5 Ways for Market Leading Brands to Drive Profitable Growth

If you have ever had the opportunity to work on a market-leading brand, you know from experience it is both a privilege and a challenge.  On the positive side, market leaders typically have strong brand equity, excellent profitability, and score well on key measures such as awareness, trial, and loyalty.

Bounty - How Do You Grow a Market Leading Brand?On the challenging side, companies expect strong, consistent profitable growth from their market leading brands, and in many categories this can be exceptionally difficult to deliver.  Trying to continue growing share when you are already the market leader often results in heavy price competition which has the unintended result of driving profit out of the category for everyone.

In many ways, it can be even harder to stay on top, than it is to get there, as the low-hanging fruit has already been picked.  With that in mind, here are five suggestions to help market leaders continue driving profitable growth:

1. Rather than focusing on stealing share from competition, focus on growing the category.

Years ago when I was working on the Bounty paper towel business, the brand was market leader with a share nearly triple its closest competitor.  Rather than seeking to simply grow share, our team recognized that the paper towel category had expandable consumption, and as market leader it was our responsibility to drive category growth.  Read on for more detail on how this worked for Bounty.

2. Get in bed with your heavy users.

Really understanding what makes your heavy users tick has multiple advantages.  First, it helps ensure you don’t do anything which will alienate them, which can have catastrophic consequences.  Coca Cola would have avoided the whole New Coke fiasco had they shared their plans to change the formula of Coke with their heavy users.

In addition, studying your heavy users allows you to understand what differentiates them from your typical user, and can lead to strategies to get more users to adopt the heavy user behavior.  In the Bounty example, the brand’s heavy users tended to use paper towels for tougher cleaning tasks than typical users, and tended to keep larger quantities of Bounty on hand.

3. Don’t define your competitive set too narrowly.

Step back and see how the consumer views your category, and what alternative products they consider when selecting your product.  In the Bounty example, while heavy users were using paper towels for tough cleaning tasks like washing dishes, cleaning large spills, or scrubbing carpets, typical users were using sponges and rags for these tasks.  By understanding that Bounty was competing with sponges and rags, we were able to show the benefits of using a disposable paper towel versus a durable product like a sponge, which can be a breeding-ground for germs.

Campbell Soup - Building the Business by Broadening the Category DefinitionA second example here would be Campbell Red & White condensed soup.  If you define the category as condensed soup, Campbell has an 85 share, with little room to take additional share.  Defining the category as all shelf stable soups and broths helps some, but doesn’t reflect how the consumer really views the category.  By studying consumer behavior, the Campbell team was able to understand that the consumer is considering condensed soup along with other quick “minimeals” like a sandwich, frozen microwave entrees, etc.  This insight led to sharper consumer communication on when and why to choose Campbell condensed rather than some of the other alternative foods.

4. Stretch your brand equity by launching innovative line extensions…

...but be sure not to launch new products which are inconsistent with your current brand equity. Continuing with the Bounty example, we launched Bounty Quilted Napkins, bringing Bounty’s strong and absorbent equity to the napkin category.  A second positive example would be Crest, which figured out they could extend their brand equity beyond simply cavity protection to total mouth care.  This led to a stream of new products including tooth brushes, oral rinses, and of course, Crest White Strip

Crest WhiteStrips - Extending the Brand's Equity with Successful Line ExtensionsOn the other end of the spectrum, Jif Peanut Butter, whose equity has consistently focused on “more peanutty taste”, attempted to launch a line of flavored spreads called Jif Smooth Sensations which came in flavors like Chocolate Silk, Apple Cinnamon, and Berry Blend.  Jif’s brand equity could not be logically extended to nonpeanut flavors, and the line failed.

5. Optimize your product lineup to maximize productivity from every sku.

Finally, in the current world where retailers are closely watching sku count, it is critically important to take a hard look at your product lineup to make sure the every sku plays a meaningful role, and the whole maximizes productivity.  On Bounty, for example, we found that productivity went up when we concentrated our lineup on larger sizes.  Driving consumers to large count packs resulted in consumers’ increasing their in home consumption, and resulted in higher loyalty as measured by share of requirements.

A second example here would be Ensure nutritional shakes, which typically retail for $7.99 or higher per six pack.  Consumers were often hesitant to spend eight bucks to try a product they might not like.  By launching single bottle trial size, that barrier was overcome and overall brand volume went up.

