Friday 25 January 2013

As Tesco puts Pampers in its sights, is "product" the battleground of the future?

Tesco's introduction of products from its new "Tesco Loves Baby" brand isn't on the face of it particularly startling news. After all, own brand products have been increasingly favoured by consumers across the board and, even in this particular category, the supermarket has long been active both with its own-brand products and its Tesco Baby Club, now rebranded the Tesco Loves Baby Club. The landscape of nappies is clearly radically changing as the classic choice between Pampers and Huggies is no longer going to be possible. So not only does the addition of the word "loves" mark another stage in Tesco's drive to cosy up to their customers more warmly, but this assertive step into the space left by Huggies could be the start of something bigger. There are suggestions within the media that with this new departure Tesco might be looking to seriously challenge the dominance of P&G's Pampers. However, in this of all categories, Tesco or any other own label may have to find themselves working particularly hard to convince consumers that branded is not (even just a little bit) better. With nappies, consumers may need concrete evidence to switch from a branded product whereas in other categories even within baby – for example, wipes – there may be more willingness to go own label, even if the product were not quite as good, if there is an appreciable cost saving. If this is the case and Tesco were to be successful in turning its own brand nappies into a market leader, will consumers start to seek out own-brand-brands in certain categories, because of their product characteristics and not just their value? With just a hint of poacher turned gamekeeper, own brands will have become the brand. Will this, in turn, mark a shift to consumers focusing more clearly on product intrinsics at the expense of or in spite of brand extrinsics as they "get by" without the expensive surround sound of brand noise. This could just mean that brands need to work harder in the way they communicate and emotionally connect with people (i.e. better extrinsics); but it could also imply that product innovation is more important than ever. If the product is demonstrably superior, then brands will retain their favoured status over "cheaper" own label. At Engage we work extensively in npd and have been using more experiential programmes bringing clients and consumers together to help create highly refined products which will compete assertively with own label competition. If the battleground of the future is product excellence & uniqueness at the premium end and product quality at the value end, the way that products are developed and the co-creative involvement of consumers will be more critical than ever.

Friday 11 January 2013

Do price promotions put brands on the road to nowhere? It depends on the brand…

In an excellent article entitled “The 13 bad marketing habits to break in 2013”, Marketing magazine includes price promotions at number six. The article quotes Thierry Billot, the managing director of brands at Pernod Ricard, as saying 'If you follow the road of price promotions, you will quickly realise it's a dead end, with no profits'. The article says that price promotion “is not a sustainable marketing strategy” and that brands have sacrificed long-term brand equity at the altar of short-term profits, but is it really as black and white as that? The answer is that some brands, in some categories, have far more leeway than others to hold their price positions and stay out of the price promotion trap. When researching price promotion risk we have found that the most important factor is the degree of substitutability in the category, i.e. how prepared are consumers to switch between brands. This is itself related to the extent to which brands are perceived to be different and to offer different things. An example of a category with very high substitutability is mainstream lager. Consumers are very willing to switch between brands based on the best price deal. We may see differences in brand preference and rating but crucially we see low scores on differentiation and uniqueness. Unsurprisingly, it is a very heavily promoted category. Picking the brand on promotion that week amongst a small number of acceptable brands is the key heuristic shopping behaviour across a lot of categories (shower gel, baby wipes….) On the other hand, brands in categories where the products really offer different things or where the brand has created a stand-out position (whether really different or perceived to different through building brand equity) can avoid promotion or use it more tactically to drive trial short-term. In categories where there is no discernable brand leader or product differentiation, consumers are more likely to simply shop around for the best available offer. Some of the research implications of this are interesting: 1/ One of the reasons that difference / uniqueness is importance for new products is that long-term it enables price points to be maintained which will impact on likely success 2/ When researching in-market pricing strategies (such as via conjoint) it is vital to understand the degree of difference across the choices. This is because in research consumers will claim they are more responsive to price than they actually would be when substitutability is low. On the other hand, in markets that tend towards commodity e.g. mainstream lager, the research response is often very close to observed reality.