The modern brand OS

The economy is a narrow way of organizing life

I write weekly newsletter about how the new forms of social, cultural, and environmental capital change brand strategy. If you enjoy this issue, please like it above, share it with anyone you think may find it useful, and subscribe below:

Trade deficit in goods and services, seasonally adjusted

A “modern brand” is simultaneously a concept, a sector, and a business model.

As a concept, modern brands exploit things like culture, taste, creative identity, or one’s social standing. Modern brands gained prominence when the economy shifted from manufacturing to experiences, travel, luxury, and art and design. Modern brands remove nuisances of modern life for a privileged group of people. They invent products, like Thinx or Casper; services, like Uber or DoorDash; or experience like Airbnb or WeWork. They also feature cheeky OOH and social media ads. Modern brands’ hidden function is to create a social and economic distance between the culturally and tech savvy and the rest.

As a sector, modern brands capitalize on the shift from consumers’ accumulation of products to consumers’ desire to demonstrate appreciation for these products. Modern brands are digital-first, often vertically integrated and externally funded companies with founders who were, until very recently, believed to be admirable. They cater to consumes with high discretionary spending. According to eMarketer, the total DTC Ecommerce sales will reach $17.75 billion in 2020. This is a growth of 24.3 percent, up from $14.28 billion in 2019. Modern brands sector is attractive to corporate investors: angels, venture capitalists, and private equity firms who all look for companies in need of cash to quickly expand.

As a strategy, modern brands represent a specific business model. This model unlocks new sources of value at the time of economic involution. Modern brands make their products and services valuable beyond their function and utility; they build an architecture to deliver new value (like subscription or membership); and then find a new way to harness this value and turn it into profit.

As a new way of managing brands and companies, modern brand strategy adheres to these five criteria:

Awareness over accessibility. Modern brands create fans before they create customers. A brand should be widely known beyond its core target, through communication to a wide audience. In traditional marketing, communication is obsessively focused on the current and potential customers, and any media spend beyond that is considered a waste. Modern brands communicate in order to build a cultural link and establish themselves as a social indicator (GOOP), a symbol of good taste (Monocle), a creative savvy (Nike), or originality (Peloton). The idea is to reach mass audience through niches. Tracksmith’s advertising does not sell Tracksmith, but makes those who have it happy that others know what running in a Tracksmith means. In today’s expanding competitive universe, where products compete with experiences, services, and practices of self-actualization, brands have to reach beyond their actual targets and build strong familiarity with those who do not own or consider the brand yet. A Peloton bike (per its unfortunate ad) competes as a gift with a weekend in Napa or an electric car.

Identity over positioning. Modern brands focus on building their own creative identity versus comparing themselves to others. They operate according to the economics of singularities and grow by gradually building their own incomparability. This approach ensures both high differentiation and high durability, and there are two reasons behind it. Kanye doesn’t compare himself with Nike or Prada; Damian Hearst doesn’t compare himself with Andy Warhol. Modern brands see their role as transmitters of future’s tastes and trends (like Kanye’s ranch or Telfar designs or Tesla’s rocket), and not as followers of existing tastes and trends. Second, modern brands play an important role in developing and expressing consumers’ social identities. If they are smart, they avoid projecting a lifestyle, because lifestyle lacks durability. They instead sell style, original creation, and singular passion of the owner or a creator (Apple, Chanel, or MINI all have strong stylistic identities). They are a cultural magnifying glass for reading the world. Nike doesn’t talk about being “better” than Adidas, it puts forward a style where consumers buy products in lieu of access.

Creative over Commercial Operation. Modern brands operate as creative entities. Apple’s vision was to “make tools for the mind that advance humankind.” WeWork wanted to elevate the world’s consciousness. Modern brands see themselves as part of the culture industry and a link between their customers and the worlds of art, spirituality, humanity, style, values, creativity, or a specific history, subculture, or neighborhood vibe. Running brand Tracksmith is rooted in the 1970’s vibe of long-distance running. Shinola enjoyed a massive halo of being “Made in Detroit,” until it got a cease and desist order from FTC. Modern brands see themselves as ambassadors of the best in culture, and assume the role of educators of consumers on how to use objects or enjoy experiences in their everyday life. Kurasu does not want to be “just a provider of Japanese coffee equipment, but focus on the education of the Japanese home brew, the Japanese coffee culture, and the art of coffee itself.” The same goes for hype beasts who learned to appreciate their finds. In both cases, a product - Kurasu coffee or the Air Jordan’s - is a bridge between the material world and a world of hedonism, culture, values, or spirituality.

Brand is part of the balance sheet. A brand ensures coherence in strategic growth and secures consistency between a company’s internal and external cultures (the one that a company nurtures internally, and the one that it wants to project and/or be part of externally). Brand-driven strategic growth ensures that all new products and services echo a brand’s values, that they bring it closer to its vision and that they enforce its role in the world. Brand helps in answering questions like: how is this product line or brand extension or service offering part of the big plan? What does it borrow from the brand? What does it give back? What are the key objectives of the brand extension or the new service offering (awareness, acquisition, loyalty)? Brand also unites products’ and services’ functional side and their symbolic side. These two sides operate differently. Functional side operates according to industrial logic of diminishing returns, cost reduction, and economies of scale. Symbolic side adheres to logic of networks and increasing returns. Having both parts in the balance sheet allows a company to protect its pricing power, ensure high margins, create trust, and cut transaction costs.

Value creation over cost reduction. Modern brands are in the business of enhancing their products - like running gear or knives or coffee - with discerning sensory experiences that were once restricted to a cooking, running, and coffee-drinking cultural elite. This is a value-add strategy that’s the opposite of volume strategy. In the value-add strategy, a brand combines its products with services, experiences, and/or narratives in a single holistic offering. Kurasu pairs its subscription coffees with stories and photos of people behind the beans. Supreme still capitalizes on the neighborhood vibe around its original store in New York. A holistic offering conveys an aesthetics universe, an art of living in a specific location, a sense of belonging, a relationship to art, a handmade element, opportunity for collecting, or offers a shared meaning. Modern brands also create value through a complete control over their distribution that allows them a direct contact with their customers. They create value through its services, like personalization, customer care, quick delivery, considered packaging or informed sales staff. Modern brands additionally compete on human touch in all or in one of the parts of the value chain, which can go anywhere between making products by hand to including handwritten notes in packaging. Strategy of value creation is executed holistically, with participation of the entire company. It is also holistically managed, so that value-add doesn’t rely anymore on the talent of the creator or a specific department but on each employee of the company.

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In the episode 6 of the Business of Aspiration, I spoke with Massimiliano Gritti, co-founder of Bombinate, an online curation platform that showcases independent, conscious manufacture-driven, and sustainable local designers and producers of menswear, accessories, footwear, art, homeware and furniture. Mana and I discussed our relationship with objects, how it evolves, and what does it mean for brands. We also explored different taste regimes, the role of curation, and how and why we buy things. Watch below.