How do you know when you have too many variants in your brand portfolio? In my opinion, the answer is that it’s when you can’t answer that question! Can you?
One of the most popular evergreen posts on C3Centricity is “The Beginners Guide to Brand Portfolio Management.” It seems that we all suffer from a deep-rooted fear of managing and reducing our brand portfolio, especially when it includes many historic or regional variants.
That is why I decided to write about these best-kept secrets in portfolio management, which even large corporations are not always aware of!
MORE IS RARELY BETTER!
We live in an over-abundant world of consumer choice, but more is rarely better. The paradox of choice is a powerful concept popularised by Barry Schwartz.
It states that people actually feel freer when they are given fewer choices. Have you never ended up walking out of a store without the purchase you had planned, because you had been faced with too many choices? I know I have – often!
It is said that the limited choice offered in hard discounters in one of the reasons for their success. It appears that it’s not only about lower prices.
Retailers such as Aldi and Lidl present just one or two brands of each category they stock, in addition to their own brand. The branded products they do sell are almost always the cheapest offering the brand has, or one of their older versions that are no longer very popular. And they are usually at the same price if not even higher than in normal supermarkets!
[bctt tweet=”In this over-abundant world of consumer choice, more is rarely better. #consumer #brand #Marketing ” username=”Denysech”]
More than fifteen years after the first research on which Schwartz based his theory was conducted, new studies have given some alternative perspectives on choice. They claim that large assortments are not always a bad thing. In the study by Gao & Simonson, they propose that there are many factors which were forgotten in Schwartz’s original study.
You can read the full findings of this latest work in Neuromarketing. What I found of particular interest in this article, being the customer champion that I am, is that they conclude by saying that it all depends on understanding your customer – doesn’t everything?! Their summary findings state that:
“In certain situations (when the ‘whether to buy’ decision comes before the ‘which option is best’ decision) a large assortment CAN increase purchase likelihood. Especially in eCommerce, it is possible to reap the benefits of a large product assortment, while helping customers make choices?”
In other words, the online searches that we all now perform before purchasing many articles, will benefit from a wide selection of offers. Once we have decided to buy, then a large choice can become a barrier to the final purchase.
Although Schwartz’s original book was published in 2006, he more recently commented on the current choices facing consumers in “The Paradox of Expanded Choices.” He concludes the article wistfully by saying:
“We can imagine a point at which the options would be so copious that even the world’s most ardent supporters of freedom of choice would begin to say, “enough already.” Unfortunately, that point of revulsion seems to recede endlessly into the future.”
Now I for one really enjoy shopping because I am always on the lookout for the latest introductions and innovations. For the more ordinary shopper, it looks like we need to help their decision-making by reducing the complexity of the task.
One requirement to achieving success, is clearly a deep understanding of your customers so that you can offer the best selection of variants to consumers in each region, if not by individual store. As I have so often mentioned (and sorry if I am boring you with this) it all comes back to knowing and understanding the customer. Simple really!
CORPORATIONS ARE BRANDS TOO!
Brand management is essential to a healthy business, but marketing has one of the quickest promotion ladders of many professions. That’s great news for marketers, less so for brands. Why? Well, because marketers want to make an impression and get that promotion as quickly as possible. And one of the easiest ways to do this is by launching a new brand or variant.
I believe this explains why we poor consumers often end up NOT buying something because we just can’t make up our minds 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?
[bctt tweet=”Does any brand really need tens of flavours/aromas or hundreds of variants? #Brand #Marketing #BrandPortfolio” username=”Denysech”]
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”
- Apple
- Amazon
- Microsoft
- Samsung
- Coca-Cola
- Toyota
- Mercedes-Benz
- McDonalds
- Disney
- Nike
- BMW
- Louis Vuitton
- Tesla
- Cisco
- Intel
- IBM
- 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):
- Coca-Cola (6)
- Pepsi (28)
- Budweiser (37)
- Nescafe (40)
- Pampers (44)
- L’Oreal (53)
- Gillette (61)
- Nestle (62)
- Danone (65)
- 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.
If you’d like to measure the relationship between your brands and your corporate brand, then we should talk.
BUSINESSES ARE FOCUSING BETTER
An interesting trend in the past decade or so, 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, it should be relatively easy to cut the bottom 5%, 10% or even 20% of brand variants 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 when necessary, pivot to account for the rapidly changing customer needs.
Brand management has become far more challenging in recent years exactly 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.
[bctt tweet=”Renovations should be replacements of less successful offers, not additions to your already over-extended brand. Otherwise you end up confusing your customers with too much choice. #Brand #Marketing #Portfolio” username=”Denysech”]
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:
- 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.
- You need to manage the corporate brand just as you do your other brands, especially if it appears prominently on packaging or your other communications’ materials.
- Make an annual review of all your brands and variants and ruthlessly cut the bottom 20%. If you want to keep any of them, then you must have a good reason – such as that it’s a recent launch – and a plan to actively support them.
- Innovate less but better. Be more targeted with each innovation and include your consumers in their development.
- 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.
Coming back to the leading consumer brands from the Interbrands’ list, all top ten excel in brand portfolio strategies that are precisely differentiated, clearly targeted and well communicated.
David Aaker wrote an article on L’Oreal a few years ago that explains the above theories very well. Even if it’s from December 2013, not much has changed and it still makes a great read; highly recommended.
I believe that most brands with tens or hundreds of variants in a market, are being managed by lazy marketers. People who don’t have the courage to manage their brands effectively by regularly trimming their poorest performers. They must face up to the lack of success of some of their “babies”.
Are you one of these marketers? What’s your excuse? I’d love to hear your reasons for keeping all your SKUs.
