J. Walker Smith
Though the pressure is high to be a brand with an agenda, taking a political stance doesn’t grow the brand and can negatively impact stock value
Politics is risky business for brands, yet brands are under pressure like never before to take political stances. Activist consumers have carried their politics over to retail products. Despite these pressures, brands should think twice, even thrice, before jumping into politics.
Brands are not politicians. Taking a political stance makes a brand a lobbying or advocacy group. While this may appeal to all or part of a brand’s consumers, taking a political stance means that a brand is pushing a political agenda on behalf of an interested constituency. Unlike political groups, brands can’t win by doing so.
Political operators can win by dividing and conquering, and they do so routinely. Politicians and political causes emerge victorious with the narrowest of margins. It only takes one more vote. That’s not how brands win.
To grow, brands have to keep rolling up bigger numbers of buyers. They can’t afford to alienate a large percentage of their buyer base. It is assumed by many that brands can grow by strengthening loyalty through explicit political actions that align with the beliefs and interests of their core consumers. However, loyalty is not how brands grow.
The notion of loyalty as a driver of growth doesn’t make sense in most categories. Repeat buying just keeps a brand even with current demand. Loyalty must inspire more purchasing if it is to drive growth. Consider a consumer who replaces the tires on a car with the same brand. That demand stays the same from one purchase occasion to the next—but that’s not growth. If that customer replaces tires more frequently than is necessary or buys a fifth or a sixth tire for a car, that would be growth through loyalty, but neither scenario makes any sense. This sort of quandary about loyalty is true in most categories. Loyalty is important for sustaining current demand, but not for growing the brand.
The work of University of South Australia marketing science professor Byron Sharp, especially his 2010 book, How Brands Grow, has shown that brands grow by building penetration, not by strengthening loyalty. Kantar Worldpanel tracks more than 200 fast-moving consumer goods (FMCG) categories in 39 countries, accounting for 76% of global GDP, and its data show the same. In 2015, only 47% of all FMCG brands grew, but of those, 79% grew because they gained buyers. Among brands that declined, 84% declined because they lost shoppers.
The takeaway is clear: Brands must have widespread, crosscutting appeal in order to grow. Brands can’t burrow into a niche and expect to gain market share. As Sharp has noted, niche brands are a popular misconception. It turns out that so-called niche brands are not niche; they are just small brands with customer bases that are few in number and not really differentiated. Locking a brand into a niche limits its opportunities for growth.
Brands have to appeal across the board and bring many different people together. Unlike politicians, brands can’t win with a divide-and-conquer strategy. Brands win only through unification. Big brands are big because they unite a diverse group of consumers with divergent values and preferences.
At its best, marketing is a powerful unifying force. Brands prefer to build their franchises on common ground. Politicians would do well to emulate brands, rather than the other way around. Of course, politics is inherently divisive, so common ground may not serve the purposes of politicians. For brands, unifying consumers is essential.
Activist consumers are unlikely to let brands off the hook. Victories not won at the polls can be prosecuted all over again in the marketplace, where another tactic is within easy reach. During the last election cycle—and especially after it was over—boycotts sprung up left and right. Brands that made missteps or didn’t move fast enough to show proper allegiance were faced with boycotts for their transgressions.
Target was the subject of a boycott over its bathroom policy. Kellogg’s, too, over steps to keep its programmatic ads from appearing on Breitbart. Budweiser was criticized for a Super Bowl ad commemorating its immigrant founder. On the other side of the political spectrum, dozens of companies have been singled out for boycotts largely because of ties to or support of President Donald Trump, including Nordstrom, Uber, MillerCoors, Amazon and NASCAR. Macy’s has been attacked from both sides, first for pulling Trump-branded merchandise, then for not pulling Ivanka Trump’s products.
Yet brands need not quaver in the face of boycotts. Some boycotts can be very effective, such as those against local businesses or the boycott of Nike during the 1990s over child labor. But most boycotts fizzle out. U.S. sales of French wine dropped 26% over France’s efforts to thwart international support of the invasion of Iraq, but sales recovered quickly and were soon back to trend line.
National boycotts have an effect when they are directed against a single firm and led by a major organization that can fund sustained media coverage. It helps if the boycotted firm is high on the Fortune 500 because companies of that size make for good press.
But even sustained, properly managed national boycotts don’t affect sales very much. When they work, they affect brand reputation, which in turn affects stock price. That gets a company’s attention. Research by Northwestern University business professor Brayden King finds that for these kinds of boycotts, stock values drop by an average of 0.5% on the day the boycott hits national media, then a little more than that for each day of media coverage. The vast majority of boycotts don’t operate in this way, though. In aggregate, only about 25% of boycotts result in any sort of concession from the targeted company.
While it is smart and safe for brands to ignore politics and to make most boycotts a secondary concern, this is not to say that brands can sit on the sidelines. Politics and lifestyles can no longer be treated separately. Lifestyles are the central focus of brands, so as politics and lifestyles blend, brands will need a new vocabulary for addressing consumers.
Employees, partners and investors care a lot about the values and character of those with whom they work, so they will put brands under a tighter microscope. Increasingly, brands are finding themselves as the proctor of last resort for enforcing civility and decency in public life. Even more, brands are the last bastion of optimism in a wary world cloven into rival political factions.
Brands must answer these challenges with purpose, not with politics. Political brands will get lost in a scrum of bitter divisiveness. Brands make a difference that matters when they take a stand as brands with purpose, not a political agenda.
Read the original article on AMA.org.