*This transcript has been edited and formatted for readability.
What is Brand Insulation?
Chris: Vikas, can you first just give us a brief, high-level definition of brand insulation? What does it mean?
Vikas: In marketing, communication or anything customer-related, we're always told that we need to have a strong brand, right? A strong brand is a good brand.
Brand insulation is a phenomenon in which strong brands insulate themselves, or their customers, from negative experiences. To provide an example, let's say you have a brand and customers have a very high level of commitment toward it and, suddenly, something negative happens.
Rather than reacting negatively toward it, the brand is insulated in the sense that customers will come up with alternative explanations or even discount the negative information. In the process, their original commitment to the brand can become even stronger. This is the phenomenon of brand insulation.
Chris: They'll become more ardent defenders even if the empirical evidence points the other way.
Chris: Does it also work the other way? Can brands be insulated to a point where they don't reap the benefits of positivity?
Vikas: The core idea behind brand insulation is customer commitment. Customers are committed to the brand, which means that they like the brand in its current form. In other words, when brands are highly insulated through high customer commitment, it also means that there is some level of customer rigidity around the brand in which they don't want to see the brand changed too much from what they're committed to.
Brand Insulation Examples
Vikas: For example, a few years ago, when IKEA tried to change the type font in its catalog, there was a huge backlash online and people wrote to the IKEA head office, "Don't change the type font" and stuff like that.
You would think it's such a small thing – they're just changing the type font – but it turned out that the people who were the most upset were also the ones who were the most committed to the IKEA brand. A lot of these were architects and furniture designers who actually saw some deeper meaning in the type font in terms of how they relate it to the brand. So simply changing the type font in the catalog caused a lot of heartburn to highly committed customers.
This is part and parcel of what comes with high customer commitment – the customers like the brand in its original form and they don't want the brand to be changed. So in some sense, it can, under certain circumstances, impede brand development and creativity.
Chris: It seems like these customers value the “purity” of a particular brand and anything done – whether positively received or a necessary change – affects that purity.
Vikas: Another iconic brand, in this case, was Oldsmobile. Oldsmobile as a car brand had its own following and people loved it to the extent that Oldsmobile did not change the brand. As the customers got older, it literally became the Oldsmobile.
If you remember, they tried to rebrand it as “not your father's Oldsmobile” and it just did not work because it became harder to institute any changes to the brand. People who are highly committed to the brand see themselves having a deeper relationship with the brand, right? So any change that you make to the brand is seen as a transgression and they don't like it.
High Commitment to a Brand
Chris: Would that be a case
Vikas: Right. There are a couple of things that you need to think through when you develop
The ethos of the brand – which is high quality, beautiful design
Chris: I think Apple's a great example. As you mentioned in before we were recording, they recently said that the battery life on these older models may start diminishing. For a less insulated brand, that could have had a serious impact on their sales, but because they are insulated, people just accepted it as “Hey, that's the price of doing business.”
Vikas: It's not even just the price of doing business. The crux of insulated brands is that when customers are very committed to the brand, even when they confront negative information, they find a way to justify that in their own mind. They'll say, “Of course, it makes sense that they have to do it, because if they didn't do it, how could they get people to adopt the newer battery?” The basic point is, if there’s any negative information, people counter-argue it and don't really accept it.
The classic phenomenon of brand insulation actually occurs in politics. We are living in divided times. You think of Hillary Clinton and Donald Trump as their own brand. For both of them, there is a core group of supporters who have an extremely high commitment to each of them, right? There's a group of voters who are extremely committed to the Trump brand, and anything you say to these voters that is against the Trump brand only helps to reinforce their original commitment to the Trump brand.
Same thing for Hillary Clinton. There's a group of voters who are extremely committed to the Hillary Clinton brand, and anything you say to these voters against the Clinton brand will only reinforce their original commitment. Your criticism of Clinton will give them a reason to defend the brand and reinforce the original positive interpretation they had of the brand. That's the essence of commitment.
If Trump tried to veer even slightly away from whatever his original branding is, people who are extremely committed to the brand would be the most disappointed. In some sense, a strong brand also boxes itself in.
