Monthly Archives: September 2006

Building a Better Mousetrap

Twelve months ago the World Federation of Advertising - whose members collectively represent 700 billion dollars of advertising clout – offered a challenge: the Blueprint for Consumer Centric Holistic Measurement. Say what? Translated into realspeak, the WFA have called for a single source model with a single consumer-centric measurement tool which can be applied across all media. This holy grail goal represents acknowledgement of today’s reality that a single medium is seldom enough to reach consumers effectively.

Needless to say, research companies around the world have been quick to either (a) explain how their current offerings already fit the WFA blueprint; or (b) evolve their services accordingly and then make the claim.

In the first category, BigResearch, a market intelligence firm providing analysis of consumer behaviour in areas of retail, financial services, automotive, and media, has just unveiled the latest results from its Simultaneous Media Usage Survey(SIMM), which has been monitoring the multimedia behaviours of more than 15,000 consumers twice a year since 2001.

This particular release highlights the disparate sources which influence“advice givers” - i.e. those most likely to recommend products to others. According to the BigResearch data (and, for that matter, common sense), advice givers are likely to gather their information from different places depending on the product category.

“Word of mouth is the hot topic in marketing and promotion these days,” notedBigResearch. “The key to understanding and impacting the word of mouth process is to find out who the ‘advice givers’ are and target them before the purchase.

The survey revealed that “advice givers” don’t always formulate their counsel on personal experience alone. The influence of the media ecosystem — where consumers live, work or take their leisure — also plays a critical role in moulding their advice to others. Their most trusted media sources range from word of mouth to articles to the Internet. In a specific example, “advice givers” tended to be mostly influenced by word of mouth, reading an article on the product, and TV/broadcast advertisements when purchasing electronics. However, coupons, newspaper inserts and word-of-mouth were the most influential when purchasing groceries.

Which of the following media influenced their purchases for…?

Grocery
1. Coupons
2. Newspaper Inserts
3. Word of mouth
4. In-store promotion
5. TV/Broadcast

Electronics
1. Word of mouth
2. Read Article on product
3. TV/Broadcast
4. Newspaper Inserts
5. Internet Advertising.

Okay, the examples aren’t exactly surprising. But – harkening back to that wonderfully idealistic Blueprint for Consumer Centric Holistic Measurement (just trips off the tongue, don’t it?) - what’s important is not just identifying the likely mechanisms which influence the influencers. The real opportunity lies in being able to use a common research currency to quantify the exposures delivered by your usage of such multimedia – and track reach, frequency and other vital statistics across the combined platforms.

Maybe the Blueprint for Consumer Centric Holistic Measurement needs a snappier name - the X-prize for the first private space flight captured the popular imagination, even though a mere ten million dollars was at stake. With seven hundred billion smackeroos up for grabs, surely someone could come up with a decent brand …. ?

The Newspaper Under Attack

A US report released last Friday by Merrill Lynch spells out some compelling reasons for newspapers to reinvent themselves online. The paper, with the prejudicial title “Deep Depressing Dive”, suggests that Merrill Lynch analysts are taking an “increasingly sober” outlook for the newspaper industry, lowering estimates once again for newspaper ad spending. “We remain concerned regarding the newspaper industry’s outlook as the dual impact of changing media consumption habits and the migration of highly lucrative classified ads to the Internet are squeezing margins and hampering growth.”

The report goes on to acknowledge that newspaper publishers are changing their business models, including a push toward greater online distribution. However, the analysts expressed concern that newspapers are “being too aggressive with their online pricing as these new competitors are either not charging or charging lower prices as they seem more motivated to use the traffic being generated by the listings to offer other wraparound services.”

However, don’t sound the death knell of newspapers just yet. Not all papers are wilting under the online onslaught. When the Bakersfield Californian, an independent, family-owned paper in central California, heard that free classified site Craigslist was coming to town last year, they decided to launch their own classified Web site — and make it free. The radical strategy turned out to have an unexpected benefit. As local musicians began using the free site to find band members and equipment, or to advertise gigs, the site attracted a younger crowd that hadn’t advertised in the newspaper before and didn’t appear to be cannibalizing the newspaper’s paid classifieds. The Californian doesn’t make money on the Web site now, but plans to start running paid ads from businesses on the site later this year.