In Summary

Certainly there are many more ways to drive leading brands to profitable growth than those we briefly reviewed here, but I have been fortunate enough to have a positive personal experience with each of these five.  By the way, I hope you’re enjoying these posts and, as always, I welcome your comments. One last thing, don’t forget to read Randall’s Beard’s guest post on the surprising increase in television viewership.

What are the barriers to CMO’s leading the Corporate Growth Agenda?

Today’s guest post is by Randall Beard, a leading and award winning Chief Marketing Officer and General Management executive with 25+ years global experience across consumer packaged goods, financial services and high-touch service brands, including Nielsen, Procter & Gamble, American Express, and UBS. He is currently Global EVP & General Manager at Nielsen IAG, responsible for Consumer Packaged Goods. To read more about his thinking, visit Randall Beard’s Blog.

The CMO’s job is simple—to drive growth, right? As Lou Gerstner ex-IBM and American Express CEO once put it: the role of Marketing is to build the brand and deliver a great customer experience. But is it really that simple?

At the recent CMO Club Summit in San Francisco, I was part of a panel discussion with Joe Ennen, SVP Consumer Brands at Safeway and Scott Thurm, Management Bureau Chief of The Wall Street Journal, titled "CMO's as Leaders of the Corporate Growth Agenda."

Scott led off the discussion by reframing the topic, asking, “What are the barriers to CMO’s leading the corporate growth agenda?” Joe, Scott and I spent the session discussing and debating this important question. 

Barriers to CMO’s Leading the Corporate Growth Agenda

CEO/CMO Alignment - I told the group that "the best CMO is a CEO who believes in Marketing." The CMO's ability to lead the corporate growth agenda starts with alignment with and support from the CEO. Not all business models and CMO’s are created equal. The role of Marketing in an organization can vary widely. And the CMO role can range from a narrow Marcom role all the way to something like a Chief Growth Officer. The CEO and CMO must be aligned on the role of Marketing in the organization for the CMO to effectively lead the growth agenda.

Growth Means More Than Marketing - The CMO has to think more broadly than Marketing. What are all of the potential growth drivers - Marketing or otherwise ? Companies such as Zappos.com have actually gone so far as to define a non-Marketing function like customer service as Marketing. A critical part of the CMO's job is to understand the business model and all potential drivers-whether inside Marketing or not. This is becoming even more important as digital and social media blur the lines between Marketing, Public Affairs and Customer Service.

• At UBS, we learned from Corporate Reputation research that being “open and transparent” was a key driver of reputation, and that reputation scores correlated  with “willingness to refer others” and other business growth metrics. This led the Marketing function to explore programs to communicate to stakeholders in more open and transparent ways.
• At American Express, we learned that offering free “Special Merchant Offers” to consumers using their Gift Card drove significantly higher purchase intent. This led Marketing to spearhead the development of partnerships with key consumer preferred merchants—and to market these offers as a key benefit.

Voice of the Customer – In Joe’s view, another key barrier to the CMO driving the corporate growth agenda is customer neglect. The CMO needs to continually advocate for keeping the customer front and center. All CMO’s could learn from A.G. Lafley, ex CEO of Procter & Gamble, who continually reminded employees that “the consumer is boss.” 

Customer satisfaction surveys not only measure satisfaction. They also measure the important factors contributing to satisfaction and quantify the relationship between those factors and satisfaction. Understanding these drivers enables Marketing to define areas outside Marketing that are central to driving growth. 

• For example, at UBS we learned that client contact frequency was an important satisfaction driver—more was better up to a threshold where satisfaction leveled off. Yet, the majority of client advisers were contacting clients well below the threshold. This led to a concentrated effort to improve contact frequency—and drive growth.

Connecting Customer Needs with Enterprise Assets – I stressed the important role the CMO plays in getting the organization to think about the entirety of the enterprise’s assets and capabilities. Connecting customer needs with assets from outside a business unit is a great way to drive growth—and one that organizational structure often stymies.

• Crest: Consumers had an unmet need for whiter teeth, and paste formulations simply didn’t do the job. A smart R&D person connected this need with synthetic bleach technology from laundry and substrate technology from paper making to create—voila--Crest WhiteStrips.
• Gift Card consumers wanted to buy the cards in retail. The American Express Gift Card group had no relationships with grocery and drug store chains. So, the organization leveraged the Amex Establish Services organizations retailer relationships to facilitate introductions and help gain distribution in over 70k locations in less than two years.

Keys to CMO Success

CMO’s clearly have a tough job, with an average lifespan of just 28 months. Lou Gerstner’s formula for CMO success is a good starting point, but CMO’s need to go further. Building the  brand and delivering a great customer experience plus driving the corporate growth agenda can help CMO’s and their firms be more successful in the future.

