What will 2011 bring? Interbrand predicts the year to come for brands by sector
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What will 2011 bring? Interbrand predicts the year to come for brands by sector
Airlines by Stuart Green As we enter 2011 we are witnessing a stronger than expected recovery in the global airline industry with increased demand and more stable cost structures. After numerous profit upgrades, the world’s airlines anticipated a profit of $US 15.1 billion in 2010. However, the current recovery remains fragile with Europe lagging behind with expected losses of US $1.3 billion in 2010 and Asia and Latin America surging, indicating a very divergent global picture. Furthermore, net margins in the airline remain extremely low at 2.7 percent (and are expected to fall further to 1.5 percent in 2011) because airline recession strategies often centered on realigning to deliver value to customers through low prices, co-branding, and packages. This is an industry that already contends with many factors out of its control such as huge capital requirements, high operating costs, government policies, a reliance on ground operating systems, strict aviation regulations, strong labor unions, pressure
from environmental groups, not to mention volcanic ash clouds and of course the weather! On top of all of this, airlines will have to get used to being in a constant state of flux driven by evolving demographics, the influence of technology and changing customer demands. Post-recession strategies Consolidation has continued as airlines struggle to adapt to a post-recession era of lower profits and price competition. Following the merger between Delta Airlines and Northwest Airlines in 2008, United Airlines and Continental Airlines announced a merger in May 2010, and Southwest has announced its planned acquisition of AirTran to increase economies of scale and competitiveness. In 2011, expect to see more of the same. British Airways and Iberia have already agreed to a five billion pound merger in order to expand their international presence and airlines in the Asia Pacific. Emerging markets Global travel will continue to expand with the main growth coming from Asia and emerging markets. It’s estimated that by 2020, Asia-Pacific will account for nearly 22
percent of arrivals, up from 18.3 percent now. Asia Pacific will also account for nearly 32 percent of all travel spending, up from 21 percent today. A huge potential revenue stream will come from catering to travelers from emerging markets, particularly Brazil, India, Russia and China. However, a key challenge for many international airline brands will be how they cater to very different customer tastes. Cross-selling opportunities We continue to see an increase in the growing importance of ancillary revenues and earnings from non-core operations with airlines increasingly unbundling products previously included in the ticket price, such as seat assignment and passenger preferences for meals, entertainment, and internet access. Longer-term, we may even see greater variety of cabin classes catering to differing customer tastes and affordability. There is also a huge opportunity for the more “trusted” airline brands to further cross-sell services provided by third parties
What will 2011 bring?: Interbrand predicts the year to come for brands by sector
such as insurance, car hire and hotel rooms—providing a more seamless customer experience. Technology adoption Adoption of mobile technology for both entertainment and business needs will continue to transform the in-flight experience, for better or for worse. Brand owners need to have a clear strategy that aligns all aspects of the customer experience around their brand promise to determine what and how technology is implemented. On the ground, the travel industry continues to be transformed by social media, with large numbers of consumers choosing to book accommodation, flights and activities directly online, based on the advice of fellow holidaymakers and travelers. Twitter, Facebook, Flickr, YouTube and online blogs have been used as advertising and promotion platforms, and some airlines have developed iPhone apps for online booking and check-in, targeting specific market segments and developing brand loyalty to the carrier. Ultimately, airlines will increase profitability in a sustained way by creating unique customer experiences that are meaningful and relevant, with a clear understanding of which touchpoints are genuine drivers of purchase. Airlines that continually question their business models and adapt to constant changes in customer behavior will be those that prosper most in 2011 and beyond. Automotive by Andrew Martschenko After a year of structural realignment and incentive-driven sales, the forecast for the automotive sector looks more optimistic. While consumers’ value-driven mindset appears to be more or less permanent, 2010 showed signs that the overall health of the market has been getting stronger.
