Tech and the Rules of Business

Proctor & Gamble recently announced that it would shed more than half its brands. The tech world took this as a vindication of how they redefined the rules of how to run a business, any business. Marc Andreessen tweeted:

“Steve Jobs legendarily used strategy of cutting brands & SKUs for Apple's turnaround.”

The reasons can’t be that simple, right? Ben Thompson had a much better analysis of why P&G had to do what it did. He starts by defining the concept of one’s identity in the branded goods world:

“The concept of identity is about a person’s own personal conception of who one is and one’s place in the world. It is this definition of identity that is at the root of effective branding.”

Thus, he says Dove’s recent ads that show “regular” women (i.e., not stunningly models) are aimed at women who want “to reject society’s expectations and to embrace your identity as a woman”. Axe’s ads, on the other hand, he says are meant “to drown insecurity and affirm your manliness, whatever that means.” Note, he says, both Dove and Axe are owned by the same company: Unilever! There’s no contradiction here: what Unilever is doing makes perfect sense because one brand does not fit all.

In consumer markets, Thompson points out that occupying maximum shelf space with your products is a good way to ensure dominance. What’s easily visible is what gets bought in the stores.

But the Internet had affected this market. How? Advertising, for one, is a lot cheaper online. So even smaller companies are getting themselves known and noticed. The returns on the gazillion brands of P&G, apart from the top ones, are diminishing, if not turning lossy.

The other way tech has affected retail is via the search feature of online stores:

“Because search is initiated by the customer, you want that customer to not just recognize your brand (which is all that is necessary in a physical store), but to recall your brand (and enter it in the search box).”

And:

“If prospective customers do not search for your brand name but instead search for a generic term like “laundry detergent” then you need to be at the top of the search results. And, the best way to be at the top is to be the best-seller.”

Both of the above aspects can be addressed by having big brands only. Having a zillion mini- or micro-brands that were there only to fill shelf space (to hide the competitors’ products) doesn’t work anymore.

And so yes, while tech is indeed changing the business world, the reasons are not as simple as “Steve Jobs redefined the rules of how to run a business”.