Transcending Market Polarization

The digital transformation over the past 20 years, and now the rapid development of artificial intelligence-driven services, are together accelerating the transformation of the market. The increasing fluidity of the latter, by better connecting buyers and sellers but also anticipating user behaviors, is boosting the underlying trends impacting many businesses. One of the major impacts we are observing is the bipolarization of the market, with full-utility brands on one side and love-niche brands on the other side [This is our modern reading of the old duality between mainstream, a mistakenly prevailing current relying on a lack of granular consumer knowledge, and niche, a historically isolated small tribe focusing on a specific topic]. The first group can be illustrated racing to be present on every platforms, expanding vertically and horizontally, to become always-on commodity brands to consumers. The latter however relies on a very targeted platform approach, part of its brand equity, heavily leveraging community engagement. We could identify the first group with a company like the one-stop-shop Amazon, and the second one with the highly engaged Patagonia or the whole Luxury Goods industry. Even though I am opposing them here, both sides of the spectrum are looking at the other side to evolve.

This bipolar transformation of the market is forcing many incumbents in all industries to pick a side. One could argue that most of them are stuck in between, in the underbelly, because of their historical position. Lots of players (e.g. Banking, Telecommunications, Energy/Utilities, etc.) have enjoyed oligopoly markets, whether it be for regulatory reasons, a proactive consolidation strategy, or both. Most of these companies have above all leveraged asymmetry of information in their respective markets to generate profits. Both factors are being fundamentally challenged today, in light of lower entry barriers and better information circulation. We can notice strong developments to increase transparency, with a direct impact on the added value of some intermediates, would it be for the supply chain of food retailers (e.g. provenance tracking) or the media buying processes of CPG brands (e.g. bots and fraud). It’s now even more relevant to read the already 10-year-old paper Goodbye Pareto Principle, Hello Long Tail from the award-winning MIT Sloan professors Erik Brynjolfsson and Duncan Simester.

It’s interesting to notice that for most incumbents the natural answer to this exacerbated bipolar market structure is to go full commodity, expanding in all new available platforms, jumping on most of new technologies, maintaining their domination with full multi-platform presence. It looks like a logical answer, aligned with the historical oligopoly structure of their market. We could however question if this is the most relevant strategy. A first analysis leads to question the financial return, as it appears growingly risky and costly to stretch brands. We can observe that these related horizontal developments seem to be connected with several rebranding initiatives to emancipate from historical verticals (e.g. the recent Dunkin’ Donuts to Dunkin’). And overall such an utilitarian approach leads to redefining the competitive landscape of the company, as most of corporates will look for a vertical domination or some sort of expansions nearby. We have the recent example of AT&T buying Time Warner for content and Appnexus in the ad tech space. But it looks like strategic moves comparable to what we have seen in Europe 10 years ago, which led nowhere. If one of their main competitor is Amazon, which is apparently using entertainment as a free asset to engage in an ecosystemic monetization where the output is e-commerce, then the AT&T strategy should reflect a much different market structure.

Could we however argue the niche brand, bottom-up strategy is better and realistic for everyone? The first question popping up is the longevity of such approach and its capacity to grow over time, beyond its original scope without falling into the same “market underbelly” situation. In opposition to the market structure described above, examples of niche brands have to be found in markets not suffering from monopolistic and oligopolistic situations due to concentration and/or regulation. Thinking about B2C verticals, Food and Fashion industries seem to provide some good illustrations of brands that have performed excessively well in their respective niches but have also expanded beyond to become somewhat mainstream. This trend should be reinforced over the coming years now that these same brands can bypass retail intermediates such as supermarkets and retail chains, through more (online and offline) direct-to-consumers strategies. Vans and more recently Lululemon are two examples of brands which seem to be resonating far beyond their original reach.

A constant and subtle attention to culture trends is a key factor behind the mass reach of brands like Vans. If the latter was part of the uniform of the Californian skateboarding scene of the ’70s, Vans experienced a first “mass market” boost thanks to the 1982 blockbuster Fast Times at Ridgemont High (thanks to Sean Penn). Over the past 4 decades, Vans has stayed close to relevant cultural trends, being for example the first shoe brand of the rock scene. From a financial return point of view, the success has been impressive over the past decade since the company has been acquired by VF Corp. The brand has proactively developed partnerships with talents like Metallica and Marc Jacobs, as well as co-branding initiatives with brands like Supreme and SpongeBob SquarePants. Another great example of strong culture ties is the success of Beats Electronics, even though it’s more endemic to the business of the company. It culminated in 2008 with headsets seen on the ears of every member of the U.S. Olympic basketball team in Shanghai. It is no surprise it was soon acquired by Apple, which might be the best example of all of a brand making waves far beyond what should be its natural reach based the price of the devices.

Overall, what looks like the best strategy from here? Brands have to challenge their current storytelling and especially their approach with the platform fragmentation. It might force several incumbents to scale back in order to redefine their brand DNA. AI and other technologies are structurally redefining business models and not just adding a new layer of complexity. Brands can now transform every touchpoint into transactional platforms (e.g. shoppable Instagram posts). By doing so, brands will be aligning with a fast-changing decentralized market structure relying on fluidity and security at every node of the network. From a communication point of view, it favors a shift back to communities, at every scale from the neighborhood to global niches, in order to create relevant engagement. This bottom-up approach has to rely on strong cultural investments to expand the reach far beyond a presupposed niche.

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