As Gary Pruitt, chairman and CEO of the McClatchy Company (which signed a deal in March to acquire US newspaper chain Knight-Ridder) commented at the time of the acquisition: “Last year, the world celebrated the 400th birthday of the newspaper. Those of us in the business also recognized it as the 399th anniversary of the first prediction of our demise. Speaking as someone whose company is writing a US$6.5 billion cheque to triple its newspaper holdings, I beg to differ.

“To many, ink spread across newsprint pages seems old-fashioned and destined to disappear. This conventional wisdom has become so pervasive that you can buy the nation’s second-largest newspaper group, Knight-Ridder, for a price that would have seemed an unimaginable bargain only a few years ago. But while that kind of thinking might be good for our company — we were the buyer, after all — it’s wrong. The fact is, newspapers are still among the best media businesses – and the most important.

“Even the biggest bears among newspaper analysts acknowledge that the companies still make good money. Their rap is that we’re losing readers so fast that the good times can’t last. But are we in a precipitous decline? The answer is no. Certainly, we’ve seen a gradual decline in the number of newspapers sold over a 40- or 50-year time-frame. More recently, circulation began dropping at a rate of 1% every year from 1990 to 2002. Certainly as a percentage of households, newspaper readership has fallen considerably. Meantime, total newspaper advertising volume peaked in 2000 and has slipped 4%, according to the Newspaper Association of America.

“However, no competitor in local markets has held onto audience as well as newspapers have. Others proliferate — more TV channels, more radio stations, infinitely more Web sites — but the number of daily papers stays steady. While we rarely face direct competition, our competitors see more all the time.

“Surveys show 54% of [US] adults read a newspaper yesterday. On an average Sunday, the number is closer to 60%. Even among young people, supposedly lost to newspapers forever, 39% read weekday papers and 49% read on Sunday. But what about the future? While it may seem counterintuitive to suppose that a company founded before the advent of electric lights would be a media leader in the age of blogs, podcasts and text messaging, that’s exactly what has happened. We certainly have competition from Google and others. But in each of the communities where we compete, almost every newspaper has the largest news staff, largest sales force, biggest audience and greatest share of advertising in its market. Whether it’s on the Internet or off the presses, we are capturing that business.

“Adding the unduplicated reach of newspaper Web sites to newspaper readership shows that, far from shrinking, our audiences are growing steadily. Simply put,more people want our products today than wanted them yesterday; this is hardly the profile of a dying industry. But of course our products have changed as we have all been forced to adapt. Today’s daily newspaper is the engine driving a multimedia company that includes popular Web sites, foreign language publications, direct marketing initiatives and much more. Replacing the notion of “readers” with “audiences,” we’re fast becoming multi-platform, 24/7 news companies — and it’s working.

People in the newspaper industry have a lot riding on this – our jobs and reputations, for starters; but the stakes for society are far higher. Self-government depends on continuous civic conversation, which in turn depends on people having a common vocabulary. Without a shared sense of what the problems are, there’s little hope of finding solutions. That shared middle — a place where people basically agree about the facts and the issues, even if they differ over what to do about them — is where we believe our responsibilities as newspaper owners lie. And it is under assault by spinmeisters, partisans and ideologues. They all have their place in a democracy — but it is not in the centre. Our place is.

“Employing the extraordinary tools of the digital, interactive era means we can get better at this: more transparent, better listeners, open to hear more voices.Of course we have to change, but changing is a fundamental part of our heritage, the result of a 400-year evolution that has weeded out the brittle and the rigid no less ruthlessly than Mother Nature. We survivors are evolving still and employing new tools to leapfrog forward. Yet we still hear voices prophesying our impending doom. A favourite cartoon of mine shows a character explaining why: ‘I’ve been forecasting the demise of newspapers for 30 years,” he says. “If I change now I’ll lose all credibility.’

Private Label Research

New U.S. private label research from ACNielsen, Daymon Worldwide, DemandTec and McKinsey, released earlier this month, aimed to demonstrate how retailers can build profitable customer loyalty and competitive differentiation though private label brands.