Key markets likely to catch up Most global manufacturers will continue to focus their growth on Asia, specifically China. However, some markets such as the U.S. and Southeast Asia, are demonstrating some level of stability and confidence. Indeed, if the economic signs continue to tread positively, there could be a mini surge on the horizon, as a downturn tends to drive up the average age of vehicles on the road. And yet, while all signs point to an upswing in key markets, the 2010 expiration of government incentive programs in a number of European and Asian markets could lead to a drag in Japan, Germany and China, which have benefitted from these subsidies. Setting the new normal In 2011, expect to see a continued push and pull between old habits and new. The Electric Vehicle (EV) movement seems to heating up, even while light trucks, including SUVs, crossovers, minivans and pickups, have been the fastest growing vehicles in the U.S. in 2010. While EVs are legitimately gaining momentum, if petrol prices remain within a reasonable range, U.S. producers could revert to their old image as big, bold and not so good for the environment. Still, there is much in favor of a massmarket adoption of electric cars in the next few years, as global manufacturers continue to invest in newer, cleaner technologies, infusing these efforts into their core brand foundations. While adoption by the mass market is likely to take more than a year — prolonged due to a fair share of naysayers — the difference between now and the first attempt with EVs is that carmakers, policymakers and infrastructure providers are working together to align their roles and objectives. Over the next five years new emission standards
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will begin to kick-in across many developed markets, stimulating the industry to produce vehicles with significantly lower CO2 emissions. Companies such as GE, which are looking to convert their fleets to zero emission vehicles, will also provide momentum. Additionally, the thought of driving your car anywhere from 35-90 miles on one charge per day at just US$ 1.50 per charge may be enough for customers to overcome their range-anxiety and skepticism over the initial cost of the vehicle and the fee for setting up their charge station. And who can argue against the cool navigation systems and smartphone apps that allow you to control a number of vehicle functions in the palm of your hand? By the end of next year, expect to see the EV infrastructure gain broader, public visibility and demonstrate that EVs are a viable alternative. Also expect to see this year’s trailblazers, the Chevrolet Volt and Nissan Leaf, joined by other alternatives — lower emission vehicles, such as Fiat’s methane-propelled Punto and a plug-in Toyota Prius. While the conversion to EVs may not be immediate given the complexities of getting these new vehicles to market, the EV is likely to be the innovation that redefines the automotive landscape. The survival of the fittest For the few auto suppliers with a global footprint, 2011 will be more stable. But for 75 percent of the industry, it may be a challenging year that permanently seals their fate. Many auto suppliers have exceedingly high debt levels, and the market can expect a number of bankruptcies and more intense consolidation among smaller, less diversified businesses. Global manufacturers will also continue to focus on developing products that are designed for their home market as well as key international markets. Deploying one global platform for compact vehicles appears to be the strategy that
What will 2011 bring?: Interbrand predicts the year to come for brands by sector
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The global economy is by no means in full recovery mode, and business consulting organizations stand to benefit.
a number of North American, European and Asian manufacturers are betting on. The technological complexity and tight configuration of vehicle components will also breathe life into dealer service bays but may do so at the expense of local installers and traditional distributors of aftermarket auto supplies. 2011 should carry over a significant number of challenges in the industry, but the automotive sector overall is poised for a more prosperous year. Business Consulting by Josh Feldmeth Talent and navigation The global economy is by no means in full recovery mode, and business consulting organizations stand to benefit. Ambitious long-term hiring and growth plans are taking shape as business consulting providers gear up to play the role of post-crisis navigator to CEOs looking for growth. Businesses that build distinctive employee brand propositions and integrate across silos and borders will win. Here are four trends that will define the category in 2011. The growth challenge Most CEOs predict growth for their businesses in 2011. It’s easier said than done. Major economies are still structurally unsound. The Eurozone is teetering. Technology and innovation is moving rapidly and sure-bet growth markets (think India and Brazil) are a mystery to Western managers. Business consulting firms will play an essential role in defining strategies for achieving growth within this challenging operational environment.
Regulatory navigation The crisis provoked governments into sweeping legislative reforms. The Heritage Foundation estimates that in the U.S. alone, the cost for new regulations in 2010 is over US $26 billion. Making sense of these new regulations falls squarely on the shoulders of the lawyers, accountants, consultants and financial advisors of the professional services sector. After Enron, business consulting firms evolved their roles to provide greater transparency and compliance services. Post-crisis, they will evolve further to become regulation navigators, steering boards and managers through the thicket of government reform. Talent test Because of the first two trends, everyone wants to work for business consulting firms. According to Universum’s study of the world’s most attractive employers, in 2010, KMPG was the second most attractive business employer in the world, E&Y was the third, PwC was the fourth and Deloitte was the fifth: All ahead of prestigious bonus factories Goldman Sachs and J.P. Morgan. Do you see a pattern? BCG, McKinsey, Bain and Accenture are also in the top 50. Being one of a small number of ideal employers is a good problem to have. But it’s still a problem. These firms have ambitious hiring targets over the next five years. And they will likely fill those spots. However, the brands that develop the strongest employee value propositions will win the best talent. And talent in this business is just about everything.
