt to resist them. This is due to their business model: the Germans launched on the basis of long-term agreements with reputable manufacturers, who could then invest in the production of a very restricted number of products. This therefore reduces the cost price, but the products remain of good quality.

The supermarkets for their part are resistant to anything that ties them to a single supplier in the long term; their business model is based on being able to permanently exert pressure on their sources, and change them at the first opportunity. There is a fundamental difference between buying merchandise at the lowest price, wherever it may come from, and creating an industrial and logistical system to produce a product of acceptable quality at half the price, from reliable suppliers.

It is therefore time to recognise that the great novelty of the 1990s was the appearance of radically different business models, opening the market to previously unknown and innovative actors. The brands already in place proved no barrier to their entry, since the newcomers’ business models completely overturned the range available. They provided value innovations. The brand is an active conditional: it depends on the quality of its business model. Now, to struggle in ultracompetitive circumstances, it is therefore necessary to become more strategist than marketer: that is, to integrate the brand into an original and effective business model.

The error of Virgin Cola in the United States and Europe was to believe that its brand would be enough, and to opt for roughly the same business model as Coke and Pepsi, without the resources and practices that it implies. In the field of mass-consumption goods, modern marketing is no longer B to C. Virgin believed in the consumer. However, it was the distributors that wanted none of it. The product was distributed only through Monoprix and Auchan in France, for example, and that was not sufficient to make the operation profitable. Virgin’s brand capital is not self-sufficient.

Other brands, such as Red Bull, have sought to bet on distribution channels in competition with the supermarkets in order to either loosen the stranglehold, or bypass it. The great good fortune of ready-to-wear clothing brands with their own points of sale is not accessible to many mass consumption product brands.

They nevertheless seek to use other circuits as levers of prescription, even of sales. Thus, Roquefort Papillon owes the durability of its premium image to the fact that it was launched exclusively in cheese shops at the time when the market leader, Société, was betting on mass distribution. In order to create a shampoo brand today, it is best to begin from a hairdressing label and create a complete range under licence in this name, sold in major shops: this business model was created by J Dessanges for l’Oréal. It has since been taken up by J C Biguine, J F David and others. At l’Oréal, every brand in fact has a different business model.

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