Key insights (from the portion of the study developed by ACNielsen):

  1. Retailers with greater focus on private label (i.e., those with higher overall private label shares) are effectively shaping more positive consumer attitudes towards private label products and encouraging more solid buying behaviours as a result.
  2. While heavier private label buyers offset “branded” spending with private label spending, they are in stores more often, buying both private label and branded products, providing retailers with opportunities to drive store loyalty.
  3. Heavier private label buyers offset branded spending with private label buying – enabling consumer savings and allowing retailers to compete in a “value-oriented” environment.
  4. Study findings suggest an opportunity to narrow existing price relationships between private label and branded products.
  5. Consumers who spend the most at retail have a weaker private label commitment, but these are also the consumers where private label sales opportunities are the greatest – suggesting a need for greater focus on premium private label offerings.
  6. Private label is no longer limited to the historic buyer profile of low to middle income, blue collar families. Nielsen see high buyer development in households with US$70,000 plus incomes, particularly among households who are top-spend private label buyers who shop in retailers with strong private label commitment.

Consumer Attitudes towards Private Label

Private label is in a position to compete on quality with national brands:

  • Up to 85% of top-spend private label buyers say they are a good alternative to brands
  • 59% of consumers say they are “just as good”
  • One third of consumers state that some private label items have “higher quality” than brands
  • 4 of 5 consumers think private label products are acceptable when quality really matters

Improvements to private label packaging are paying off:

  • Even low-spend private consumers have a positive image of packaging
  • 9 of 10 consumers say they feel comfortable serving private label to their guests

Consumers have positive attitudes towards private label’s value proposition:

  • 2 out of 3 consumers believe private label is “an extremely good value”
  • Consumers feel that private label is no longer for ‘lower income’ families
  • 73% of consumers do not think brands are worth the extra price
  • 36% are willing to pay the same or more for private label items they really like
  • About half of consumers compare private label prices between retailers

Opportunities to expand private label assortment:

  • Almost half of consumers state they would buy more private label products if a larger variety was available

ACNielsen’s recommendations as a result of the research:

  • Private label provides retailers with the ability to compete in a “value-oriented” world & drive store loyalty
  • Stop thinking about price gaps & start aligning private label pricing to reflect the quality of your private label offerings
  • Expand or enhance your private label products to target demographic segments & attract most valuable shoppers

Encouraging news if you’re a retailer. But if you’re a branded product manufacturer, the news seems grim. How did this happen? What can be done? Australia’s Assent Consulting tackled the issue three years ago, in an article in their FAST journal of October 2003:

Clearly the branded manufacturer’s position is not as strong as it was. How did this happen?

There are a number of reasons.

  1. Manufacturers haven’t really mounted a response to economy category generics. Many have simply gone into denial; it is still not uncommon to hear complaints along the lines of “It’s not fair – the battle for the consumer is fought in-store and they are giving their brands disproportionate shelf, time and focus.We can’t compete with these margins!”
  2. It has been put in the too-hard basket.
  3. Marketing has, in many cases, foisted it onto Sales,and vice versa.
  4. A number of manufacturers have believed their so-called strategy was to make Private Label themselves. (The Harvard Business Review of 1996 said quite clearly, “If you aren’t making Private Label now, don’t start”.)
  5. The decline and fragmentation of traditional mass media – in both reach and effectiveness – is an acknowledged cause. It is no longer easy to plant authoritative messages in consumers’ minds with an obvious ROI.
  6. A lot of manufacturers believe that the aspirational quality, emotional benefits and image cues they have built up through years of advertising can never be replicated by Private Label – yet the introduction of Private Label into mainstream categories is challenging this. Most at risk, consequently, are second and third tier brands since they lack these image and quality cues.

So what can be done?

There are several strategies, most of which are not new. However, the six reasons outlined above, as to why it happened in the first place, contain the real answers to the problem. In many ways, retailers are simply a strong competitor who is brilliantly copying established innovators. So, the solution is clear – more product and sales innovation, more quickly, to a higher quality. Radical strategies such as diversification into new channels, or NPD, will then back up traditional brand strategies.

However, denial, the too-hard basket, Sales versus Marketing, arrogance as to brand strength, as well as lack of insight as to consumers’ real view on large companies (particularly overseas ones), have allowed a succession of marketing directors to ignore the problem. Here’s how to start the comeback.

Brand management versus product stewardship
If the category is full of products with no emotional benefit, no aspirational quality and therefore no image, it is obviously at risk from (1) any kind of competitor and (2) strong retailers in particular. Therefore, brand strategies (not line extensions, sales strategies or a few hastily cobbled together promotions) are essential. This means that good brand managers must have a good process, and rather than ducking, everyone in the organisation above their level should support them in addressing the opportunities and threats they have identified.

Portfolio strategy to support brand strategies
Brand strategies must be complemented by portfolio strategies. A typical CPG category contains six large sub-categories.