Global oneness The top services players are massive global organizations. Accenture has 200,000 employees. Deloitte has 170,000. KMPG, the smallest of the big four, has roughly 140,000 employees. And unlike product organizations where people work behind the scenes to build brands, services are delivered directly to clients through nearly every one of these employees. It’s impossible to deliver a consistent promise and experience across such vast networks of ambitious and autonomous employees. Most large business consulting employers can’t even communicate to all their employees, let alone orchestrate behavior and team selling strategies—but they must. They may have grown up in partner and specialist models, but the new role of the post-crisis navigator demands client-centered thinking. The partners that wrap their advice and services around clients holistically will be best positioned to lead their clients into the cloudy yet thrilling markets of the future. Businesses that progress in 2011 will be those that craft a richer experience with the brand in the digital space. With distractions like device, interface, application, and platform, it’s easy to lose track of the importance of a meaningful message and an on-brand journey. Therefore there are five related areas for brand owners to focus in 2011 and beyond.
What will 2011 bring?: Interbrand predicts the year to come for brands by sector
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Digital interaction needs to move beyond functional and branded look-and-feel to a full experience reflective of the brand throughout the user’s journey. Digital by Robin Rusch The journey defines the brand Brand owners need to be asking themselves: Is the digital experience delivered on brand? I don’t mean usability (which ensures a user achieves his goal), but rather user experience. So, was the user delighted by his or her experience and was that journey reflective of what one would expect from this particular brand? Interface draws an audience in, but the user’s experience throughout the interaction is critical to the impression of the brand. Offline this would take the form of an onbrand experience: from the shop front to the merchandise, from the dressing room to the store employee, from the cash register to the packaging, from returns to the customer service hotline, direct mail promotions, and so forth. Digital interaction needs to move beyond functional and branded look-and-feel to a full experience reflective of the brand throughout the user’s journey. Is this the experience one should expect from this brand? Next generation convergence It’s a term we’ve heard for years in regard to devices. When applied to brands, convergence does not just ask do different interactions look the same, but rather do different interactions also act the same? Whether your customer is engaged with the website, app, podcast or dashboard, the entire experience should be recognizable and reminiscent of all other previous points of interaction with this brand.
Ideally as brands launch new products or services, the consumer will intuitively adapt and adopt because he or she is programmed to know it from all other interactions with the brand. Personal access without the burden of ownership Spotify, Zipcar, cloud storage — all wildly popular despite the consumer ceding the privileges of ownership. Turns out we don’t always need to own things; we just want to feel like it’s ours when we want it and for the duration of the interaction. That can be achieved by weaving personalization and individual preference into the service or product. Providing a feeling of “mine” could involve programming an individual’s unique settings, but it also applies to smart services built in for general population groups. For example, tying in related interests based on typical population profiles, providing alternative functionality for low-bandwidth locations, or recognizing special needs groups with features appropriate to their abilities. Getting to know the consumer One way to deliver that individual experience in a shared service is by capturing user preferences and tailoring the journey. Employing artificial reality (AIML) or intelligent behavior personas, a system learns the user and tailors paths, content, and experience to the level of a user type or specifically for the individual. This personalized experience helps foster brand loyalty as the consumer feels that the brand gets him or her. Of course, consider your audience and don’t end up defining your brand as “creepy.” It’s a fine line when
employing artificial intelligence or behavioral tools — you have the opportunity to either delight or disturb with the uncanny knowledge of a user’s behavior. It’s the message not the medium It’s easy to get caught up in the medium and forget content and message. Whether it’s a social media opportunity or a 3D depiction, the content must be reflective of the brand. In fact we can argue that there will always be a new thing on the horizon — five years ago Twitter, iPads, and 3D television weren’t on the scene, but the value and importance of what is actually communicated will never go out of fashion. Energy by Tom Zara In 2010, the momentum of innovation and initiative was blunted. The core tenants of powerful brands, such as trust and relevancy, were compromised by the notoriety of greed and ignorance in the Gulf of Mexico and partisan politics and indecisiveness at the Copenhagen Climate Conference. In the past 18 months, we have been witness to the fact that neither regulatory nor political might has had a material effect on energy management and global energy policy. But the temptation to dwell on the negative must be resisted. 2011 will be the antidote to 2010. More so than ever before, brands will be the lightening rod that forges new relationships with consumers, both educating and rewarding smart energy living. The power of brands will invoke new behaviors. A change in perceptions and attitudes will contribute
What will 2011 bring?: Interbrand predicts the year to come for brands by sectors
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In 2011, we can expect a continued antagonism between the state and banks.
