Before you go spouting off the answer to this question…
Please read this article from The New York Times titled, E-Commerce Companies Bypass the Middlemen. If you think that branding and retail have become complicated because of stuff like showrooming and attribution, you need to take a pause and try to figure out the myriad of complexities that e-commerce has created in the retail chain when laid out in this article. We tend to look at brands like Warby Parker and wonder how they had such a stellar ascent. We also look to traditional retailers and wonder how they will keep pace against Amazon. For many, the argument is that the lowest price wins. That retailers have no chance against e-commerce plays when they’re not dealing with the traditional supply chain and logistic problems. We praise companies like Walmart (#client) for their perfection of this channel and how that efficiency drives towards savings for the consumer. We see these big box stores as a way for the vast majority to access adequate products at reasonable prices. In short, e-commerce beats retail because of lowest price and efficiency, and big box/massive retailer beats out the smaller/local players because they have inventory at better prices.
What if that isn’t always the case?
What if – along with price – that branding has a major impact on success or failure, no matter how much cheaper your products are to a competitor? There are many startups like Warby Parker who are providing consumers with competitive pricing by going directly to the manufacturer and cutting out several layers of middlemen to create both efficiencies of scale and significantly reduced pricing (while still managing to eek out a hefty profit). It’s not that big of an innovation as the bigger retailers have been doing something similar for decades in the world of private labels. From the article: "Start-ups have traditionally struggled to match those efforts. They do not have as much brand recognition as big retailers, and persuading consumers to take a chance on, say, Warby Parker eyeglasses instead of Prada‘s can be difficult. ‘The challenge is, if you’ve never heard of the brand, you wonder, ‘Should I buy it when it’s 20 percent cheaper?’ ‘ said Raj Kumar, a supply chain consultant at A. T. Kearney. ‘Or should I buy a brand I trust?’ What is empowering the upstarts now is the Web’s ability to reach lots of consumers without the costs of operating physical stores as well as a change in manufacturers’ willingness to work with small brands. The founders of Deal Décor, whose model was to sell furniture directly to customers, worked at Target and Home Depot Direct before starting their company. They said they saw an opening after the recession hit."
At what price trust?
The obvious answer to the question is that when given the option, consumers will always choose the cheaper product. By the sounds of this article, these new startups – who are coming out with products that are often produced in the exact same factory as their big-brand competitors – they are having trouble getting sales because they lack a trusted brand. Non-marketing professionals tend to diminish the economic value of branding. It’s sad. This article re-illuminates, something that marketers have to constantly reinforce to our peers: the brand matters.
The trusted Warby Parker.
Whether Warby Parker is a trusted brand as some of the iconic ones that are listed on Interbrand’s Best Global Brands is not the point. What is most interesting is how all of these smaller e-commerce startups quickly realized how important a compelling brand narrative is… even if your product is the cheapest and people are talking about it. Scale of business happens only when the brand kicks in. We see this all of the time. Consumers can be a very finicky bunch. Over time, even the cheaper price will fail if a new competitor creates a more compelling brand story. True, the prices can’t be night and day, but slight premiums do creep in when there is a strong brand play and definitive value exchange that consumers feel. It seems like cheap pricing and great branding is a killer combination.
In the end, it still seems like the brand does win.