Creating long-term brand success (and negating the MyPrice trend)

Note: the following post focuses on FMCG, but the thinking is applicable to any brands that battle on price e.g. telecoms or travel brands.

The MyPrice trend and promotions

The MyPrice trend, identified by Join the Dots co-founder Pete Comley, is characterised by consumers having more influence over price than ever before, driven by increased knowledge gained from sources such as social networks (read more).

This MyPrice trend has a strong influence on brands, particularly evident for large branded FMCG producers. Promotions are absolutely key to this sector: brands use promotions on the vast majority of their products in order to achieve sales. Indeed, promotions accounted for 35% of grocery sales in the year to March 20th 2011, up from 30% two years earlier, according to Kantar Worldpanel. Promotions by supermarket chains accounted for 44% of their branded grocery sales.

Promotions – the positives

There are some ways in which promotions can be a positive for a brand and retailers. For example “a well-timed promotion can clear excess stock or, in austere times, stop consumers trading down to cheaper alternatives. Retailers like them as they add a dash of colour and buzz to shops, and because they can squeeze more money out of each customer through impulse purchases.”

Promotions – the negatives

However, battling on price alone is not a viable long term success strategy. The very fact that promotions on most FMCG goods are all pervasive damages their marketing power. Plus, they only temporarily boost sales. When a promotion ends, sales tend to drop back to pre-promotion levels. Further, if brands don’t provide promotions, and all else remains the same, they run the risk of erstwhile customers switching to cheaper brands or own label (a big and growing threat). So, playing with price alone is a slippery slope.

Creating long term brand success

So, what do brands do to create long terms revenue success? This is what FMCG business leaders have to say:

“We have put our brands first without compromise… while driving faster and better innovation and better organising around the consumer.” Paul Polman, CEO, Unilever

“Improving our [marketing] capability, our innovation and putting a clear brand strategy in place will grow the business.” Jon Goldstone, group chief marketing director, Premier Foods

So, brands need a clear strategy, with two key elements driving ongoing growth:

• Product innovation – making your product (or service) different and better than the competition
• Effective marketing – driving awareness and brand consideration

Product innovation

According to Ernst & Young “businesses need to renew their offerings and business models constantly - and get innovations to people quickly - to protect existing markets and develop into new ones. [Companies need to] try embedding an internal culture that enables the organisation to manage innovation and maximizes its impact. [Companies] need speed in developing and commercialising ideas.”

As Jon Moeller, CFO of P&G says “promotions in quarters but innovation wins decades - we’d rather spend $1 on innovation than on promotions.”. P&G spent $2bn (£1.2bn) on research and development in its latest financial year - which it claims is 60% more than any competitor spends - as part of its strategy to drive growth through innovation.

Research from Nielsen in 2009 (presented at WARC) tracked the introduction of 33 high-end products in the consumer goods sector. Overall, they found that 23 brands had achieved their initial volume targets, while the ten which failed to do so had suffered either from "low value perceptions" or a "low perceived product advantage" in the eyes of consumers.

At Join the Dots we work closely with clients to drive innovation, often with an online community at the heart of the process (although we use other methods as well). For example…

• A community for a leading mobile phone manufacturer is all about understanding early adopters to help feed a continuous stream of innovations in mobile handsets
• A community panel for British Gas is all about speedy screening and development of new product and service ideas
• To help The Co-operative Food learn about families, Join the Dots combined an innovative mix of online community research techniques with the purchase and demographic data they already held, to provide a holistic understanding of how and why families behave in the way they do. The results are helping The Co-operative Food move forward with their family strategy for 2011/2012

Effective marketing

Again, quoting Ernst & Young…”spending on marketing to increase brand equity can help improve pricing power because pricing power is based on more than just price. It's also based on the attributes, qualities and benefits of the brand. Deciding how to allocate marketing spend, introducing brands to unfamiliar new markets and optimizing digital relationships all present big challenges for consumer products companies. And all involve getting closer to the consumer.”

The last sentence is very telling. Companies can throw money at advertising and P&G’s figures for its latest financial year reveal that they place a lot of faith in marketing - spend increased by £430m to $5.7bn for the year (or 11.3% of net sales, most of which was invested in advertising. However, getting closer to consumers helps brands understand what marketing messages truly resonate and drive consideration, as well as what media channels deliver optimum ROI.

Again, as with product innovation, Join the Dots often uses online communities to help brands with their marcomms development. Communities where we’ve had great success include…

• Kellogg’s – by understanding the target audience (shape managers) we gave Kellogg’s and Leo Burnett’s the fuel to create Special K marcomms that emotionally resonated (across multiple channels)
• Major FMCG company – using a community to inform an agile development process, we were able to the client finesse a new ‘claim’ (USP) for their baby wipes (that aimed to fend off competition from private label)
• Next – we used communities (plus surveys) to understand the impact of social media on the brand
• O2 – we help them understand core target segments to inform advertising development and refinement