to a broader awareness that the reduction of dependence on diminishing fossils fuels is both a personal and societal choice. Shell, Exxon Mobil, IBM, GE, EDF and Pacific Gas & Electric, are just a few of the global energy and technology brands that are investing significantly in developing innovation to better manage and distribute energy in responsible and efficient ways. The collective brand building efforts of the category will ultimately change the regulatory and consumer landscape to embrace new and responsible energy behaviors. Climate change is no longer debated as glib sentimentality from a misguided scientific community. The changes to our planet are poignantly documented in the headlines each day where record highs and lows are commonplace and the new norm is the unexpected. For brands in this sector, there’s a new urgency to address the consequences of a global population explosion, mass urbanization, and geo-political unrest. And yet, brands in the energy sector will need to do more than simply broadcast their intentions. In the end, they will be measured by their actions. Look to 2011 as the year when innovations in automotive, home and industrial energy consumption will herald a new movement in smart energy living. There are high expectations that the ills of the recent past will fuel the energy sector to lead a global campaign that encourages and rewards responsible energy consumption. Now is the time for brands to change the world for the better.
Financial Services by Julian Dailly Banks will keep a low profile as they aggressively rebuild In 2011, we can expect a continued antagonism between the state and banks. The events of the last few years have required the state to play a larger role in creating stability through bailouts and legislation. Consumers continue to be outraged at banks’ resistance to disclosure and their complicated answers and defense of the status quo. Overall, in many consumers’ minds, the sector appears unwilling to change its attitudes or behaviors. Still, despite public opinion, financial service brands have continued to profit and grow. This and their quick return to pre-downturn bonus culture are evidence that cultural reform may not be required to safeguard shareholder returns. In 2011, expect traditional banks to lie low as the drama continues to play out. Also expect opportunities for genuinely ethical, service and end-user oriented brands to enter the fray. Banks will become the scapegoat if governments can’t fix economic problems The legislative framework through which financial services sector gains its license to operate may become more difficult to navigate if the recessionary climate hardens. Politicians are keen to sidestep their own responsibility for the situation and are likely to reframe their own economic mismanagement as the greed of the financial services sector — as the recklessness and misalignment with society in general.
Expect more CEO’s in select committees and punitive reporting requirements of banker bonus allocations. Also expect challenges to the assumption that banks must be profitable and are too big to fail. In 2011, banks will be challenged with making the case to society that they need substantial freedom to operate sufficiently. Challenger brands will take on the dominant players With large parts of the retail banking model commoditized and product innovation deemed “not worth it” there is a space in the market for consumer retail oriented banks to enter and differentiate when it come to service. Those that focus on service can steal share from traditional banks that can’t deliver. Expect to see this occur primarily in the developed work world. This challenge will expand out from core banking services based on clients’ requests. Also expect to see criticism of pan-regional payment brands like Visa and MasterCard. Customers will see fees as too high, share too dominant, and competition as ineffective. As a result, payment methods that claim ease of use will be developed. Innovations linked to web payment and low-cost, peer-to-peer money transfer are also likely. Basel II driven consolidation will drive out risky activities by banks looking to be bought and decrease local communities’ access to credit Compliance with new balance sheet stability rules means large, unstable banks will buy and integrate many smaller, less risk-hungry banks to improve their overall asset mix.
What will 2011 bring?: Interbrand predicts the year to come for brands by sector
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Attracting younger “digital native” consumers demands that many historic brands immerse themselves online.
Unfortunately, the losers here will be smalland medium-sized businesses looking for credit lines. As smaller banks try to avoid looking bad in their quest to attract picky buyers, expect continued frustration from small business folk unable to get credit, expand or start new and risky businesses. Life insurance companies will be increasingly seen as attractive choices for a wider range of financial services needs Insurance companies are getting better at presenting themselves as credible suppliers of more financial services products — from savings and mortgages to complex investment products. The blurring of the boundaries in the sector means banks will have to work harder to secure the deposit balances required for lucrative lending. Nevertheless, there continues to be a lack of delivered surplus needs in either sector — personal identity, usage experience or aspiration — leaving the door open for a challenger brand to enter the market. Banking will continue to be viewed as a dirty business The bonus culture rolls on, but at what cost? Large investment banks continue to attempt to please and sustain their employees even as general public perceptions grow more negative. As the world teeters on the edge of another recession, people are wondering, “How come we’re still in their mess and they are back to their old ways?” Consequently, bankers are increasingly seen as disconnected and aloof. This threatens the employee proposition at the graduate and middle manager level. Expect lower trust scores, less effective corporate citizenship investments, and less corporate citizenship activities overall.
