- Business consolidation has led many industries to be dominated by a few large companies focused on efficiency and cost-cutting over customer experience. This has resulted in brand commoditization as customers had few options and brands offered undifferentiated products and services. - While consolidation aimed to achieve economies of scale, it often came at the expense of customers who received poor service as the lowest common denominator became the standard. Brands focused on market segmentation but still treated individuals as aggregates. - New disruptive brands like Apple, Tesla, and Netflix have emerged to offer a better customer experience. While not all are equally large, together they are disrupting traditional industries and causing customers to reconsider their options. To remain competitive, established

1. Brand Fragmentation
Is business, consumer and brand
fragmentation the new strategic paradigm?
An inevitable consequence of rationalisation and consolidation is commoditisation –
and poor customer service, warns Dr Thomas Oosthuizen.
Size matters
Business has a recent history of industry rationalisation, consolidation and pursuit of
size; achieving critical mass has been what it’s all about. This applied to financial
services, the automotive sector, retailers, airlines, telecommunications companies and
many more besides. There is hardly an industry where consolidation has not been
applied, with the result that a few large companies came to dominate almost all
industries.
Much of this thinking was based on the principle of ‘the experience curve’ – an idea
developed in the mid-1960s that says a company's unit cost of manufacturing falls by
about 25% for each doubling of the volume that it produces. In addition, investments
in infrastructure and technology (which are considerable parts of the capital
investment of a business) demand maximum optimisation of this investment.
The logic of the time was simple: to support the required infrastructure in systems and
people, volume was required. Also, as industries commoditised, margins became
squeezed and therefore volume was the only way to beat the odds.
While some aspects of this thinking have not gone away, the more recent context of
how consumers are evolving will force a change. If not, a large company may just
find itself having progressively fewer customers because, paradoxically, it is so
‘efficient’.
In the process, consumers came second
However much we may justify consolidation – and even call it inevitable – the reality
is that the process results in the consumer coming second. Whether this is cause or
effect is an issue for another discussion, but it does not really matter.
Because of the perceived need for consolidation at all costs, companies started
focusing on efficiencies, benchmarking and ‘best practice’ as their holy grail, instead
of looking at ways they could make the consumer experience the top priority. Some
brands went so far down this path that it is arguable as to whether they can ever
reverse it and become customer-centric again.

2. With consolidation, competition declined and ‘average’ became good enough. Some
brands within telecommunications and the airlines sector were even so arrogant (or
perhaps just honest) as to say it. Commoditisation increased and brand parity became
the new normal.
In many industries, price became the deciding factor between brands. After all, if
everything is the same, why would you want to pay more than you have to? In the
American airline industry, this undermined the value of the entire sector as a worthy
investment.
The negative impact of consolidation on the public’s perception of brands is also
evident in how the ranking of global brands (according to the annual BrandZ survey
by consultancy Millward Brown) has shifted away from the old stalwarts to luxury
and newcomer technology brands.
Commoditisation become the new normal
In the process of consolidation, the consumer became a commodity. It was not about
servicing them well, it was about servicing as many as similarly and as economically
as possible. So if some customers defected to another brand that was fine, as long as
the total volume of customers who remained was still large enough to provide the
required critical mass.
Once again, airlines and telecommunications companies were among the best
examples. High churn rates were easier to manage (…or ignore) than providing
increased value to the consumer. The higher costs of better and more integrated
systems, highly trained staff and achieving more exacting standards were simply not
matched by the potential gain for the companies, they believed.
The end-result was commoditisation; offering consumers products and services that
were more-or-less the same, instead of the incurring the complexities (and costs)
involved in customisation. The lowest common denominator became the yardstick;
systems that were ‘good enough’ instead of exceptional; staff that were good enough
rather than excellent; facilities that were good enough rather than outstanding.
Although many companies used the term ‘the best’, very few knew what it meant.
Mass marketing was the way brands dealt with this situation; creating ‘aggregate’
messages that appealed to aggregate people. It’s the same as the notion of soap operas
on TV, where ‘average’ people watch average programmes in very large numbers.
The philosophy was: seeing that most people need soap, ‘soapies’ are ideal for
delivering the largest audience at the lowest possible advertising rates.
When this became too obvious, market segmentation started. In this scenario, groups
of similar consumers were treated in the same way, so at least there was an attempt to
differentiate at a certain level. But the approach still did not acknowledge the

3. differences between individuals, although it did between groups of people. Once
implemented well – which happened rarely – customer experience improved. This
still cannot, however, be compared to having a one-on-one experience driven by
particular consumer needs and expectations.
Then some brands broke the rules
Today there are cracks appearing as a result of the commoditisation and market
segmentation approaches. The very large global banks, for example, are experiencing
difficulties, at least some which are connected to their diverse and very large global
footprint. They forgot that brands often vary in their reach and market share; that local
brands are still stronger in some markets than global brands.
Thus, it became obvious that the notion of global brands was often more theoretical
than real.
More recently, small and disruptive brands have become beautiful to some
consumers: Apple instead of Nokia, Tesla instead of Toyota Prius, ApplePay instead
of Barclays, Amazon against Wal-Mart, Emirates against British Airways, Netflix
against the big TV networks.
These brands have illustrated that being better can achieve an advantage when it
comes to how consumers perceive and experience them. All of a sudden, being better
also does not, of necessity, mean being more expensive – as brands such as Uber and
Amazon are proving.
Not all of the above are equally big and equally successful. But all of them together
are large enough to cause disruption. All of them are able to make consumers see
there are other options available. All of them are at least able to make traditional
industries ask questions about their own, long-standing, ways of doing things.
To leverage these trends, brand management needs to change
In my follow-up article in the next issue I will discuss how the above impacts on
marketing and brand management. Suffice to say, it is no longer business-as-usual. If
the big brands ignore the negative effects of industry consolidation and rationalisation
– and the creation of the consumer as a commodity – two things are likely to happen:
1. They will gradually erode their consumer franchise and create, at very best,
consumers who are ‘sort-of’ happy.
2. They will empower competitors, old and new, to take advantage of these and
other changes. While this will not in the short-term impact on large brands, it
will allow others to become first movers in a changed marketplace. Given that
first movers tend to become very dominant, the threat to the long-established
stalwart brands is obvious.
Ends

4. Words: 1 159
Dr Thomas Oosthuizen was formerly an honorary professor in business management
at The University of Johannesburg and an independent marketing consultant. He is
now Global Consulting Director at Acceleration Media, based in London.