Brand and Identity
Chris: These people who are highly committed to a brand
Vikas: Correct. The idea here is that brand and identity overlap. The strong relationship develops when there's something about the brand that you find to have in common with it.
For example, people who have a Toyota or a Honda car. Rarely do these people think that this is going to enhance their image or get them to be appealed as fashionable. But Toyota or Honda is seen as a very consistent and reliable brand. It signals that you are frugal and that you don't waste money. Using Toyota consistently over time actually helps you reinforce your own identity in that regard.
I used to have a Toyota for a long time and I used it consistently. Over time, I saw the brand promise Toyota had made – that this is a car that will give good gas mileage, won't have a lot of repairs and that will not cost you a lot in terms of maintenance – was fulfilled. That actually strengthened my relationship with the brand.
When the Toyota brake fiasco happened about five or six years ago, somebody told me, “Oh, you know, Vikas, all these brakes are failing and stuff.” And I answered, “Not mine. I don't see it.” We did a study about that and we found that when all of this was at the height of its news controversy, Toyota owners’ opinion of Toyota and their likelihood to buy a Toyota did not change at all.
There were a bunch of articles stating that Toyota should start discounting its cars and that they should lower their prices to sell more cars. However, our thought was that, in fact, Toyota should do none of that. All Toyota should do is apologize and go back to the owners and say, “Look, if there's any defect, we'll fix it free of cost and we'll give you the white glove treatment.”
That's exactly what Toyota did and within a few years their stock price bounced up, their sales bounced up and everything was good.
A lot of times the way you deal with those crisis situations will impact how you ultimately come out of it, but that's a topic for another day.
Creating High Commitment
Chris: How do you create high commitment customers? Is it simply just creating a great product? How do you do it?
Vikas: Creating a great product is the least of it. We've done a bunch of research. In B2B companies, only 17% of the value that customers see in a brand comes out from product and service quality. What creates value for the customer is everything else around it.
People have this misnomer that those who buy Apple do it because of their great products. But if you objectively look at it, all the other phones are not so terribly bad. What Apple has, that most of the other brands don’t, is an amazing buying experience, service experience
If you're going to create high brand commitment, you've got to focus on the customer's experience. That experience has to be consistent, and it's got to tap into the promise the brand made. So, if Toyota's promise is low expenditure and high product quality, meaning low repair, they have to keep delivering that day in and day out. A brand really has to identify the one or two things that they deliver really well, and consistently deliver on it so the customer starts to see the relationship between himself or herself and the brand. That's how you create commitment.
Chris: I think the key word there is consistency, right? Brands can sometimes get caught up trying to be everything to everyone. But if you want to create this brand insulation and create these high commitment customers, it seems like what you should do is narrow your promise and hammer that home. Deliver on that. Would you say that's accurate?
Vikas: Absolutely. We just finished this study on the concept of ordinary and extraordinary experiences. A lot of times there's this misnomer running around that if you want to have a high level of brand commitment, you've got to somehow create extraordinary experiences all the time.
If you're thinking of an extraordinary experience, by default, you're thinking of experiences that are inconsistent because they've got to be out of the norm. Take Google for example; when was the last time Google created an extraordinary experience? Half the time people don't even remember when they used Google. They can use in their sleep, right?
Or McDonald's. Who goes to McDonald's for an extraordinary experience? A lot of people go to McDonald’s, drink Coca-Cola, and use Google just for their consistency. It's about consistency in the ordinary things of the brand consumption experience that counts.
If you think of Disney World, people always forget the ordinary things that Disney does really well. Just the cleanliness of the bathrooms, the management of the lines, making sure that the service employees are always smiling. That's what creates the experience. Yes, the rides are part of it, but you really have to ask the people who've gone to Disney World for the 15th time, what did they find that was so new in the ride? It's the experience that counts. That is what really matters.
Chris: That's such an excellent point because when I'm on my crusade to try to get people to join me on a trip Disney World, rarely do I talk about the rollercoasters and rides. It's about the experience. I often reference the cleanliness of the park, the helpfulness of every employee, the fact that they're smiling, and the attention to detail.