Food and Beverage by Bill Chidley Seeking social equilibrium Stalwart brands McDonald’s and Coca-Cola represent a new challenge as we enter the next decade: How to be socially responsible when you have persistent demons. As Coca-Cola rolls out its plant bottle (partially comprised of polymers from sugar cane) it is under escalating attack from governments for causing obesity. In an attempt to curb consumption, The New York City Health Department continues to air PSA’s promoting the excessive amount of sugar in soft drinks. Meanwhile as McDonald’s seeks to provide healthier alternatives such as oatmeal on its menu, San Francisco’s board of supervisors voted to ban the majority of McDonald’s existing Happy Meals, claiming that it is illegal to offer free toys with meals that exceed certain limits on calories, fat, and sugar and do not include fruits or vegetables. These two examples reflect the tensions inherent in transitioning a brand to a new age of social responsibility in the age of omnipresent media attention. In the coming year these stories and others will likely overshadow responsible initiatives. Fueled by coffee Starbucks is committed to staying relevant, driving growth, and grabbing headlines in 2011. The coffee icon seeks to expand its retail business even if it means battling long-time partner Kraft Foods in order to control its lucrative packaged coffee distribution. As Starbucks continues looking to Asia for store growth, the battle in North America is against McDonald’s for share of coffee occasions. Watch to see how Starbucks’ strategy to leverage recently repositioned Seattle’s Best
Coffee in QSR channels (Burger King and Taco Bell for example) bodes for overall revenue. Meanwhile the crowded QSR category will continue to promote breakfast as a new occasion to drive brand relevancy and frequency. With chains like Subway and Wendy’s adding breakfast fare, it will be interesting to see if the majority of growth comes from switching McDonald’s customers or bringing their loyal lunch users into the new day part. If the later is the case, the conundrum is whether core lunch customers will “double dip” and visit these chains more often or just trade lunch visit habits for breakfast habits. Spirits on the move In December, Fortune Brands announced its intent to split into three businesses so it can better focus on developing its distilled beverage brands and face off with Diageo globally with a stronger bourbon portfolio. In mature markets, all spirit brands will seek to drive consumption to fuel growth and bring new users into their franchises. Attracting younger “digital native” consumers demands that many historic brands immerse themselves online and in the mobile environment. New offerings — like green tea Vodka from UV — use product innovation to attract these younger consumers. In-store promotions remain a critical volumebuilding tool across a fragmented and regulated distribution network. Increasingly the spirits business is looking to developing markets for growth, but the challenges are many; for example, adapting to local tastes and determining how luxury beverages may need to integrate into old consumption patterns and palates. As access to alcohol and Western style marketing hit developing nations, look for governmental regulations and pressure from organizations like the
What will 2011 bring?: Interbrand predicts the year to come for brands by sector
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As demonstrated in this sector, the best innovations often come during lean economic times.
WHO to intervene and set the policy on consumption and distribution. In developing markets, fashion and trendiness are still alive and well as drivers of trial and consumption. Off the back burner Lastly, as the economy crawls back, the casual restaurant sector is seeing signs of life, and chains like Cheesecake Factory are looking to add units after a long period of belt tightening. As more consumers eat out, expect to see deals on prepared and packaged foods continue in an effort to retain the windfall share of food spending. Whether or not the eat-at-home austerity habits take hold will determine how long the restaurant industry takes to rebound and how long packaged food brands can continue to build on their momentum. Hotels and Hospitality by Iain Ellwood Loyalty programs target exclusive access To most customers, a wallet full of loyalty cards offers little value in return. In 2011, hotels will be picking up on this, rewarding us with exclusive access as a loyalty incentive, rather than financial points. Gone will be the days of incomprehensible point quotients. New and improved loyalty programs will give us access to museums and art galleries when they’re closed to the general public. Also expect tailor-made incentives like talks with artists at galleries, famous archaeologists at a history or science museum, or chefs at famous restaurants. Hospitality businesses will begin to recognize that their valuable assets are not just what they sell — but more importantly, who does the selling of their products or services.
