The New Normal of Branding

How Technology is Changing Branding

Kill a brand, keep a customer. For the longest time, multinational companies built their business model on the idea of owning many brands to attract many different customers. But recently all of that has changed, because the surprising truth is that most of those brands do not make money for the parent companies. Now technology has made it even easier to reach customers, which further solidifies this truth.

Last week P&G shared that they were in the process of cutting more than half their brands. Quartz summed up the move as the following:

The company hasn’t exactly been shy about divesting brands in the past. It has entirely exited the food business, where it once owned big brands like Jif peanut butter, Folgers coffee, and Pringles potato chips. It’s in the process of getting out of pet food, even though Iams is a billion-dollar brand.

This latest announcement is an acknowledgement that though Lafley’s strategy during his earlier tenure was effective at getting big, the sheer profusion of brands is now a burden.

In the company’s August 1st earnings call, Lafley said that the 70 to 80 brands that will remain out of about 180 account for 90% of company sales and 95% of its profit.

“In summary, we are going to create a faster growing, more profitable company that is far simpler to manage and operate,” he said on the call. “This will enable P&G people to be more agile and responsive, more flexible and faster. Less will be much more.”

Further into the article a marketing professor from Kellogg School of Business Tim Calkins points out the flaw in this strategy because of the following:

The problem is that this strategy is more risky than it seems.

The first issue is that focusing on fewer brands assumes that you can hold onto customers as you trim the portfolio. In theory, when you drop a brand of detergent, customers will purchase one of your other brands. In reality, this just isn’t the case. A brand can’t be all things to all people. Some people like Old Spice. I don’t care for its fragrance positioning. If you drop Gillette, I won’t start buying Old Spice. I will buy something else.

The second problem is that having fewer brands opens up opportunities for competitors. Crest can appeal to certain customers but it won’t appeal to everyone. This gives other companies an opportunity to attack P&G by targeting specific customer segments and stealing share. For P&G’s competitors, the new strategy is great news.

Now as an analyst and brand strategist this insight from the professor illustrates a glaring problem in the world of marketing. And that is essentially that the world has changed, due to technology and here’s why.

The best example to explain Professor Calkin’s point is looking at these two ads for Perrier and Pellegrino. To the untrained eye they typically appear as competitors with brands aimed at entirely different audiences.

Perrier is hoping to position itself as the sexy alternative to water. While Pellegrino is trying to sell itself as the sophisticated alternative to water. Both sparkling waters are aimed at drastically different consumers, however, it doesn’t matter as Nestle owns both of them.

In the past the strategy for a CPG company like P&G was simple; own the shelf. If you could own the shelf, then you put your product in the face of your customer and the more brands you had, the easier you spaced out your competition. So they would do this by having a few tent-pole brands that they used as leverage when negotiating with retailers and would sneak in a few of their other lesser known/used brands just for the sake of spacing out their competition. Studios and cable companies share this practice as well.

That was the past.

In the present day, thanks to technology companies like Amazon, Google, Facebook, and Twitter, brands no longer need to rely on old methods to reach their target customer. Instead, due to the widely increased use of social platforms and search technology, brands can be assured that they’ll be able to hyper target their audience at a global scale. Companies like Facebook can be a laser focused cruise missile for brands because when used correctly the platform can help a brand gain a niche audience in ways and speeds that were unimaginable in the past. The most recent article from the NY Times highlights this.

The advantage of advertising on the world’s largest social network was that it could do something television ads could not: Using sophisticated analytics, it could help him find people who were already buying fish oil or other products that suggested they were concerned about the health of their hearts, and perhaps persuade them to switch to his brand.

However, just because the audience is there does not mean a brand can be lazy in its execution. Because the role of branding has not changed, however the approach on how one can brand has. Branding is most effective at differentiating a product when there are lots of general items. A successful brand can fulfill a niche and act as an identity between the product and the customer by establishing a personal and emotional connection. And thanks to technology, with extreme focus, brands can do this at a more effective rate as indicated by the NY Times article.

