A sideways look at economics

Nine of the Fathom team (myself included) recently spent the best part of a week at Brantrake House in the Lake District, discussing our strategy (after the COVID-induced pause) for Fathom USA. We spent a day at High Ground Farm on Birker Moor where we learned how to move a huge pile of wood, how to get in the way while the professionals (the wonderful John and Gaby) sheared and sorted sheep, and how to yell incoherently before jumping off a bridge into deep water. And we also talked about what’s in a brand, and the Fathom brand in particular.

Brands are subtle, shifting concepts, moved, like fish, by both internal and external factors. A brand that was buzzing ten years ago can be stale and uninteresting today unless it has moved with the times. Brands have life-cycles – most new brands, like minnows, look cute but are destined to be hoovered up by larger competitors. Those that make it through the first few years can grow very rapidly and flash around the reef in great style. Those that make it to maturity move more slowly in deeper water: formidable; doing the hoovering up of the small fry themselves; but no longer the coming thing.

The middle phase is the most exciting. There are still risks, and big ones, but you feel that you know what you’re doing, just about. That’s where Fathom is now as a company.

Brand is an important concept in economics. The greater the value of a company’s brand, say the textbooks, the steeper the slope of its demand curve: the more inelastic is demand for the goods or services it produces. Inelastic demand means profits (in most circumstances): companies with strong brands can charge more if they wish without immediately seeing their customers flee to competitors. Inelastic demand means customers are sticky, and profits can therefore be made.

That’s obviously pretty important.

The strength of a brand is influenced by actions taken by the company itself and by the shifting tides of fashion and taste. In the company’s hands are things like quality, consistency of product; PR, marketing and advertising; culture, including how the company approaches risk and change; how employees are treated; how suppliers or peers are treated; and (above all) how customers are treated. And all of those ‘internal’ factors need to move with the times – for example, advertising that might have been successful a decade ago could be irrelevant or counterproductive now.

The strongest brands have an integrity through all of those factors: the product is great, the culture works, and the PR and marketing just tell it how it is. All companies, including Fathom, aspire to that pattern. But there are interesting nuances within that general aspiration. One of the exercises we did in the Lakes got hold of some of those nuances.

Fathom brand exercise

In this session, we each talked about a brand that we admired and explained why. (Some of us talked about more than one.)

Here are the brands:

Ace & Tate (Kevin)
Ace & Tate provide handmade frames for eyeglasses, including sunglasses. While they cost a bit more than you’d pay for a regular pair of glasses, they are cool and well-made and give something to a product that is mostly functional, which makes you feel better about it (geek chic). You have to have glasses. It’s nice that someone recognises that doesn’t mean they should be boring. Make it fun and cool and it’s worth the extra.

Trader Joe’s (Emma)
Trader Joe’s is a North American grocery store chain. Each of its shops is very recognisably one of Trader Joe’s, from the wooden floor and shelves to the distinctive smell. All the staff wear Hawaiian-style shirts and are friendly and knowledgeable. It sells its own products rather than branded ones and has a diverse range of goods sourced from all over the world. The company doesn’t sell everything you might expect to find in a grocery store, but everything in its stores is high quality and reasonably priced. You may not have thought you needed dark chocolate almonds with sea salt and turbinado sugar, but once you’ve tried them, you’re hooked.

The Shortlist (Jo)
A company which designs, manufactures and retails clothes aimed at women who are towards the petite (5’2’’ or below) end of the distribution. It’s not just about the clothes but about the person behind the brand – her journey, her personality, the steps involved in creating the ‘right’ clothes. Customers are buying into her as a person, and the honesty of her backstory. It’s not glamorous (budding designer turned entrepreneur), but born out of the short-girl struggle (and an unhappy career in recruitment). The clothes tend to be expensive, partly because the collection is curated, unapologetically, by her – that’s what you’re paying for. And it’s worth it.

Virgin Atlantic (Erik)
An airline fighting for a foothold in a market dominated by massive incumbents (such as BA), with huge barriers to entry and wafer-thin margins. They do this by emphasising small but important tweaks around a basic service that has to be fundamentally very similar to that of other providers. The tweaks are: personality, fun, coolness, quirkiness, even a bit of sexy: a twist in the flavour of the service towards those things. This wiill appeal to people who enjoy that stuff. They are consciously going for that market, not for boring, staid, conventional; twisting the service towards fun.

Ferrero (Andrea)
Ferrero is a brand with a legendary status in Italy. Its flagship product is Nutella. But it has a range of other sub-brands including Ferrero-Rocher, Kinder, and a bunch of others. In some of the sub-brands, the presence of Ferrero is very clear, but in others most consumers would be unaware that it’s really Ferrero (eg Nutella). It’s a family brand, but the individual Ferreros are all but invisible: it’s not about them. The company is well-known for treating its employees very well and for allowing a high degree of autonomy to the individual sub-brands where that is helpful. It supports the development of new products, some of which succeed, while some fail. That risk-taking is part of its culture, and a big part of why it has succeeded for so long.

