Jim Jubak, MSN Money Markets Editor, offers up a (possibly) controversial point of view on brands: “The brand is dead. Wal-Mart killed it, with help from Target, Costco andTesco”.
Despite that bleak assessment, he thinks that Procter and Gamble understands life after brands, hence the acquisition of Gillette. Here’s Mr Jubak’s take on the future of brands, P&G-style:
“It’s not just that P&G has a huge base of traditional brands and a superb track record of product innovation that makes the company successful. The evidence is that P&G gets the post-brand world and has put strategies in place to exploit the new environment.That’s no mean achievement for a company that has cut its teeth on the traditional brand.
“I’d break down the company’s strategy into six rules that make a playbook for the post-brand consumer products company:
- Consumers will pay a premium for products that offer improvements over either private-label products or the brands they have bought for years.
- Product innovation must be constant with noticeable (or at least marketable) improvements year in and year out. Tide detergent goes from a powder to a liquid to a tablet that incorporates Downy fabric softener. Great, says the consumer, but what have you done for me lately? In today’s market, a company can’t count on much in the way of customer loyalty and instead must constantly “sell” the customer on product value. Especially when the product sells at a premium price.
- Product innovation must be designed to constantly “up-scale” consumer preferences. Selling coffee is not as profitable as selling cappuccino (and selling the cappuccino “experience” is even more profitable). Selling clean and cavity-free teeth isn’t as profitable as selling whiter teeth (and selling dentist-white teeth is even more profitable.)
- This upscaling of consumer tastes can’t be limited to just the most-affluent consumers. By moving the top of the scale, a company gains the room to move every other consumer segment a rung up the ladder. Constant product innovation gives the company a steady stream of not-quite-new products that have built significant economies of scale and can now be offered at slightly lower prices to consumers down the spending ladder. Pricing should be structured to make each step up a bit more profitable for the company and to encourage a final step up to the newest product.
- These strategies of innovation and pricing can be used to penetrate developing economies and to gradually move the most-affluent consumers in those markets up the product/pricing ladder. A strategy of constant innovation also allows a company to offer less affluent consumers in developing markets a constant stream of new-to-them products, even if they’re actually older products at low price points. The days of selling generic and unchanging products to less affluent consumers in developing markets are ending.
- As growth rates in mature consumer markets in the United States and Europe slow,using innovation to capture an increasing share of developing markets will bekey to growing company earnings. It’s especially critical for consumer-products companies where growth rates are tied to population growth and household formation.
“The world of consumer products is moving in P&G’s direction. In the long term, that will pay off for the company and for those who own its stock.”