The difference between a commodity and a brand

An abiding memory of my career is sitting on a pavement in Saigon pouring hundreds of cans of lager down the drain.

As an expert in the potential of the Vietnam market, having been there once before, I was with a regional director of Heineken. He carried a widget on his key ring by which he could identify the origins of every single can of his beer, including full details of when and where it had been brewed.

Yet, even if the beer was only marginally out of date, we bought it from the shops at full price and into the gutter it went.

As imported beer was illegal in Vietnam at the time, I asked the Heineken man why he felt it was so important to do this. Surely all this stock must have been smuggled in illegally? Surely it cannot have been sourced from official Heineken distributors? Why was it his responsibility?

He said it was very important that, wherever and whenever it was sold, Heineken had to be in absolutely perfect condition. Any beer which did not meet Heineken’s rigorous quality standards must be disposed of. The integrity of the brand was – and presumably still is – paramount.

And so we sat, for well over an hour, pulling rings and pouring Heineken down the drain.

As I have posted before, the marketing of brands is based on a consumer promise. There is an unwritten contract between you and the manufacturer that you will get what you pay for.

My life can be defined by relationships like this: Johnson’s Baby Shampoo, Weetabix, Marmite, Heinz Baked Beans, Guinness, Laphroaig ….

It must be difficult for the manufacturers of these brands to ensure such a consistently high level of product quality. But they do. They work very hard to deliver the consumer promise they have made. So, as I trust them to do this, I keep buying their product. They have my ‘brand loyalty’.

Furthermore, as these brands offer me something unique – something special, something I cannot get from anywhere else – their personalities and mine become welded together.

I like having these brands in my life. We have an emotional connection.

There are other products for whose suppliers I feel no such affiliation, no loyalty, no emotional connection at all. In fact, along with many of their customers, I dislike them intensely.

The most topical of these are household energy ‘products’.

When it comes to gas and electricity there are no product differentiators, no unique benefits, no ‘taste’ promises to fulfil. Gas is gas. Electricity is electricity.

The companies that compete to sell me these products are middle men. Commodity brokers.

And, as I feel no affinity with their commodity products, I have no ‘loyalty’ to them at all. Buying them is a purely rational decision. They give me no emotional reward whatsoever.

Household energy is what marketing people call a distress purchase.

I don’t want to buy gas and electricity. I have to – otherwise my family will freeze or starve. And what makes it worse is that every household in the UK has to buy them too.

The energy suppliers know this.

They also know that, just as I want to buy their commodity products as cheaply as possible, so it is their job to extract as much money from as many people as they can.

To achieve this, as they have no product differentiators and no brand integrity (unlike Heineken), all they can do is dream up ever more complex, fanciful financial bundles to secure ‘customer loyalty’.

The more complex the bundles, the more confusing they become. The more confused they are, the more likely it is that customers will pay more than they need to. And you’re never going to trust anyone who has conned you into paying more than you need are you?

So it is that, in commodity markets, the only loyalty suppliers can attract from their customers is to ‘lock’ them into long-term fixed contract for periods of, say, five years. This is not ‘customer loyalty’. It is ‘customer entrapment’. That’s what being ‘locked in’ means, isn’t it? Imprisonment.

If you are imprisoned, you are not free.

And so – as I hope I have shown in this and my previous post – in today’s day and age, where we are supposed to be living in a sophisticated free market economy, household energy is a ridiculously manufactured market which is not ‘free’ at all?

It is a concoction. Or, as some might have it, a con.

And that’s the problem, isn’t it?

 

About Hugh Salmon

Business leader. Adman. Writer.
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