Should Brand Companies Ever Manufacture Private Label?

You would have to have spent the last 18 months lost in the jungle not to know that the economy is in dire shape, and that times are extremely tough for CPG companies. Leaders are looking under every rock for ways to deliver profitable growth to their business. You can only cut your way to greatness for so long and most companies have already passed that precipice.  

So as you evaluate opportunities to grow your business, should you consider manufacturing private label products? Branding purists would say absolutely not. After all, private label products go completely against the core premise of a consumer brand—of investing to build an authentic, holistic relationship with your consumers—and instead catch a free ride on the backs of the national brands.

I would argue the answer is sometimes—if a core set of conditions can be met—it can make sense for branded CPG companies to manufacture private label products.  First let’s consider the potential benefits of manufacturing private label:

•  It can strengthen your company’s relationship with key strategic trade customers, thus increasing your influence with the customer. Don’t believe it? Let’s assume your brand has a 30% share of the category, and accounts for 25% of your buyer’s profits. Now assume private label accounts for 20% of the category and 30% of your buyer’s profits.  If you manufacture private label for your strategic customer, you are now responsible for 50% of his category and 55% of his profits—of course your influence is going to go up.
• It can increase your capacity utilization, thus strengthening profitability.
• It can appeal to a new set of shoppers who may not purchase your branded products.
• It can drive top and bottom line growth. Don’t forget that private label products require much less overhead- there is no marketing spend, and minimal incremental costs associated with making private label.
• It can increase your ability to control the relationship between private label and your branded product.  For example, you have greater ability to influence the timing of when new innovations on your branded products are brought to private label.

 So what are the core conditions that I believe must be met to consider manufacturing private label?

1. You must have available capacity that isn’t likely to be filled by branded product in the near future.
2. You must be able to earn a reasonable margin. Two things to keep in mind here: (1) PL products have no marketing overhead associated with them, and (2) you don’t necessarily have to offer the lowest price—more and more retailers are placing a premium on quality and reliability even on private label.
3. Don’t lead retailers into new private label categories; only agree to manufacture private label in categories they are already in or have made a definitive decision to enter.
4. Only manufacture private label for key strategic customers—these customers have the scale to make it worth the effort.
5. To keep things simple for your supply chain, create one master formula that you make available to your customers; don’t create a different formula for each of them. Make sure that formula is not the same as your national brand formula, and in fact is slightly behind your national brand in consumer appeal.
6. Agree up front with retailers that innovations on the national brand will not be brought to private label for at least 12-18 months after your national brand launches them.
7. Have a contract in place that spells out that the retailer covers incremental costs such as packaging, and ensures that the retailer must take all inventory so you don’t get stuck writing anything off.
8. Have a single point of contact who is in charge of managing the private label side of the business.  This ensures that private label does not distract from the branded portion of the business.

In my experience, when the above conditions are followed, it is possible for national brands and private label to profitably coexist in the same company. Look for one more post on private label in the near future, this time offering advice to retailers. Thanks for stopping by, enjoy the Thanksgiving Holiday and, as always, I welcome your comments.

Five Lessons for the Leader of Tomorrow: Thoughts from “Good for Business”

I recently read one of the most thought-provoking business books of 2009, Good for Business: The Rise of the Conscious Corporation, and believe there is much to be learned from its insight.

The world is rapidly changing and those companies that recognize how and why will have a better chance to excel in the future. Consumers, prospective employees, investors, and governing bodies all have higher expectations of companies than they did in the past.

Good for Business lays out 4 cornerstones for successful businesses of the future- (1) respect for consumers' power,(2) a people-centered culture, (3) having a purpose beyond profit  and (4) a sustainable approach to business. 

Let’s briefly consider each of these cornerstones, beginning with respect for consumer’s power.  If you’re reading this, chances are you are well aware of the increased power of consumers as a result of the information age.  Consumer’s use the internet to form opinions, research purchases, and share experiences regarding brands and companies.  Its amazing the great divide between companies that understand and appreciate consumers’ increased power, and those that don’t.  

A perfect example of one who didn’t understand the new world is the youtube video “United Breaks Guitars”.  A United passenger witnessed baggage handlers mishandling his guitar, but despite trying for a year, he was unable to get the company to cover his damages.  The following video has been viewed by 6 million people on Youtube at the time of this writing and it's producers are already well into their third song about the incident.