Business model innovation As demonstrated in this sector, the best innovations often come during lean economic times. Rent-by-the-hour businesses (Streetcar and ZipCar) and community-based share schemes are giving conventional car rental dealerships a run for their money by catering more effectively to customers. City dwellers enjoy the freedom of booking a car for a couple of hours for their trip to IKEA to pick up furniture, or for an afternoon drive to the countryside. Meanwhile, websites like www.drivemycarrentals.com are enabling communities to rent out their own private cars during the week when it usually sits outside their home. This makes marvelous financial sense; individuals can gain additional income, rather than watch their cars depreciate. It also has a great environmental benefit, in that it results in fewer cars on the roads. Several hotel chains like IHG have looked at fractional usage by guests. Rather than paying for 24-hour periods, you pay for exactly how long you stay. So if you arrive mid-day and depart before breakfast the next day, you pay for that time, rather than being charged for the generic 4 PM to 11 AM slot. The back office operations to achieve this are difficult in fullservice hotels, but the growing sector of “sleep and go” hotels with a smaller staff is ideal for processing this more flexible, consumercentric operating model. Objectivity of peer review travel sites The increasing influence of travel peer review sites such as TripAdvisor and Yelp or book reviews on sites like Amazon.com has brought
into question user-generated reviews and their objectivity and authenticity. The big question is how many of these are biased reviews or paid-for reviews on these sites. They often fall into two extremes: either extremely positive or deeply negative. In some cases, writers may be hotel staff commenting under pseudonyms or a writer solicited by a hotel through a professional review writing service. To get around this issue, some sites like Expedia and Priceline require hotel reviewers to be customers who’ve stayed at a property. While others like Oyster.com, send anonymous reviewers to produce detailed inspection reports. Peer review and recommendation issues raise the debate on how internet content is policed and will result in consumers shifting closer to friend’s recommendation sites or those from more trusted sources than the open market. Friend’s word of mouth endorsements are increasingly critical in navigating many of these decisions. Volunteer vacations on the rise Given the economic pain of the past couple of years, countless people are searching for a more meaningful and enriching type of vacation. Volunteer vacations cater to this, with people travelling and giving their time and skills to a local community. These volunteer vacations range from providing humanitarian aid and historic restoration building to farm work and teaching. National Geographic is a big advocate of the trend, explaining that, “We think adding ‘giving back’ to your vacation ‘must-do’ list is the best way to make the memories last a
What will 2011 bring?: Interbrand predicts the year to come for brands by sector
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In 2011, retail will continue to undergo some of the most dramatic changes the industry has seen in half a century.
lifetime.” Additionally, volunteer vacations offer the truly authentic way to deep dive into a local community and avoid the voyeurism associated with guided tours. So rather than speeding through a Mumbai slum in a rickshaw with a Lonely Planet guide open and the camera clicking, travellers can gain the rich human benefit of working alongside Indians in these areas of Mumbai to educate children and help others. In-store promotions remain a critical volumebuilding tool across a fragmented and regulated distribution network. Increasingly the spirits business is looking to developing markets for growth, but the challenges are many; for example, adapting to local tastes and determining how luxury beverages may need to integrate into old consumption patterns and palates. As access to alcohol and Western style marketing hit developing nations, look for governmental regulations and pressure from organizations like the WHO to intervene and set the policy on consumption and distribution. In developing markets, fashion and trendiness are still alive and well as drivers of trial and consumption. Off the back burner Lastly, as the economy crawls back, the casual restaurant sector is seeing signs of life, and chains like Cheesecake Factory are looking to add units after a long period of belt tightening. As more consumers eat out, expect to see deals on prepared and packaged foods continue in an effort to retain the windfall share of food spending. Whether or not the eat-at-home austerity habits take hold will determine how long the restaurant industry takes to rebound and how long packaged food brands can continue to build on their momentum.
