How (Online) Cynicism Destroys Brand Equity

The press reported recently that American tech companies like Cisco and IBM have suffered a steep drop-off in Chinese demand. But the real story lay in an underlying driver of the decline: the Chinese government’s pique at NSA spying revelations, its retaliation levied on U.S. private companies.

Moreover, anger over American surveillance is not confined to China: the EU, Russia, Middle East, India, Brazil, and others have expressed outrage. German officials have publicly suggested avoiding American tech services.

While Cisco is an enterprise brand, luxury purveyors should especially heed the portents these blow-ups demonstrate for all globally-minded brands embracing ecommerce. Of course, at issue here is government surveillance. But the stakes for luxury brands are nonetheless huge because of their reliance on Silicon Valley’s commercial surveillance-driven ecommerce tools.

Political theater notwithstanding, the entrenched notion that global consumers no longer care about privacy is being proved false—particularly when it’s American surveillance at issue. Yet Silicon Valley’s ubiquitous virtual and physical consumer surveillance (via smartphones, wearables, etc.) make the NSA look amateurish. This matters profoundly for luxury brands, which have inadvertently linked their rich brand equity to Silicon Valley’s surveillance-driven, mass-market ecommerce architecture.

What happens when consumers—American, Chinese, global—follow the money trail leading to the source of Silicon Valley’s surveillance machinery, cloaked in “free” online content and services?

The source is none other than global consumer brands, whose ad dollars in exchange for detailed behavioral dossiers drive the Silicon Valley wealth frenzy. Consumer cynicism will not stop with Google or Facebook, but continue to those brands paying the piper. Once “they’re all playing the same game” sets in, brand differentiation becomes rather more difficult to execute, yet alone prove a source of competitive advantage.

Reaping What You Sow

To put a finer point on the stakes, consider Proctor & Gamble’s experience in <href=”#4″ >China with their SK-II personal care brand. Even after relaunching the brand some five years after Chinese officials discovered toxins in the product, 96% said in a consumer survey they would never again purchase the brand—a devastating blow to brand equity.

Note that some 80% of the market capitalization of the Fortune 500 is comprised of intangible assets, principally brand equity. Insightful practitioners have demonstrated the best consumer companies share a common thread: They assiduously cultivate loyalty, the polar opposite of cynicism in a business context; indeed, their brand identity is centered around cultivating loyalty among all stakeholders, which drives recurring revenue (at full and fair pricing), enthusiastic consumer evangelism and, ultimately, superior long-term ROI. This holds doubly true for luxury brands. The Internet only accelerates these fundamental business processes, for good or ill.

Surveillance Breeds Cynicism

That’s why cynicism is dangerous. It eats away at the long-term value of your most valuable asset—your brand equity—by breaking trust between your brand and your loyal (and would-be loyal) consumers, something very difficult and expensive to restore. That lack of trust breeds cynicism.

The antidote?

The luxury sector must pioneer a superior ecommerce model—one emphasizing relationships built on trust. The current model, built to benefit Silicon Valley, removes privacy and discretion by design—yet both are essential elements of any luxury experience. Here what’s good for Silicon Valley is not good for your long-term brand equity appreciation.

At bottom, luxury brand leaders must anticipate their customers’ future demands. Will luxury consumers forever passively accept the algorithm-driven, no-privacy ecommerce model built to guess at what they want to buy? Or will they demand a relationship-driven model, where their favorite brands ask them directly what they want, with no secret surveillance? The answer is likely the latter—and would constitute a win-win for consumers and luxury brand equity. In any case, the question matters profoundly for the global luxury sector—and begs an answer from C-suite leaders.

Seizing Luxury Leadership

The luxury sector can seize leadership in high-end ecommerce away from Silicon Valley by translating online the privacy and discretion of their real-world brand experiences, as these are alien concepts in the prevailing American-architected Web ecosystem.

Astute brands must utilize ecommerce to forge stronger bonds with their loyal customers and reliably identify new loyal customers (vs. deal seekers). They must lead in changing the prevailing ecommerce paradigm by actively protecting consumer privacy, and focus on delivering superior personalized service based on relationships rather than surveillance.

It is the luxury titans in Milan, Paris, New York, et al, who should be leading the next wave of luxury ecommerce, not Silicon Valley coders. Massive luxury brand equity hangs in the balance and now is the time for brand leaders to seize control of their ecommerce destiny.

Marvin Goodwin is Founder and CEO of Primoux, a Web-based, one-to-one brand management platform uniting demonstrably trustworthy brands and demonstrably loyal customers. Reach him at [email protected].