  • First, there is the super premium category – probably not large volume in grocery, very profitable, generally imported.
  • Then there is premium –while marketers are busy making this, the salesforce are often busy getting it on frequent and deep discounts so that it can become mainstream. While this tactic has merits in encouraging trial and shifting lots of pallets, it has to be done sparingly. The premium category will have a good price premium, may have authentic local cues or may be from overseas. It will be chockablock with real (emotional) brands.
  • Then comes mainstream. Often the largest, again contains good strong brands with good blue-collar socio-economic cues, sensibly priced, often discounted. This category can be very cluttered.
  • Value is another often cluttered category.
  • Next is economy which is the heartland of the original Private Labels. Its cues: large pack sizes, ‘buy one get one free’, banding together of packs. The consumer who regularly buys only on promotion is particularly strong at this level.
  • Finally, there is sub-economy. Budget and No Frills are familiar brands here. Until now, only the courageous have shopped at this level, or people who are or have to be genuinely bargain-obsessed.

Many manufacturers simply don’t segment in this way. While it isn’t the only segmentation model that should be used, it is the most fundamental model for running health checks on your category.

If you don’t have real (emotional) brands playing in all these categories, you will be under attack from any kind of competitor. It follows that if you play in economy, you must have an economy brand, and if you play in mainstream, you must have a mainstream brand. Brands are often associated only with premium categories. Not so. Some of the world’s most powerful brands sit in mainstream. It can be argued that McDonald’s, for example, sits across mainstream and value categories.

Winning in the portfolio, and in the category
So, it is essential that as well as having a portfolio of brands across the key categories, you have brand strategies in each. You can be as aspirational in lower-value categories – for example, I am a thrifty Mum – as you can be in premium or super premium – for example, don’t I look good eating, drinking this? If branded manufacturers do not field a brand in the value or economy category, a competitor (retailer) will!

Good news
The good news, from a strategic perspective, is that retailers are copying the established leaders. True, they may be playing unfair in-store with shelf space, facings and obvious priorities. True, they are now advertising. But they are copying. So, if they have copied product quality, if they have copied packaging quality, if they have copied advertising, then obviously the way to address this must be – to borrow from Edward De Bono – sur/petitious. Sur/petition is leaping over the competition.

If your next sur/petitious idea is not around yet, getting it should be top priority. How about a new processor manufacturing technique that gives some capability, that will take at least three or four years for the competition (including the retailer) to copy? A core competence in generating better creative is much more likely to succeed than “Let’s hope this year’s advertising does the trick”.

If you have not yet discovered an emotional benefit to build on the functional benefit of your product, this must also be top priority. For example, if your product genuinely does taste better, it’s time to turn up those messages about discerning consumers, how the difference is important, and get into competitive advertising/communication. If you believe that value (the functional benefit – “I buy it because it saves some money”) will help you build a sustainable strategy, then bring in an emotional value benefit now. Emotional value cues come as: nurturing, being clever with money, stretching the budget, being a good Mum, getting one over on the big boys.

Sounding too hard?
Already, this will be sounding too hard. Most strategies in CPG are too hard. By definition, CPG is so intensely competitive, with such low barriers to entry, such focus and reliance on a few key retailers, and such established manufacturing technology, that keeping your brand different and real is always in the too-hard basket!

Think of it as seeds and harvest. By continuing to brand-build the way you have for a few key brands with budgets concentrated on these and no alternative form of brand development, firms are in effect continuing to harvest the ideas built many years ago.

Retailers still get us in-store
True, there is little sense in forward-thinking marketing strategies being put in place if you don’t have talented key account managers to keep banging the drum. Key Account Managers need to be involved at the portfolio level of strategy. They need to be goaled, motivated to prevent down-trading from premium to mainstream, and so on. They need their own strategies and tools to persuade retailers of the (obvious) benefits of true emotional brands.

We can do this
As with so much marketing, this article basically recommends that the strategies that have worked so well in the past should be reviewed and re-engineered. Where it goes one step further is in the urgency that is required. If brands cease to own (through continual innovation) every aspect from flavour/efficacy/performance, to aspirational image/quality, to the way they dialogue with consumers, the industry will change irreversibly towards store brands. There will be more CPG people working for retailers, there will be fewer second and third tier brands and SKUs on the shelves, and the consumer will become loyal to their retailer brands.

Is this really something that CPG CMOs can continue to put in the too-hard basket?