Consumer packaged goods – a market study.
“…unless traditionally strong brand names address their weakening brand positions now, they may revert to the positions currently held by store brands today.”
Consumer Packaged Goods Marketing
Some estimates of the consumer packaged goods industry peg the industry’s value at more than $2 trillion.
From any perspective, that is a huge number to ignore. But it has its troubles.
Highly competitive markets, powerful retailers and decreasing margins characterize the industry.
Larger players have a distinct advantage. They command greater influence with the retailers and, therefore, more easily modify pricing.
Hard business to ignore, but it is even harder to succeed in it. (Read a detailed story on the consumer packaged goods segment— Breakfast Cereals)
From a branding point of view, consumer packaged goods companies have an extraordinary challenge. Most consumer packaged goods companies brand individual products or a categorical selection of products.
For example, we all know the name Proctor and Gamble when thinking about consumer packaged goods. But few consumers could actually tell you things it brings to market.
Most consumers do know the brands it sells: Tide, Crest, Pantene, just to name a few. Most people also know Slim-Fast, Lipton, Vaseline, Bryers Ice Cream and Dove soap. However, many do not know they are all made by Unilever.
Promoting all of these individual brands is costly and largely inefficient, especially in a category where brand loyalty is relatively low and margins are even lower. Consumer packaged goods have done little historically to differentiate themselves on the store shelf, which means the number of alternatives and substitutes are interchangeable.
To get an idea of how CPGs generally work, let’s look at toilet paper:
The largest toilet paper marketers are Charmin (P&G), Quilted Northern (Georgia Pacific) and Cottonelle (Kimberly-Clarke). Together, they account for more than three-quarters of the toilet paper market. Each of these players says one thing: “We’re soft.”
Mr. Whipple, Charmin’s grocery store manager “spokesperson” began that mantra nearly 50 years ago in commercials with five simple words, “Please don’t squeeze the Charmin.”
Today, Mr. Whipple, while retired, now represents the norm: Cartoons, babies, puppies and caring moms dominate the imagery, each conveying a similar message of “We’re soft.”
Bordering on the bizarre, Cottonelle has even launched a campaign around the method in which consumers use toilet paper – roll over or roll under – even taking the unprecedented step in recommending all users of toilet paper to roll it over.
Charmin too has joined Cottonelle in an attempt to bring awareness to its brand by creating a website and an iPhone app entitled “Sit or Squat” that lets consumers find clean toilets all over the world and then share that experience via comment and recommendation to everyone.
One of the main problems toilet paper has is that, because it is such a common purchase, there is a high degree of discounting and couponing.
Consumers are constantly switching from one brand to the other because of price or discount. This switching behavior is a symptom of a greater more widespread problem that exists, not just in toilet paper, but also in the most of consumer packaged goods: Weak brand loyalty.
Consumer Packaged Goods Show Weak Brand Loyalty
The costs and risks that go with switching from one consumer packaged goods brand to another are generally pretty low for consumers.
In many categories, customers will often try something new or have a variety of products they use based on which is “on sale” at the time.
In dollars and cents, we can measure brand equity as the amount of money a consumer would pay in excess over the next lowest priced brand.
If this is the true monetary measure for a consumer packaged goods brand, cleverness like “Sit or Squat” or endorsing roll over when you put the toilet paper on the roll is not the most effective brand equity strengthening strategy.
With constant discounting and sales promotions, consumer packaged goods are always competing on price. And that price pressure is coming from the players within the category and from the retailer as well (especially Wal-Mart.)
All of this pressure ultimately leads to a consolidation in SKUs across a category and ultimately reduces innovation (even though the toilet paper industry has innovated in recent years in the form of flushable wipes).
The less elastic pricing becomes, the more undesirable it becomes to innovate or extend that category.
Toilet paper as an example
Toilet paper is one of the most common consumer packaged goods in the store today. It’s is a case study of both the problems and opportunities consumer packaged goods face.
For example, if it’s not the “softest” toilet paper, it is the “best on grease” cleaner, or the detergent that gives you the “whitest whites” or the cereal that is “part of a balanced breakfast.”
It’s not just toilet paper manufacturers that all say the same things. The vast majority of consumer packaged goods do as well. Even worse, their messages are simply basic descriptions of the product.
Think about this logically. In the toilet paper example, all players claim “soft.” As a consumer, is the other choice a hard block of wood?
It’s safe to say that consumers prefer a brand of toilet paper as being soft, gentle, absorbent, or can be rolled over or under.
In short, most consumers believe that all brands of toilet paper will work. This belief that all products “will work” further erodes away at brand loyalty in consumer packaged goods.
Product parity is another big influence in consumer packaged goods. Most comparable products on the shelf do what they are intended to do.