Chris: We briefly discussed one of the drawbacks to having an insulated brand: customers that are fiercely loyal to the brand. They're more invested in every decision that the brand makes, so you're going to get pushback. Are there any other drawbacks that you can think of to
Vikas: Sure. Remember, having customers who have high commitment also means that that segment of your customer base is a small segment. The trick then is if you're going to have customers who are very committed to your brand, you need to make sure that your general strategy matches up with that.
If Apple, worldwide, has a small market share of the handset market, they’re able to charge a higher price. If you're going to go for the strategy of building very high customer commitment, then you've got to also have the right pricing strategy and the right product experience strategy so you can be very consistent in it. But, being consistent is actually quite expensive. You've got to be able to create the ability to charge higher prices to your customers.
It's not that easy. It's creating the right perceived value that cannot be easily matched by competitors and that also creates this connection with the customer. All those things have to come together for you to be able to insulate your brand in the larger marketplace.
Communication Strategy and Brand Insulation
Chris: There's a communication strategy that goes into it this too, right? I mean there are forums dedicated to particular brands or companies. You have to allow those people to congregate, so to speak, or provide a way to connect those people so that they can find a sense of community because there is an emotional appeal, right?
Vikas: That's a very good point. When you use the word communication strategy – communication is often construed as the company talking to its customers – so I would say that for high commitment brands, the company really needs to have a listening strategy.
The company in many cases might take a little bit of a backseat and listen to what the highly committed customers are saying. Think of a forum, chat rooms, or events – a big role for the company is to be the facilitator so they can listen and get ideas in terms of what and what not to do.
Chris: Right. I think that's the trick because – referencing your Oldsmobile example – there's no shortage of ideas coming out of those groups of people that are fiercely loyal to your brand. But which ones are we going to enact and risk angering that core part of your audience? It’s knowing which ones to listen to and which ones to pass up.
Vikas: That's a good point. Let's say you're listening to your core customers and you figured out three potential ideas. I think the incorrect thing would be to just go ahead and do something and then wait for your customers to react. The correct way to do it is to get buy-in from the customers. And this is not extremely difficult.
Let's say a company has three potential ideas. They might just throw those ideas back at their customers and then see if they can conduct some voting to see which one is the most popular. They can also ask, “Can you tell us what the pluses and minuses of each idea are?” The main point is that, through
Just the thought that the company actually wanted to listen to you, even if your idea doesn't get adopted, gets a lot of mileage for the company. These committed customers are more interested in getting heard and getting a feeling that somebody's interested in listening to them than, "Oh, my idea has got to be adopted." That's the general point.
How Do Loyal Customers Insulate a Brand?
Chris: Say there's a crisis or something negative happening around your brand, how does having loyal customers actually insulate you from those negative experiences?
Vikas: There is this very interesting study about Nike that was run by a professor at the University of Minnesota. She took two groups of customers, one group had
A few things came out of that study. First, customers who were highly committed to Nike completely discounted the negative article. Second, they were three times more likely to counter-argue the negative article and say, "The article must have been wrong." And third, the likelihood to buy a Nike shoe for the highly committed customers did not change at all, whereas, for the low commitment customers, the likelihood to buy the shoes went down. This is the main idea that highly committed customers are like a firewall.
For Toyota, when the brake incident happened, there were highly committed customers who were not only willing to buy the Toyota brand but they did not need a discount.
It's during these negative events that highly committed customers can be the firewall and really help the company. That's how you make money.
Research shows that the average stock price of companies that have a high brand commitment is a little bit higher. But more interesting, the variance of the stock price is lower. So, high commitment customers, or a very strong brand, lower the volatility of your stock price. That is, your stock becomes less volatile if your brand becomes stronger. That's the big role played by customer commitment.
Chris: That's really fascinating stuff. I think that pretty much covers everything for today. I really appreciate the time, Vikas. Thanks for stopping by. We're looking forward to the next time we get you in the studio.
Vikas: Thank you.