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 the question!
One of the most popular evergreen posts on C3Centricity is “A Beginners Guide to Brand Portfolio Management”. It seems that we all suffer from a deep-rooted fear in 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 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 main reasons for their success; it’s not just about lower prices.
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They usually present just one or two brands for each item they stock and the branded products they do stock are almost always at the same price if not higher than normal supermarkets.
More than ten years after the first research on which Schwartz based his theory, new studies have given some alternative perspectives on choice, claiming 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 study.
You can read the full article on this latest work in Neuromarketing. What I found of particular interest, being the true customer champion that I am, is that they conclude 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 will benefit from a wide selection of offers. Once we have decided to buy, then a large choice can become a barrier to final purchase.
Although Schwartz’s original book was published in 2006, he recently commented on the current choices facing consumers in an article in FastCompany. In it he concludes 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.”
I for one enjoy shopping because I am always looking out for the latest introductions and innovations. For the more “normal” shopper, it looks like we need to help their decision-making by reducing the complexity of the task. One clear requirement to achieving success in this 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 store. As I have so often mentioned (and sorry if I am boring you with this) is that 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 it 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 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?
- Mercedes- Benz
- General Electric
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, so I decided to take a closer look at the sub-category of consumer brands. (Note: Interbrand still separates alcohol from CPG – but no longer other beverages, thank goodness!) Here are the CPG brands within the Top 100:
- Coca-Cola (3)
- Pepsi (23)
- Gillette (24)
- Pampers (28)
- Nescafe (36)
- Kellogg’s (39)
- L’Oreal (39)
- Danone (49)
- Nestle (56)
- Colgate (57)
- Lego (67)
- Johnson & Johnson (73)
- Sprite (86)
What immediately strikes me is that many of these brands are actually also the names of the corporations behind them.
This might explain why few consumer goods companies appear in this list because they just have 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 differing 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 pet food brands. Both of these are run as stand-alone businesses, which certainly explains this.
I am assuming this has been done with the desire to increase corporate reputation and also consumer trust, especially for their lesser-known brands. 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.
Businesses are focusing better
An interesting trend in the last decade or so, is that some CPG leaders, such as P&G and Unilever, 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 any significant share. This is why both companies continue to do this on a frequent basis, it just makes good business sense.
A newer, alternative strategy some of the better-managed companies are also using, is the selling off of certain brands or even categories. This enables them to better focus on their core businesses.
After a long tradition of the big buying the small – and often more successful competitors – the trend seems to be reversing.
Katie Rothschild from Interbrand noticed this too. In her analysis she says:
What is surprising is that most CPG giants still don’t focus, or at least not to the same extent as many startups do! But it looks like they are going to have to change if they want to stay in the race. For now, it’s as if they know theoretically that they should be making cuts and some do make a few of them. But in the end, they don’t go far enough perhaps because they’re scared of losing share.
If you are struggling to make this difficult decision 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 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.
In conclusion, to summarise the best strategies for brand portfolio management, which seem to be 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 like your other brands, especially if it appears prominently on packaging and 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 of them and include your customers 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 (“Which firm has the best brand portfolio?”) 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 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 regular trimming and who can’t face up to the lack of success of some of their “babies”. Are you one of them? What’s your excuse? I’d love to hear your reasons for keeping all your SKUs.
This post had been updated and adapted from a post which first appeared on C3Centricity in May 2014
C3Centricity used images from “Winning Customer Centricity” and Dreamstime in this post.