Moving on to (2), most companies would claim to have a people-centered culture, but for many this is just lip service.  Hierarchical, command and control companies that try to make every decision in the corner office are going the way of the dinosaur.  These top down companies often have trouble developing future generations of leaders as when every decision is made at the top, people never learn to lead.  In addition, the authors of Good for Business rightly point out that there is a generational shift taking place, with millenials bringing a different set of expectations to the workplace.  Millenials have grown up in the digital age, have less patience for hierarchical organizations, and will not hesitate to move on to new opportunities if they are not getting their needs met.

Companies that (3) “have a purpose beyond profit” tend to have fiercely loyal consumers, motivated employees, and positive reputations.  The authors provide numerous examples of companies that live this value including Google, Whole Foods, and Green Mountain coffee.

Finally, the authors provide some interesting thoughts on (4) “a sustainable approach to business”.  Clearly, managing the impact a company has on the environment is the right thing to do for the planet and for future generations.  Interestingly, its also what your consumers and employees expect.  A Euro RSCG 2008 study showed that 79 percent of people purchase environmentally friendly products and a 2007 Net Impact study showed 81 percent of MBA students thought businesses should work to improve society.

Good for Business is loaded with data, real world examples, and case studies which persuasively support the authors’ thesis. Written in a conversational, enjoyable to read style, I highly recommend it.

Five Key Takeaways for Leaders

Here are some final takeaways for leaders:

1. Leaders must be aware of societal shifts which will change the business environment, and proactively plan to address them.
2. Embrace the fact that consumers’ power has increased dramatically and work harder than ever to exceed their expectations and build an authentic relationship with them.
3. You must equip and empower employees to evangelize the corporate brand; the old approach of managing all communication from the ivory tower doesn’t work any longer.
4. More than ever, creating an environment employees can believe in and rally around, leads to an engaged work force.  It can’t just be lip service- people will see right through it.
5. Corporations cannot ignore their impact on the environment- employees and consumers will no longer let them.

Are Brand Marketers Facing a Perfect Storm When It Comes to Private Label?

There’s no denying that private label continues to grow. In fact, Nielsen 52 week data thru July 11, 2009 shows that private label is up +7.4% across the Food, Drug, and Mass Merchandiser channels, with an average share of 16.9%. But why is that?

We all know it’s a tough economy, with consumers eating at home more often in an effort to save money. So when the economy improves, we should expect to see private label shares return to historical levels, right? Well, not exactly. Consider the following: 

• Private label shares in the U.S. have historically been well below those of Europe and Canada, and even with the recent share increase in the U.S., that gap remains.
• The “social embarrassment” associated with buying private label appears to have disappeared recently. Consumers used to “hide” private label products in recipes, while trying to avoid letting others know they use them. That is no longer the case. This is part of a larger overall trend going on in our country today where being thrifty and seeking simplicity is now seen as a good thing, and is being embraced by the masses.
• The quality gap between private label and national brands is narrowing. This is dangerous for brands, as once consumers try a private label product, and determine there is minimal difference from the national brand, they become less willing to pay the premium that brands are used to commanding.
• In today’s hypercompetitive, slow growth marketplace, many retailers share a common strategy of actively seeking to grow their private label businesses, as they are typically able to earn higher margins from private label versus national brands.
• The line between private label and national brands is blurring. Well managed private label products are becoming “brands” to consumers. Well designed offerings like Safeway’s O Organic and Eating Right lines, as well as Wal Mart’s Parents Choice products, are often viewed by consumers as brands.
• Departing from historical practices, retailers are beginning to broadly advertise their private label products beyond their weekly circular, with Wal Mart’s Great Value brand television campaign being a prime example.

Frightening, isn’t it? So what can brand companies do to stay competitive in this new reality?

1. First, continue to invest in brand equity, being sure to build an authentic relationship with your target consumers while stressing your brand’s point of difference.
2. Second, innovate, innovate, innovate. Staying ahead of private label products (and other branded competitors for that matter) gives your consumer a reason to pay a premium and maintain a relationship with your brand.
3. Understand how much your brand interacts with private label. Studies have shown that premium brands, with strong brand equity, often have less switching with private label products than second tier brands. This is important as you can then sell the retailer on how your brand attracts a different shopper and helps maximize the category closure rate for the retailer.
4. Understand and manage the price gap. In most categories, consumers are still willing to pay more for national brands versus private label. Where brands get into trouble is when they try to command a larger premium than the consumer thinks the national brand is worth.

Next time we’ll look at whether it makes sense for branded manufacturers to be in the private label business. Thanks for stopping by, and as always, I’d welcome your comments.