Retail by Bruce Dybvad In 2011, retail will continue to undergo some of the most dramatic changes the industry has seen in half a century due to underlying drivers that have permeated society and shopping behavior. The most powerful, of course, is digital. Less immediate but also highly significant are demographic, economic and cultural value changes that are having an impact at both the local and global level. Consumers’ digital domination Nielsen predicts one in two U.S. consumers will own smartphones by the end of 2011. And yet, despite the rapid adoption of digital technology, the majority of retailers have been slow to respond to the opportunity. The coming year will be one of catching up. The lion’s share of capital budgets will be allocated to the online channel and its optimization for mobile use, while marketing departments will try and crack the code for connecting with customers through social media. To truly connect with shoppers who are adept at controlling the interaction, retail brands will continue to discover innovative ways to be invited into consumers’ closed loop. At the same time, consumers are increasingly more willing to allow access to their private information. Amazon.com now allows users to link their Amazon account to their Facebook account, so that the subjects in their social posts can be integrated into their Amazon recommendations. Keep in mind that in exchange for access, customers will expect to receive more value. As retailers rush to take advantage of digital’s new channels for customer insight, interaction and engagement, they will also be faced with data overload — more
information on customers, transactions and operations than they know what to do with. They will seek to find ways to separate the wheat from the chaff in terms of metrics, by way of refined research into the shopper’s path to purchase. The art of the deal While technology has allowed consumers to become increasingly savvy, skilled and sophisticated shoppers who gleefully drive deals, it also makes them susceptible to impulse purchases. The group bartering trend has been formalized through programs such as Groupon, where stores grant deep discounts if enough people sign up for them. Members only clubs for apparel like Gilt Groupe, are being adopted by other categories. Flash sales, or time-limited offers via text or Twitter, will continue to trigger impulse buying and give shoppers the smart feeling of having scored a great deal. Traditional retailers like J. Crew are already learning to use the flash sale: It recently opened an online factory store only on the weekends for deal-happy shoppers. Brick and mortar transcends itself Despite the fact that the point of purchase is now highly mobile, retailers are going to find that the physical store still needs significant investment. Shoppers expect it to be the epitome of the brand experience and the embodiment of all that is unique about the way a merchant does business. Otherwise, why go to the store? Stores will incorporate new services and experiences into their concepts to remain relevant and provide emotional engagement. This will be key to the increased importance of word-ofmouth as great service and experience will be actively compiled, commented upon and shared by wider audiences.
What will 2011 bring?: Interbrand predicts the year to come for brands by sector
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Technology brands have been going through transformations in their struggle to differentiate.
In the past, the 80/20 retail rule of thumb said that 20 percent of a store’s SKUs equaled 80 percent of sales. That rule will be turned on its head. In a digital world with almost infinite choice, shoppers will be drawn to stores with a personalized focus. Physical store concepts will become smaller, better executed and highly tailored. Assortments will become relevant and finely curated as they evolve toward true demand. As shoppers buy less of what’s mainstream and more of what suits them individually, 80 percent of units will earn 80 percent of profits. Additionally, private labels, localized sourcing and cultural influences will be further differentiators, as shoppers demand simplicity, convenience and closeness. Urbanization, empathy and emerging markets Two big demographic trends have arrived that will affect the retail industry’s longterm planning outlook. The first is a striking population shift. Today, half the world’s population lives in urban areas. Nearly 180,000 people move into cities daily, which will impact the retail landscape dramatically. Retailers will concentrate less on traditional malls in favor of heading back into the city. Real estate will become more of a challenge, as city lots require clever adaptations of core concepts. We are already seeing arguably more creativity from retail brands as they incorporate existing and sometimes historical architecture into the shopping experience, discovering new aspects of their brand personality in the process. The dense living and working environment will also spawn new retail business models, such as pay-to-share for large expensive items, like Zipcar and B-cycle car and bike sharing. As consumers, city dwellers tend to be more open to new concepts, so expect merchants to react accordingly.
Corporate philanthropy and good citizenship will also be a growing expectation. Brands will learn to strengthen customer loyalty through generosity and acts of kindness, such as Dutch KLM’s campaign of spreading happiness by surprising passengers with unexpected gifts at the airport. Expect retail expansion into China and India to continue. Retail spending in China has risen by double digits the last two years and is expected to maintain that pace. Merchants, seeing manufacturers’ succeed by launching new products and brands that are culturally right for emerging markets, such as Levi’s dENIZEN jeans and Hermès’ Shang Xia, will adopt a similar strategy and create store concepts inspired by native culture. Barriers to global trade will continue to come down, which will encourage retailers to think and work towards a global customer base, sources, talent and reach. Technology by Federika Judica Cloud computing and education The adoption of cloud computing continues to surge. While its relevancy is no longer in question, the need now is for an understanding of its characteristics and benefits. Companies have started to assume the educator role in the category, clarifying the differences among the spectrum of offerings on the market and what are public, private and a hybrid cloud. While growing the category means growing a piece of it, unless tech brands are able to bring clarity to their complex offerings, it will be hard for them to capitalize on their investments. Increased partnerships In mobility, a single brand can’t arguably deliver a complete end-to-end experience.