Figuring out the ad content was the fun part. The tension between Facebook and R.B. emerged when it came time to figure out how MegaRed should spend its money. At the meeting, Mr. Rodrigues argued that MegaRed’s money would be best spent going after a narrow group of consumers… [instead] MegaRed displayed ads to every American woman 45 and older and see who was interested in each one, then place those ads in the feeds of people in the same demographic buckets, he said.

During the eight-week campaign:

• 18.1 million women aged 45 and up saw at least one ad, …and that was 56 percent of the target audience.
• The number who said they were now more likely to buy MegaRed rose by 2% points.
• About 1 out of every 84 Facebook users who saw the ads liked, commented on or shared them — 3x the rate of engagement with MegaRed’s previous ads.
• On the most crucial measure — sales of krill oil — the campaign generated about 2x as much revenue as R.B. spent on the ads, that was better than R.B.’s historical return from TV ads, which the company measures once every year or two.
• MegaRed also gained more than a percentage point of market share, with 9.2% of the dollar value of the heart-health market

Not only is Facebook able to get the right ads in front of the right people, they can actually help identify niche audiences that may be untapped. This is something TV, shelf space, print, or OOH (out of home) could never provide. This realization has changed the approach every brand needs to take when approaching brand strategy.

Brand’s no longer have to follow a fixed playbook, but instead can be fast and nimble due to the inputs and outputs that they receive from platforms such as Amazon, Google, Facebook, and Twitter. Most consumers no longer browse aisles when making purchase decisions, instead they search. In a world dominated by search engines that can find more information at faster speeds than ever before, brand recall becomes the most important KPI.

So while Professor Calkin’s concern for P&G losing shelf space might have been a legitimate concern a decade ago, its no longer relevant today. In the past a brand couldn’t hyper target a niche audience or as quickly and easily find an untapped audience. It could only buy television ad space and hope for the best and measure the results a year later. Now with technology a brand can not only find a niche audience, they can do it at scale and be cost effective. Geographical constraints are no longer large obstacles because technology can let you reach a niche audience at a global scale. And with so many smaller upstart brands that are using technology as their primary means of advertising, its impossible to corner a market, however, that doesn’t mean a brand can’t hyper target the most profitable audiences.

So to a certain degree, yes, P&G will most likely lose customers by reducing their brands but they were realistically going to lose them anyway, not because they would lose shelf space, but because small upstart competitors were going to hyper target those customers anyway. So rather than trying to dominate share, P&G is looking to dominate profits, which is the new reality.

The internet has captured so much data about your behavior and expectations towards advertising that it’s now easy to reach an audience but really hard to stand out. The internet is the downfall of extremely large scale industries, because while in the past niche markets weren’t just unreachable but they weren’t easily identifiable. And to reach these niche audiences and connect with them in a way that drives conversion requires great focus. Everything has to be on point from the copy, to the image/video, to the cadence. This is why P&G needed to reduce the number of their brands, because employing these hyper targeting ads are expensive, however, by targeting and focusing on the right audiences they will prove to be far more profitable.

P&G CEO, A.G. Lafley said in the past, “a strategy is an integrated set of choices that uniquely positions the firm in its industry so as to create sustainable advantage and superior value relative to the competition.” P&G’s past strategy was so successful that it doubled revenue each decade.

They created a complex strategy that became an integrated nested cascade of choices that allowed the company to grow its complex scale of brands and have a product for every possible consumer.

The best companies can anticipate their niche audience’s behavior and use technographics to create hypotheses regarding their audience’s future behavior. Brands no longer need to care about past behavior. All the new data points have made pattern matching obsolete. A.G Lafley understands that the new consumer no longer lives in a broadcast world. Instead, we live in an on demand world. You watch the TV shows you want, when you want. You get the latest news at anytime of the day from any number of sources. You browse the world and catch up with your 500 friends when you wait in line at Starbucks. And while it might be too soon to tell, I anticipate A.G. Lafley’s new brand strategy will be focused more on winning search and brand recall than it will be winning shelf space.