Drakes (Erik again)
Drakes are a designer clothing brand whose shirts I like. Shirts are kind of boring products, but you have to have them. Drakes shirts are more expensive than most, but they are well made and tend to use colours that I like – strong colours. Reminds me of a scene in a book by Sartre called Nausea, where our hero is in a bar looking at a guy wearing mauve braces, and he gets increasingly nauseated looking at them. Because they’re almost blue but not quite. He’s like: go ahead and BE blue, for crying out loud. That’s clearly where you’re heading. Just do it. I feel the same – colours that suggest the real thing but don’t go there annoy me. Drakes shirts go there.

Starling Bank (Leara)
Starling Bank is a ‘challenger’ bank, up against huge incumbents, carving out a niche by providing better and more easily accessible customer service, via a well-designed app and frequent contact via mobile or other electronic devices. They take advantage of the lack of ‘legacy’ infrastructure to build a new, flexible, tech-friendly service.

Loaf (Leara again)
Loaf make excellent sofas, chairs and similar. The products are made-to-order – you go into the store and lounge around on the various sofas, look through the fabrics, colours etc. that are available, make your choice and they will build it and deliver it to your spec. The stores are great, providing plenty of space and time to luxuriate on their products, which is the point. The name ‘Loaf’ is right – that’s what you are encouraged to do. Those who love to loaf will also love their products. The colours and fabric choices are also very pleasing. The whole thing makes you feel good and want to Loaf. Good, not cheap.

The Ordinary (Leara again again)
The Ordinary is a brand of skincare products that emphasises straightforwardness, no bullshit. The design of the packaging is black text on a white background, clear and simple. And the description of the products is the set of chemicals that they contain. It gives the consumer a feeling of confidence that they’re not being sold a pup – you see exactly what you’re getting. The brand value is substance over form not the other way round, which is more usual. [Reminds me of Kingsley Amis’s famous proposal for marketing beer: “Bowen’s Beer Makes You Drunk”. Or the sign on the shop round the corner from the office “Cheap booze”. Tell it like it is.]

Straightforward branding

Adele (Georgia)
Adele’s songs tend to be ‘serious’, touching on themes of loss and love and sadness. And she has a great voice that can carry the weight of those themes. But her personality outside of the songs is full of fun and vivacity, open and generous. And that’s a big part of why you warm to her and want to listen to her sing. It’s not just about the substance of the songs, it’s about her as a person. You want to hear her sing because of her and because of the songs.

Seraphine (Laura)
Seraphine is a designer brand of maternity wear. Mothers-to-be change shape dramatically and the easy thing is to make do with cheap clothes for the time those changes are happening. Seraphine does better, by creating clothes that make you look good and feel comfortable throughout the pregnancy, and which can be worn happily afterwards too. You don’t have to settle for crap just because you’re pregnant, which is a difficult enough time as it is. They cost more but the extra cost is worth it.

VW Golf (Aless)
VW Golf is a classy, comfortable, reliable, and good-to-drive car. It won’t break the bank although a bit more expensive than the usual hatchback. I first bought a Golf in 1990 and have not been without one since. Golfs are well equipped as standard; I love the drinks holder that pops out of the dashboard! The sound system is fantastic, especially appreciated when indulging in some 90s dance music nostalgia. And to reemphasise, it’s such a reliable car that goes on and on with minimal problems. It’s a home from home. We still have two in the family.

Common themes

I think there are a few interesting commonalities across how we felt about those brands:

  • It’s fine to charge more if you are offering something different and better: we like brands that offer higher quality even if it means a higher price
  • ‘Quality’ means reliability and consistency, and it also means really paying attention to what the customer wants and how the customer wants to feel about that: I want to loaf and I want to feel good about loafing, for example
  • We like brands that are full of personality and fun, with all the quirks and individuality that implies: not just vanilla products or services, but brands that involve people being themselves
  • We like brands that are straightforward and strong about what they offer: no bullshit, no hedging

This exercise helped us to think more clearly about Fathom’s brand values, and how we should make the market in the US aware of them.

We should be strong and clear about what we offer: strong colours:

  • Independent thinking on macro, finance and geopolitics applied to your questions: top-of-the-range economic intelligence guided by you.

We should offer something better – more intelligent and more attractive – than the market norm and should not be afraid to charge more for that: geek chic:

  • Good, scientific economics made cool and fun, so that our clients will actually use it and enjoy using it, and will be happy to pay a bit more for it

We should emphasise the individuality of the people involved, not just text and numbers: human beings

  • We offer direct interaction with our people, face-to-face where possible. And the reports we write are readable because they are written in our individual voices, with the quirkiness and humour that implies – without sacrificing any of the fundamental quality. Interaction with human beings is an important dimension of quality.

We should pay extremely close attention to what you, our clients, are interested in: learn from the client

  • Every client is different. Some government clients are really only interested in new thinking relating to China’s role in the world. Others need to understand how emerging technologies will reshape the global economy and patterns of economic dependence within that. Some financial market clients want help in generating short-term trading ideas in fixed income, while others are interested in longer-term investable themes in emerging markets, and so on. There is no one-size-fits-all service for all those different interests. But the tools of economic analysis can be used to help all of them. We work best when we really understand the needs of each individual client.

I would be interested to hear the thoughts of our clients on this: what can we do differently, better? Please let me know: eb@fathom-consulting.com .

P.S. Here is that huge stack of wood. It was much huger irl. #objectsmaybelargerthantheyappear

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