SEYMOUR SLOAN IDEAS THAT MATTER

INCREASIG MARKET PENETRATION IN CONSUMER GOODS

WHAT REALLY DRIVES BRAND GROWTH? At Seymour Sloan, we have worked with FMCG brands on a number of growth initiatives and the core message from our work has been that, for a brand to grow they must increase the number of purchasers. As obvious as it sounds, we have found that often our clients are thinking in terms of targeting niches and increasing wallet spend within those niches. It has led to brands focusing on depth over breadth, an approach that we have found is not as effective as simply selling to as many customers as possible. When we looked at what marks the leading brands out as strong market operators, there was one thing consistent through each example, the leading brand had the highest level of penetration in their category in any chosen geography. Penetration refers to the number of households that purchased the product in any given year. It seems that having your product in more households is the platform for growth. If you look at the traditionally low levels of brand loyalty among FMCG customers then it is a clear battle to sustain high penetration levels annually. The idea that, once you get a customer, you keep them is over. From, Budweiser in beer, Coca-Cola in beverages and Pantene in shampoo, all have penetration rates significantly higher than the average of the top 20 competing brands—at least four times higher. These brands usually earn higher repurchasing and purchasing frequency rates than their rivals, but their outperformance in penetration is far more dramatic Penetration is both a blessing and a curse. It is likely that if two purchase years were compared, the buyers would significantly differ, even for a consistent level of penetration. The high churn rate in the FMCG market means that brands are engaged in a perennial battle to recruit new customers. With this acquisitive mindset, it becomes difficult, and maybe even a false economy, to consider issues such as retention and loyalty. They move from being essentials to, ‘nice to haves.’ It means the marketing messages are targeted at a far wider span of customers than they may end up selling to. As important as this factor appears to be, we have observed many brands operate with low levels of penetration, not really understanding their competitive position. Across many products, a large majority of brands will typically enjoy less than 5% penetration. At 5% penetration, it then becomes a challenge to build scale into the operation. Ideally, brands need to reach 10% to 15% penetration before reaching the scale that would justify levels of investment required to sustain and grow the brand. Solid brands maintain penetration in the 25%–30% range, and perennial brands like CocaCola can achieve 50% or more.

One of the challenges many brands face is that they link brand, product and customer so tightly that their focus narrows, excluding a large number of potential customers. Looking at examples like Apple, Red Bull and Nike the common feature is that the brand represents far more than the products they sell. It is this breadth that creates the level of awareness and engagement required to rapidly increase penetration levels. If Nike only focused on those engaged in sport and exercise it is unlikely that their running shoes would become fashion staples. It is this ability to build a broader brand narrative that widens the appeal and in turn encourages customers to find a reason to purchase. By acknowledging this, Nike and Red Bull managed to boost their penetration in the US to above 14% of the adult population, respectively. How can brands increase their penetration rates? Brands have to embrace a strategy for the long-term. In markets that are intensively competitive, where billions are spent on marketing, increasing penetration happens over a number of years. Sadly, we are at a stage where plans are usually for 1-3 years. We estimate that if a brand can have all the correct elements in place then increases of 1-1.5% penetration annually are possible. At that rate it can be a lengthy process to go from 10% to 25%. However, most organisations do not seem willing to last the course. In contrast, if you observe brands such as Coca Cola, their strategies have a longer horizon and they fully understand the value of penetration built over generations. Switching strategies is akin to resetting the whole process. There is greater value is a moderate strategy that persists into the long-term against strategy shifts on an annual basis. Both in cost and consistency, brands lose out by changing course regularly. Brands that remain consistent, even in challenging times, will serve as the platform for future growth. There must be a commitment to the long-term goal over and above any short-term hiccups. A clear example is the impact of short-term price cuts in driving sales volumes. Eventually, any short term benefit is swallowed up by the market, with the net result being a lower average market price. In such a scenario, there is no winner, except the customer. It is difficult to improve penetration without improving the customer’s connection with the brand and product. Successful brands are such because they give the customer more than one reason to purchase the product. They are leading brands because they excel at gaining the customers consideration. Earning consideration and penetration requires investing in three key brand assets: memory structures, product portfolios and in-store assets. All three are examined below.

