The Travails of Today's Brand Marketers
By Vinit Doshi, Principal

Over the past year, store brands have grown across many product categories in the CPG marketplace. According to Information Resources, Inc. (IRI), unit share across all outlets has grown to 22.8% over the past year, up +1.2 points vs. the prior year. The depth and breadth of the economic downturn and an uncertain recovery is widely regarded as an important catalyst for the growth of store brands. While the economic malaise is a fact, the real story behind the growth of store brands is less often due to price gaps and more often due to the shrinking value bundle gap between national and store brands. The narrowing value gap is real and those marketers anticipating an economic recovery to lift sales of branded products in a "rising tide" effect are bound to be disappointed.

Consumers are fundamentally changing their attitudes towards more conscientious consumption on matters of environment, health, and value. The heightened importance of value for money is leading consumers to rethink their attitudes and behaviors concerning the value of branded products and the price premiums they are willing to pay for frequently consumed necessities.

The trend is further reinforced by better consumer perception of store brands, backed by improvements in the quality and range of these products (according to a recent study, 70% of millennial women perceive the quality of store brands to be "excellent"). Retailer and store brand successes have effectively raised the bar for branded products by changing the question from "what's the most popular brand?" or "who's the lowest price?" to "who's providing a better value for me?" All of this portends the potential continuation of store brand sales and share growth, and a steep challenge to the growth of branded products.

To look for answers, we turn to a key principle of consumer behavior that holds as true today as ever: Markets consistently reward those brands that are positioned and able to deliver relevant benefits to the right targets in a superior way. Consumers experience many different needs in varying situations which they seek to fulfill through distinct functional and emotional benefits. In turn, they prefer products that align with their needs and deliver desired benefits.

Mature markets demonstrate these principles of consumer preferences all the time. In the last five years, for example, marketers have successfully tapped into consumers' health and wellness needs with a variety of innovatively positioned and precisely targeted beverage products that promise to deliver specific functional benefits such as quick and lasting energy, meal replacement, or vegetable nutrition, often to selected targets in specific parts of the day.

These consumer preferences lead to consistent behaviors that collectively create markets organized around bundles of relevant benefits. For example, one specific food category is structured along dimensions of taste / satiation, eating alone vs. eating with others, and healthy nutrition. This results in product groupings that deliver primarily against one of those benefit areas and compete closely with other products in the same group. In another case, the market is organized around traditional products versus value-added segments based on imagery, forms, flavors, and enhancements that deliver something differently or better.

Regardless of the market, price-value invariably manifests itself somewhere in the structure. The role of price-value relative to the role of brand varies considerably across different markets, depending on the importance and types of consumer needs, nature of product usage, role of trust and imagery in the category, the presence and strength of dominant brands and levels of marketing and innovation, and ultimately how well marketers have managed to define and deliver relevant benefits.

In some cases, marketers have created benefit-structured markets based on years of advertising, innovation, and effective positioning against relevant functional and emotional benefits. In these situations, brands or brand groups play a significant higher-order role in which they effectively stand for and own key benefits to the exclusion of other brands. Store brands may play a smaller role, existing but interacting in an undifferentiated way, or in a limited way that does not preclude the growth of branded players. The example of soy milk demonstrates how branded products used precise positioning, marketing, and innovation to successfully establish and own a value-added position as a tasty, healthy, nutritious, dairy-free alternative to conventional milk, leaving behind the commodity dynamics of the dairy milk category.

At the other extreme, markets that lack meaningful differentiation on benefits of relevance to consumers, significant marketing, and effective innovation predictably degrade into attribute-driven markets in which form, flavor, price-tiers, or easily replicable factors become the primary organizing principle of the market (for example, conventional dairy milk). In such cases, national brands often play a weakened role in the structure, and store brands do well as consumers reward the brands that deliver the only differentiating benefit of relevance — price value.

Most markets fall into a continuum between these extremes in which many national brands are fighting a losing battle, struggling to stem losses or eke out small gains. Some are dealing with the added burden of budget cuts and cost reductions that affect product quality. All the while, store brands are racking up growth.

Consider how difficult it is to manage a national brand towards growth in the face of store brands. In many organizations, the challenge begins with the relative importance of marketing — nominally responsible for driving demand, but often relegated to the back seat in favor of the immediate but short-term promises of finance and sales. Some of this is probably well-deserved.

The principles of consumer preferences are conceptually simple and highly empowering, yet harnessing them in a controlled way to one's advantage has remained elusive for many marketers. This is evidenced by the weak link between marketing spending and in-market results, the low success rates of new products, and the declining, stagnant, or anemic growth rates of the vast majority of branded products and brand portfolios. At an even more basic level, the challenge is apparent in the very wide range of market shares of different brands in any given market — ranges whose highs and lows demonstrate the variance in how well different brands are able to position and deliver against needs, even after controlling for differences in the occurrences of needs and distribution of products.

So, what's a branded marketer to do? We will answer that question in Part II.