Brand Portfolio Strategy: Secrets of CPG Winners

I believe this explains why poor consumers often end up NOT buying something because we just can’t decide between the vast choice of flavours, packs and sizes on display in some large supermarkets and hypermarkets. More is most definitely not always better when it comes to retailing, as I’ve already mentioned! Does any brand really need tens of flavours/aromas or hundreds of variants? To answer this, I decided to take a look at the latest table of leading global brands. According to Interbrand’s “Best Global Brands 2021“

1. Apple
2. Amazon
3. Microsoft
4. Google
5. Samsung
6. Coca-Cola
7. Toyota
8. Mercedes-Benz
9. McDonalds
10. Disney
11. Nike
12. BMW
13. Louis Vuitton
14. Tesla
15. Facebook
16. Cisco
17. Intel
18. IBM
19. Instagram
20. SAP

Most of these brands certainly don’t have hundreds of variants from which to choose from and therefore the customer’s final selection is relatively easy. However, interestingly only one of these companies is a CPG (consumer packaged goods) brand. A couple of years ago Interbrand made a great summary chart (below) showing the value of the top 100 brands of 2019, which clearly shows the importance of the different sectors. You have to search to find the CPG brands – bottom right-hand corner!

Going back to the 2021 results, I decided to take a closer look at the sub-category of consumer brands. (Note: Interbrand still separates alcohol and beverages from CPG!) Here are the top 10 CPG brands, including beverages and alcohol):

1. Coca-Cola (6)
2. Pepsi (28)
3. Budweiser (37)
4. Nescafe (40)
5. Pampers (44)
6. L’Oreal (53)
7. Gillette (61)
8. Nestle (62)
9. Danone (65)
10. Colgate (68)

What immediately strikes me is that many of these brands are actually also the names of the corporations who make them. This might explain why few consumer goods companies appear in this list, because they just have (far?!) too many brands and variants. A few of the larger CPGs – like Unilever and Nestle – have started associating their company name more prominently with their brands. However, they have taken two very different approaches. Unilever places its corporate logo on the back face of their product’s packaging, leaving the brand logo as the hero on the front. Nestle, on the other hand, incorporates its logo into the front panel design of most of its brands. There are a few noticeable exceptions which include their waters and Purina petcare brands. Both of these were run as stand-alone businesses in the past, which might explain this. I am assuming that both organisations chose to prominently display their company logo in addition to the brand, in order to increase corporate reputation and also consumer trust, especially for their lesser-known brands. Interestingly, Unilever is not amongst the top 100 brands of 2019, so perhaps the addition on the back panel is too discrete to have any real impact? I am closely watching to see if this strategy results in increased loyalty in the long-term, because for now their performances are not demonstrating a positive return. Their latest P/E ratios are both significantly lower than that of the S&P 500 average of 24.07.

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If you’d like to measure the relationship between your brands and your corporate brand, then we should talk.

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BUSINESSES ARE FOCUSING BETTER

An interesting trend in the past decade is that some CPG leaders, such as P&G, Unilever and Nestle, have significantly culled the number of their brands’ SKUs. In some cases, this has meant reducing them from thousands down to “mere” hundreds and they continue to do so on a regular basis. Taking Pareto’s Principle as a guide, cutting the bottom 5%, 10% or even 20% of brand variants should be relatively easy without losing significant share. This is why these companies continue to do this frequently; it makes good business sense.

Going back to Interbrand’s latest report, they mention that the fastest risers, led by Tesla, significantly outperformed other brands on three factors:

• Direction
• Agility
• Participation

The most successful companies set a clear mission and vision, to ensure that the entire organisation knows where they’re going. And they bring new products and services to market much more quickly and pivot to account for the rapidly changing customer needs when necessary. Brand management has become far more challenging in recent years because consumers are changing faster than ever. However, what is surprising is that most CPG giants still don’t evolve fast enough, which is why they are being challenged by the more flexible and agile startups! But they are going to have to change if they want to stay in the race. For now, it appears that they know theoretically that they should be better focusing their portfolio and making frequent adjustments in line with their consumers’ changes. But in the end, they don’t go far enough, perhaps because they’re scared of losing share. If you are struggling to make the difficult decision of culling variants in your portfolio yourself, then perhaps I can provide a few reasons to convince you to make that much-needed pruning:

• Those multiplications of flavours, aromas, packaging etc you are making are renovations, not innovations. Wake up marketers, you are not innovating! Renovations should be primarily replacements of less successful offers, not additions to your already over-extended brand.
• Retailers can’t stock every variant, so the more you offer the less chance you have of getting wide distribution. Think back to your pre-launch market assumptions; I bet they included a wildly exaggerated level of distribution in order to get that precious launch approval!
• Precise targeting and a deep understanding of your consumers are the most successful ways to limit SKU explosion. If you are suffering from too many variants, then perhaps you should go back and review what you know about your consumers and what they really need.

Arguably some categories need constant renovation (food and cosmetics to name just a couple) but even that’s no excuse for simply multiplying SKUs. Use the “one in, one out” rule I mentioned above, because if you don’t, the retailer probably will. And with little concern for your own plans and preferences.

THE 5 SECRETS

In conclusion, to summarise the best strategies for brand portfolio management, which seem to be a well-guarded secret since many corporations still ignore them, are:

1. Remember, that if you offer a vast choice of variants for each brand, consumers could get analysis paralysis and end up walking out of the store without buying anything.
2. You need to manage the corporate brand just as you do your other brands, especially if it appears prominently on the packaging or your other communications materials.
3. Make an annual review of all your brands and variants and ruthlessly cut the bottom 20%. If you want to keep any of them, you must have a good reason – such as a recent launch – and a plan to actively support them.
4. Innovate less but better. Be more targeted with each innovation and include your consumers in their development.
5. Be realistic in your distribution targets. Know what will sell where and why. Not only are you more likely to keep your share, but you’ll also make friends with your retailers.