• by John Gerzema , December 2, 2008

As if sub-prime mortgages, failing hedge funds and institutional bailouts were not enough for 2008, there is yet another crisis brewing on Wall Street. Only in this case the assets cannot be traded away or hedged against inflation. The financial markets think brands are worth more than the consumers who buy them think they are worth.

We examined brand and financial data from "BrandAsset Valuator" (BAV), the world's largest study of consumer perceptions of brands. We've invested more than $ 115 million dollars and each year we interview 500,000 consumers in 44 countries. We've tracked consumer perceptions of around 40,000 brands since 1993.

And the numbers tell a story of Main Street offering a very different view of brands than Wall Street. While brand value increased 80 percent in three decades, among 2,500 brands we studied across 14 years of data: brand awareness declined 20 percent; brand quality eroded by 24 percent; trust in brands declined by a staggering 50 percent. And 85 percent of brands were either stagnant or declining in brand differentiation.

Looking outside our research, we saw signs of the Brand Bubble in other studies. Jack Trout and Kevin Clancy's research for the Harvard Business Review found that 90 percent of 42 product categories had lost differentiation over time. Leonard Lodish and Carl Mela, also writing for HBR, reported that consumers are 50 percent more price sensitive than 25 years ago. Further signs of this worrying disconnect emerged as we examined the extent of the gap between business and consumer perceptions of brand value. Among Interbrand's top 100 most valuable brands, 45 percent were actually declining in consumer perceptions according to BAV.

This isn't a brand problem, it's a business problem. Shareholder value is at risk. Today, brands account for 30 percent of the market capitalization of the S&P 500, or almost $4 trillion dollars. The 250 most valuable brands are worth $2.197 trillion dollars, which exceeds the GDP of France. Even the world's top 10 most valuable brands are larger than the market capitalization of 70 percent of U.S. public companies.

Why does the Brand Bubble exist? I believe the changing nature of media and technology has caught brand management off guard, while at the same time the importance of creativity has risen among consumers, raising their expectations of brands.


Blowing Up

In the span of just six years brands have come up against a convergence of forces.

First there's the fragmentation of everything - of channels, choice, modes and mediums. The highest rated show in America, All in the Family, had a 34.0 HH rating in 1972, compared to 14.6 for American Idol in 2008. This means not only are there a myriad of new competitors, it's no longer possible to build a brand on the back of mass media, the way we did in previous decades. Brands must now aggregate audiences through micro-communities and tailor their appeals through bespoke channels.

Second, because of social media (collaboration, communication and sharing, social networks, applications and consumer generated media), consumers trust each other more than brands. A Mediaedge:cia study found that 76 percent of people rely on what other people say versus 15 percent on advertising, and 92 percent of people now cite word-of-mouth as the best source for brand information. Universal McCann found that 74 percent of global Internet users write reviews online, while 75 percent of people consult blogs before they buy, according to Bazazarvoice. Brands have nowhere to hide.

Third, personalization (of products, experiences, mass customization and micro-addressability) means there are no USPs anymore. A brand has a myriad of potential appeals and avenues to be personally relevant. This new paradigm is still difficult for many marketers to grasp, but micro marketing will be paramount to future competitive advantage.

And finally, portable content (RSS, podcasts, video, widgets/gadgets, mobile, slingbox) creates a redefinition of place. Enabled by unlimited storage capability, content is now instantly accessible and easily shared, meaning that consumers no longer distinguish an off- and online world. Marketers have not caught up to understanding this fluidity. Active listening and response is difficult in most organizations that are not yet "marketing nimble."

All of these forces accelerate the decay in brand equity. As the power has shifted from institution to individual, brands are commoditized in compressed periods of time. Consumers are simply quicker to punish uninteresting and stagnant brands.


The Rise of Creativity

At the same time these forces have also unleashed a marketplace thirst for creativity. Today, consumers are not only citizen journalists, they're amateur filmmakers, art critics, design mavens and content syndicators. In this creative renaissance, where consumers expect even inexpensive products to be "cheap chic," they demand that brands continuously surprise and delight them. That's why brands with what we call "energized differentiation" (continuous movement, momentum and direction) - outperform the S&P 500 by almost 30 percent in our modeled fund.

What's interesting is these energized brands are blue chips like P&G, GE and Colgate, who are innovating beyond advertising, such as in product development, corporate social responsibility and sustainability. And there are low interest category killing brands like Geico, Simple Human and Method, who are effective at layering messaging and creating an ethos out of a seemingly commoditized product. There are high-energy brands effectively utilizing design and environments such as Pinkberry, Muji and Uniqlo. And there are brands like Zappos, Innocent and Ikea, for whom creativity in attention to corporate culture and core values resonate with consumers, who see them as more innovative and offering higher quality products and services.

The Brand Bubble is very real and yet, at the same time, it is avoidable. As researchers, economists and planners, our team concluded that brand value is dividing along the lines of creativity: A smaller number of highly creative and innovative brands are creating disproportionate value in our study. What's their secret? Each is unleashing a continuous stream of marketing creativity, product and service innovation, design, advertising, social media mastery, media experimentation and CRM. They teach us that today, everything is marketing and only creativity matters if a brand is to hold its value in this rapidly transforming and unforgiving marketplace.