Memory structures. Successful brands remain in the mind of the customer through consistent and engaging narratives. They build their marketing programmes around a small number of distinct messages, anchored by high impact messages, which emain in the customer’s memory. In a congested marketing space, it is difficult for customers to remember all the messages transmitted and as such, building the mental connection requires a long-term approach coupled with consistency of approach and messaging. The three words that typify the approach are: consistency, persistence and repetition. Successful brands use the same messaging and cues everywhere—from media advertising to packaging or point-of-sale signage. They avoid changes to messaging, logos, catch lines or music that erase memory structures. And they do not shy away from repetition. Examining brands with sustained success over decades like Nutella or Nivea you see consistency. The iconic chocolate-spread brand hasn’t significantly altered the product formulation and taste, and rarely modifies its message. Nivea has used the same visual identity for its core product for decades: from the round tin since 1911; the blue-and-white colours 1925; with the same logo and font since 1959. Taking a modern example like Innocent, we see a similar approach. Every communication on its containers consistently reminds consumers that its products are natural, healthy, and that consumption helps them achieve their objective of “five-a-day” (the daily consumption of five different fruits or vegetables for nutritional balance). Regardless of whether, five a day is the right amount, the customers believe in it sufficiently that it is a message with meaning. Successful brands adhere to the brand’s heritage to anchor the identity in the mind of the customer, but make sure to refresh it to retain brand relevance. Then, they achieve reach, repetition and audibility by concentrating their resources on fewer brands. They identify those that either have enough scale to self-fund the required investments or enough potential to break into a new consideration set—and they commit the required resources. Product portfolios. Leading brands understand complexity is fatal to a repeatable business model. Instead they have a pared-down and simplified product portfolio. Customers are then able to make sense of the product offering and lose no time in dealing with complexity. Simplicity allows brands to quickly identify what works and what does not in order to drive improvement. Keeping the product offering simple is at the core of successful market penetration. An example is Coca Cola, many times they have sought to wider their portfolio, only for customer feedback to force a retreat. An example of that is Tab Clear, the clear cola launched in the UK in the 1990s. The Coca Cola executives have accepted that their core offering is till their best and have generally left it alone. We have witnessed many companies chase the innovation train, throwing millions at marketing innovation they feel with change the world. Sadly, market evidence suggests that few innovations truly take hold, which makes them risky ventures and they can often divert focus and resources from products that are already successful. Innovation is something that should be trialled in the background and managed incrementally. How 200 customers feel about a product often has little relation to how 2,000,000 customers will feel. As such, we suggest that success is based on focusing on the profitable core.

Successful brands constantly invest in their successful products to keep building on their success. They invest to increase product quality, maintaining the quality differential with white label brands and justifying the price premium. They invest in trade relationships to deliver increased distribution, prime placements or promotional slots that attract new consumers to the category. Investing in advertising improves consideration while investing in store renovations and range expansion broaden the bounds of consideration. In support of that, successful brands will also have an eye on brands that could become successful brands with additional investment and then develop a plan to then bring those over the line. In-store assets. Finally, having focused on the most important products, it is essential to invest to activate them at the point of sale and ensure availability, being at the right place on the shelf or in secondary placements—and visible. Nivea, in France for instance, is known for having emphasized excellent in-store execution: the brand prioritises its top products, for which its salesforce must systematically fulfil an objective of 100% distribution. It also sets the challenge of “turning points-of-sales blue”—the iconic brand’s colour. Leading companies identify store assets that are critical to own in their category. They shape a compelling view of success to guide the execution of their salesforce. These winners reverse-engineer their core processes and make them compatible with the primary constraints of their trade customers. In essence, they place the retail outlet at the core of their distribution approach. They consider retail space constraints when defining their product portfolio, ensuring that the majority of the products make it to the customers’ eye and consideration. They consider placement constraints when defining merchandising plans, and calendar constraints when defining promotional plans. And they ensure their entire organization is synchronized and delivers a coherent plan, delivering maximum impact. Apple is a champion in managing in-store assets. They invest heavily to create a unique experience in its own stores. But in third-party stores, too, it works hard to create the highest impact for its products, often by creating a shop-within-a-shop, more than compensating for its relatively narrow range of products.

In the battle for market penetration and customer consideration, brands can rely on the Seymour Sloan approach to market penetration – which has reinvigorated brands brands in a range of categories across channels and markets. First, we work with your brand and category teams to rediscover the dynamics and conventions of the category and the real assets of your brand. We then help shape plans to ensure proper activation and investment to eventually get your brands to a wider span of customer. This interactive journey, anchored by strong business insight and stimulated by creativity, combines the best of consumer goods companies’ talent and capabilities to rejuvenate their brands. Delivering a wide span of both awareness and penetration is the basis on which growth in the consumer goods market will be won. Brands must accept this and seek to maximise penetration in their chosen markets.

SEYMOUR SLOAN Seymour Sloan deliver great ideas that drive progress. We help companies do things differently, delivering market changing solutions. We use the brightest and bravest minds to challenge convention and successfully deliver innovative solutions. We believe in short-term engagement and long-term support. This is cost-effective for our clients and serves as a basis for their continued growth. © SEYMOUR SLOAN 2014

SEYMOUR SLOAN IDEAS THAT MATTER