Otherwise retailers would not dedicate precious shelf space to them. Certainly there are minor differences between like products – bleach or no bleach, spicy or mild, diet or regular – but looking at it critically, they all work and only represent a market segmentation, not preference for a particular brand.
For food and beverages, taste is relative and totally dependent on the individual. (Which is why you have loyal Bud drinkers and those just as loyal to Guinness.)
But taste is based on brand. In many cases, consumers could not tell the difference in blind taste tests. In products, attributes such as efficacy and good taste are the most basic requirements for a product to exist on a store shelf in a given category. They are “table stakes.”
Sure, better or different ingredients are used in higher priced items. They also may offer marginally superior performance. But pricing strata also helps consumers understand product hierarchy and enables manufacturers to offer more choice even as manufacturers continue to slice the segmentations thinner and thinner. (See Coke Zero.)
Good brands overcome parity
There are some cases in which consumer packaged goods command price premiums not because of efficacy or ingredients but because of their brands. Campbell’s soup, Kraft Macaroni and Cheese Dinner, and Tide are a few examples.
However, preference for those brands may have come as a result of relentless advertising over a prolonged period of time. Consumers may have simply grown accustomed to seeing their ads and consider them safe choices.
If that is true, heritage and longevity play an important role in the purchase decision for these products and a drastic change in packaging or formula could pose a real problem for them.
There is another possibility too. Some consumer packaged goods create strong brands that resonate with their audiences in such a way that they are compelled to purchase them. Even at a higher price or if they are not “the best.”
The Pepsi Challenge
Take the Pepsi Challenge for example. Pepsi attempted to convince consumers that it tasted better than Coke. In commercial after commercial Pepsi was victorious over Coke in blind taste test.
Bumper stickers proclaimed the driver “took the Pepsi Challenge” and the message found its way to lockers and walls around the country. People believed the commercials and began to try Pepsi.
Coke responded in 1985 with one of its few disasters, changing the formula of their soda to “New Coke,” which resembled the Pepsi taste. The product failed miserably. Coca-Cola execs wondered how could a product that consumers said they preferred in blind taste tests fail so terribly?
Turns out, most preferred Coke when the test was done without blind folds. There was power in the Coca-Cola brand.
Scientific research to back up the power of brand
Now flash forward to 2003. A neuroscientist named Read Montague from Baylor pondered the power of the Coke brand for nearly 20 years. If traditional product attributes like taste were so vital to the success or failure of a product, why had New Coke failed?
Moreover, if people preferred Pepsi’s taste, why did Pepsi not own the market?
He first put Coke and Pepsi head to head in a blind taste test and found that a little more than half preferred the taste of Pepsi.
The MRI showed no significant differences in brain activity between those who preferred the taste of Pepsi and those who preferred the taste of Coke.
Next, he told participants what brands they tasted. Something extraordinary happened. Three-Fourths of those involved in the test suddenly preferred Coke to Pepsi.
Dr. Montague concluded that the increased blood flow was in response to the Coke brand itself. Once the participant knew of the brand, it triggered the brain to look for images, associations, and most importantly, emotions associated with the brand. Dr. Montague had seen the power of brand in physiological response.
The power of the Coke brand did not lie in efficacy or taste. The power was in something else, something that addressed or resonated with the pyscho-emotional make up of the consumer.
Brand as A Tool, Not an Excuse
As marketers, it is easy to say consumers choose something because of its brand. It is an easy fallback position or excuse to revamp the visual identity of a product.
However, as the Coke example points out, brand is much more powerful than something wielded by a graphic designer or copywriter.
It also demonstrated how persuasive brand could be for a consumer packaged goods brand.
On shelves where there is parity and battles over price, the only way consumer packaged goods can compete is through resonating their brand with those they wish to influence.
Looking at Coke, it is clear that even when you are at a product attribute disadvantage (more people prefer the taste of Pepsi blindly), the strength of your brand can compensate for that weakness.
However, echoing the chorus of your competitors by claiming a product attribute (i.e. soft) or being overly clever is not the way to do it. In fact, consumer packaged goods that are engaging in this sort of pseudo brand building have the most to lose by it. Read how brand can be a marketing tool here.
Coke, remember, does not ever say it tastes better.
Beware of Store Brands
For medium and small consumer packaged goods companies, it is a constant struggle to meet retailer demands and open new delivery channels. Unless a small consumer packaged goods brand has distribution through a larger company, its often difficult and sometimes impossible to break through with the retailer.
According to a study done last year by IRI, 22.8 cents out of every dollar spent in consumer packaged goods went to store brands, up from 21.6 the year before.
According to Neilson research, the store brand sales increases mirror the lack of sales growth in the 2001 recession.