That’s why we’re likely to see increased brand partnerships in the category. Together, brands will play together to deliver against an ever-increasing set of consumer expectations. While a partnership approach is more likely to yield success for both parties, it also is true that consumers may have difficult discerning which brand delivers what portion of the experience. As a result, if a product fails to meet expectations, the brand with the greatest equity and loyalty base is likely to carry most — if not all — the risks. Balance and authenticity Technology brands have been going through transformations in their struggle to differentiate. Many are attempting to tap into the emotional space, claiming that they are responsible for life changing experiences. Results so far have been mixed. In some cases, the pendulum may have swung too far. The key to long-term success will be to examine the relationship between functional and emotional attributes and communicate this with balance and authenticity. Mergers & Acquisitions Growth in the category continues to be spurred by mergers and acquisitions. More than ever, the emphasis is on aligning internal cultures and clarifying what the brand stands internally. A survey Interbrand conducted in 2010 across a variety of sectors showed that while 82 percent of companies regularly measure internal brand engagement, 21 percent of them actually link it to customer satisfaction. In the technology sector, internal activation is key to loyalty growth.
What will 2011 bring?: Interbrand predicts the year to come for brands by sector
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Telecoms continue to face significant challenges to break out of the commodity, price-driven space they typically hold. Telecommunications by Kevin Perlmutter In the coming year, mobile dependency will continue to rise as people rely on their handheld devices, tablets and laptops for many aspects of their work and personal lives. Telecoms will focus on speed, rolling out 4G networks that have the capacity to move data many times faster than current 3G networks. Increased network speed and capacity will make video — from video conferencing to HD movies — as easily sharable as the photos we currently share on 3G networks. Customers’ satisfaction with telecom brands will primarily be determined by network quality. Industries will also continue to evolve how they conduct business and serve customers thanks to wireless connectivity and devices. Cloud-based services will increasingly impact businesses. More of their technology capabilities, business applications and proprietary data will be housed and accessed remotely. The same will be true for personal files, address books, music, videos and photos. VOIP services like Skype will gain in popularity, as consumers and businesses avoid paying a telecom for interaction that is free over the internet. Unlocked SIM cards will emerge and allow people to choose devices and networks separately. Mobile payments will also continue emerge as historical infrastructure and behavioral barriers are broken down by technology. Expect to see many consumers increasingly look for bundled phone, TV and internet solutions, especially as home entertainment becomes more easily accessible on mobile devices. Even more consumers will eliminate their wire line home phones in favor of
their wireless phones, unless fixed-mobile convergence solutions allow them to keep both affordably. To address these challenges — and retain and attract customers — telecoms must ensure superior network quality. They’ll need to address pricing structures for increased data usage and converged services. They’ll also need to launch more loyalty-engendering offerings that simplify and integrate the many aspects of people’s on-the-go lifestyles. In 2011, government regulation negotiations around net neutrality will continue. Telecoms will to fight against being legally responsible for massive network infrastructure investments, while at the same time losing full control or pricing authority on how their networks are used. Telecoms continue to face significant challenges to break out of the commodity, price-driven space they typically hold. The very networks that telecoms run are fueling new consumer and business behaviors, and people are forming brand relationships differently across all product and service categories. To earn the love and loyalty of other brands in the technology ecosystem, telecoms must evolve their cultures and customer experiences as aggressively as they evolve their network infrastructures. Business unit silos that once naturally existed must now be converged like the products they support. Cultures that were once government-owned or have a long history of break-ups and mergers must come together as one. Customer service models that frustrate and often infuriate people need to be improved to better serve customers. The brands that will see the most success will clearly define the role that they play in the ecosystem without overpromising. They will
truly evolve internally and drive customer choice and loyalty though improved customer experiences. They will be the ones to seize the opportunity to be better aggregators, integrators and simplifiers — trusted brands that help integrate the many aspects of their customers’ lives. ■
Andrew Martchenko
Josh Feldmeth
Tom Zara
Julian Dailly
Iain Ellwood
Bill Chidley
Federica Judica
Bruce Dybvad
Kevin Perlmutter
interbrand.com
Robin Rusch
Stuart Green
Creating and managing brand value
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