1 October 2020
4 min read
"There is one rule for the industrialist and that is: make the best quality goods possible at the lowest cost possible, paying the highest wages possible." - Henry Ford
The 19th century saw tremendous wealth created as industrialists like John D. Rockefeller, Andrew Carnegie, Cornelius Vanderbilt, and J.P. Morgan built the infrastructure that would transform the United States from an agrarian economy into an industrial powerhouse.
The 20th century, on the other hand, gave rise to consumerism, as increasing real wages and improving standards of living supported the creation of the modern consumer. By the 1950s, the median consumer belonged to a homogenous group that was 85-90 percent white, skewed young, and viewed consumption through a utilitarian lens focused on quality and price.
To meet this surge in demand, modern consumer brands like Ford, Procter and Gamble, Coca-Cola, and The Gap took advantage of economies of scale to deliver affordable goods to a single mass market that had previously developed a scarcity mentality due to high prices and limited distribution. They did this through a product-centric model that focused on maximizing units sold through a linear system of mass production, mass distribution, and mass marketing.
While this system was effective for decades, the 21st century is exposing the mass model’s inherent flaws as Future Consumers become more diverse, empowered, and expressive than ever:
Mass production succeeded in creating high volumes that drive near-term revenue growth, but one-size-fits-all products offer no sense of personalization.
Mass distribution succeeded in extending a product’s reach through intermediaries such as department stores, car dealerships, and mass merchandisers, but gave complete control of the customer service experience to a third-party that could harm brands over the long-run.
Mass marketing succeeded in persuading consumers to make an incremental purchase, but large ad budgets have become more inefficient over time.
With this in mind, mass brands are at a unique crossroads and the inherent fissures in the mass model are coming to light. Across industries and geographies, it’s becoming clear the four drivers of the mass machine (product R&D, capex, sales, and marketing) do not create perpetual motion. Quite the opposite. The heavy spending, high fixed-cost structure, and marketing dependency of mass brands is actually putting them at risk.
In a world where “software is eating the world” and as every company in every industry is expected to become a tech company, the 21st century is on pace to be the century of digital disruption.
Mass brands are risky because:
1. We’ve reached the tipping point wherein consumers prefer and are willing to pay for personalized products and services that resonate with them at an individual level.
2. e-commerce has democratized the consumer landscape and made it easier than ever for emerging brands to compete against mass brands that previously used their scale as leverage to control physical shelf space with retail partners.
3. Technological and logistical enablers like Shopify and Fulfillment by Amazon (FBA) have reduced barriers to entry so it is now profitable for niche brands to connect with and meet the needs of niche, previously underserved, consumers.
4. Despite high ad spend, the cost of customer acquisition (CAC) and discounting is rising for many brands as they have to compete with upstarts who craft authentic connections through social media and digital communities of word-of-mouth promoters.
5. Online reviews have reversed decades of information asymmetry, and lower-cost and private label products are no longer automatically viewed as inferior to branded goods.
These dynamics are creating interesting conditions such that mass brands in many categories must transform to maintain current share and profitability. With the possible exception of brands in categories potentially immune to digitization (like Sherwin Williams in paint), most brands are vulnerable to technological disruption, commoditization, and changing consumer behavior.
In a world where “software is eating the world” and as every company in every industry is expected to become a tech company, the 21st century is on pace to be the century of digital disruption. Just as the steel mills, railroads, banks, and oil wells of the 1800s set the stage for the mass production era of the 1900s, the advancements we’ve seen in the first two decades of the new millennium have set the stage for a century of unprecedented technological disruption at precisely the same time consumer behavior has reached a tipping point.
The resulting reality will be the unprecedented rise of challenger brands across all industries (e.g retail, grocery, media, health, wellness, and financial services), the dominance of mass brands that can evolve (such Nike, Starbucks, and Disney) and the slow, but inevitable decline of mass brands maintaining the status quo.