Tuesday, June 13, 2017

How Temporary Customers Kill Brands

A conversation about cuisine has got me thinking about brands that experience a brief surge in popularity that drives short-term revenue but do damage to the core customers and ultimately to the sustainability of the brand.  

The conversation was at a local culinary institute among a group of gourmands, who have a genuine interest in cuisine, as opposed to the “foodie” crowd who are disdained for having no palate and mindlessly following culinary fashion.   It’s the foodies who have made sriracha sauce so commonplace these days – it’s being slathered on hot dogs and cheesecake and many other things on which it does not belong, simply because it’s being mentioned in various media by celebrity “chefs” who have no real culinary credentials.

The most popular brand of sriracha is produced by Huy Fong Foods in California, which has been around for about forty years, and which originally produced small quantities of high-quality product for ethnic groceries and restaurants.   Because the foodies have taken to it, their product is in mass-market groceries, and the gourmands generally agreed that it has suffered significant loss of quality, and they are seeking other brands – small shops that produce the original high-quality product similar to what they used to get from Huy Fong.

From there, the conversation turned to sourcing of ingredients, but the question stuck in my mind: what are the long-term prospects for Huy Fong?   The present popularity of their product will not last, as the foodies will eventually turn their interest to some other ingredient, leaving the brand high and dry.   And because it diluted its quality to produce in such high quantities, its original customers will have left it for other suppliers.  In plainer terms, the brand has a sacrificed its long-term sustainability by abandoning its core market to pursue short-term profitability in the mass market.

There are tactics such a firm can use for recovery: to pursue other product lines that are more sustainable, to be prepared to scale back operations as demand wanes, and to attempt to predict the next foodie fad.   None of these seem promising or sustainable – it is merely prolonging the decline of the firm as it spends out its present surplus attempting to remain solvent once the mania has passed.

More troubling is the question of how a brand can sustain its core customers, those who have been loyal from the start and would remain loyal after the fashionistas have lost interest.  Fashion is, after all, an environmental factor over which a firm has no control and can only react: but can it react in the right way to sustain itself?

I suppose that time will tell, though my expectation is that within ten years, the Huy Fong company will collapse from having ramped up its operations to serve a temporary surge in popularity.   Even if it is able to scale back production facilities in a timely manner once the fad passes, it has already lost its core customers and will need to explore a different market – perhaps those who cling to a fashion once its heyday has passed, but even they have a limited lifespan.

And perhaps it is just the nature of things: there are very few quality brands that have sustained themselves for a century or longer.  It can be argued that the true luxury brands have shunned the mass market and abstained from the temptation to vulgarize themselves for easy money when threatened with popularity from the wrong kind of customer, but these tend to be very few.

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