This indicates that, when consumers have the choice between buying their favorite name brand or purchasing a lower-priced brand, many consumers are opting to move to store brands. And at least since 2001, the retailers themselves have helped to reshape the landscape of CPGs.
Consolidation of retailers has been a great influence on the consumer packaged goods industry over the past 10 years, but so has the explosion in chain store locations. The effects are visable at all levels of retail, from C-Store to grocery to drug store to super-centers.
In fact, according to the Private Label Manufacturers Association, over just the past five years alone, private label in grocery has increased 34% to $55.5 billion and in drug stores 45% to $6.1 billion.
In terms of percentage growth, this is sobering statistic for an already hyper-competitive consumer packaged goods industry.
To a fair degree, consumer packaged goods manufacturers should take heed. Retail outlets know they have a substantial degree of power in the consumer packaged goods sales equation. Sales in branded chains account for the vast majority of business for many consumer packaged goods companies.
Retailers influence on small to mid-sized CPG companies
In fact, for some drug store CPG’s, there are only five customers – Wal-Mart, Target, CVS, Walgreen and Rite Aid. For small to mid-sized consumer packaged goods companies, losing one of these retailers may spell doom. (Note the video below where CVS bans the sale of tobacco).
For many of the smaller manufacturers, the chain’s national buyers know they hold all of the cards. They squeeze every penny out of the manufacturer and, at best, reward them with a single facing and sub-prime shelf space, causing the manufacturer to always look over their shoulder to see what the buyer is going to do next.
Consumer packaged goods brand names spend a lot of money to get consumers to purchase their products and this is money retailers believe they do not have to spend to attract consumers because of it.
Once a consumer enters a store – drug stores are especially capitalizing on this behavior – the store places private label or store brand products in a prime position on the shelf.
Go into any CVS or Walgreen, the name brand and store brand packages look very similar and may have a similar name.
Store merchandisers give private label prime shelf space, usually to the left of the brand name, and charge a lower price in the hope the consumer will choose the private label product.
What This All Means to consumer packaged goods?
Given the amount of store brands in a given store, it is only a matter of time until retail chains start making more of an investment in marketing and branding their own brands.
Yes, there is a high degree of both parity and pricing pressures on this industry already. Even the largest consumer packaged goods manufacturers like P&G and Unilever continue to fragment their voice through marketing individual category brands.
Store-branded consumer packaged goods have an advantage insomuch as they could create a brand around their entire portfolio of products. There is only one brand involved: That of the store.
This would enable retail store brands to gain more brand momentum from positive product experiences than their brand name counterparts.
As it stands right now, a positive experience with one P&G product does not translate to equity with another P&G product. But that is not the case with the store brands.
For store brands, it is easy for a consumer to see the relationship and much more efficient to transfer brand equity from one product to the other.
The brand name response
Some big brand names have already begun to recognize the seriousness of this threat and their ability to remain relevant in the store. Some are doing an “end-around” of sorts and are actually aligning themselves with store brands in unique ways.
Kraft Cheese and El Paso have each created displays that showcase their products next to complimentary store brands. In some cases, displays like these have been so successful for both the name brand and the store brand they are becoming permanent in some stores.
In the current state of the consumer packaged goods market, consumer packaged goods companies must do a single thing in order to survive and remain profitable: Stay relevant.
This does not mean continually coming out with repackaging or clever advertising. Rather it means name brand consumer packaged goods brands should refocus on brand meaning and not simply product attributes.
Moreover, consumer packaged goods manufacturers must reconsider using a branded house model over a house of brands.
Some consumer packaged goods products have taken a distinctly modern approach to marketing their brands. Devour is a relatively new member of the frozen meal market and the appeal is STRICTLY adult. Even the tag line is suggestive — Food you want to FORK.
Spending resources to keep individual brands relevant and not spending to keep the whole company of brands relevant is inefficient at best. (We’ve even seen this from P&G lately, especially in its Olympic advertising.)
As store brands continue to erode market share from traditional national brands, a strong branded push by a large retail chain for their store brand could significantly weaken the relevance of an entire portfolio of name brands. If successful for one chain, others would surely try to repeat it. It’s only a matter of time.
Retailers are sponsoring some of the local advertising while including Global Brands. They use the brand for promotional help.
As it stands now, national brand names still hold power, although their grasp of it is weakening. Will we ever see an entire store made up of store brand items? Absolutely not.
Even though consumers prefer specific brands, they also need to feel as though they had choice in the matter. Walmart attempted to consolidate products and removed a number of brand names off of the shelf earlier this year and had their worst quarter for growth in their history.
However, unless traditionally strong brand names address their weakening brand positions now, they may revert to the positions currently held by store brands today.