1/ Consumers increasingly trust Amazon, Stitchfix, and other aggregators to sort and surface the best products, which diminishes the importance of individual manufacturers. This means the algorithm is the new consumer brand–signaling trust and quality.
2/ Brands used to play an important role in an offline world with limited access to information, acting as a proxy for preference, functionality, and quality. For instance: I need to buy detergent, and I trust that Tide will do the job well.
3/ But with ecommerce, algorithms incorporated user preferences, reviews, and product traits, and became smarter with more purchases & data. “Amazon’s Choice” or “recommended for you” fill the same need that brands used to, giving us confidence that we will like something.
4/ The decline in importance of brand is not limited to utilitarian, Amazon Basics-able categories. It’s also happening in categories where brand used to really matter.
5/ In fashion, personal styling companies like Stitch Fix capture data on users’ style and size, and bypass user choice to send them clothing they’re likely to love. If you ask a customer where an item is from, she’ll likely say “Stitch Fix,” not the actual underlying brand.
6/ In the travel vertical, Airbnb and other aggregators have also eroded the power of hotel brands. Hotels represented a certain experience and quality–the name was so important that most public hotel companies’ revenues come from franchising.
7/ But user reviews and algorithmic recommendations chipped away at this brand advantage, enabling independent operators to compete on the same footing as established hotel brands.
8/ As more verticals get “Stitch Fix’ed” by shopping platforms with data network effects and growing user trust, the winners are long-tail brands that can be discovered and build healthy businesses. But the losers are big brands who can’t win on the basis of brand alone.
9/ So what does this mean for founders who are aiming to build consumer companies?
10/ First, the platform always wins. If you rely disproportionately on digital platforms at any point in the purchasing funnel, it’s important to realize that your ability to reach consumers depends on a black-box algorithm.
11/ Secondly, not all consumer categories are created equal. Some are less prone to algorithmic disruption than others. In some categories, brand will remain important for years to come. More attractive categories for brand-building include:
12/ a) Categories where look and feel and emotion matters just as much, or more, as the underlying function. No one will ever say to Alexa, “Buy a smartphone” because they care too much about the intangibles of look and feel.
13/ Many women are happy to pay an extra $30 for a Dior mascara even though there’s widely known drugstore dupes, simply because of how it makes them feel.
14/ b) Categories where people’s taste is hyper-unique and specific. Food is a literal example of this: there’s actually preferences at the chemical level. Being a Pittsburgh native, I will only eat Heinz ketchup because it actually tastes better than other brands!
15/ c) Categories where brand is closely tied to a sense of identity. Strong brands can create a language for self-expression, where having their product feels like gaining membership in a club.
16/ I’d wager that ridesharing and AVs will be more disruptive to lower/mid-tier car manufacturers where the product is viewed as a utility, vs. luxury brands where ownership is just as much a signal of personal identity.
17/ Outside of the core product, there’s also a universe of other factors that can serve to shore up brand defensibility–for instance, the content and community that build user loyalty and foster an emotional connection. Or, a unique shopping experience that serves as a draw.
18/ And removing yourself from the algorithm entirely can also work, if you can get enough leverage. Existing outside of aggregators like Amazon, and creating a standalone presence for your brand online and offline is a sure way to own the end customer relationship and mindshare.
19/ Overall, the winner in this shifting power balance between aggregators and brands is the consumer. We’re lucky that instead of spending time & energy sifting through products, or relying on brands as shortcuts, we now have access to services that do the hard work for us.