Photo: atomicjeep (flickr)
Why is Tide so popular? Why is Heinz Ketchup still so popular in Pittsburgh? These questions, posed by Tyler Cowan on his Marginal Revolution blog, generated lots of interesting answers. I'll give you a summary in a minute but, first, the set-up.
Tide: It has a 44% share of the market and has held this market lead for decades even though it's more expensive than its competitors. Heinz: Launched in Pittsburgh in 1876 still has a better share in its hometown than in other cities. Tide and Heinz are just two examples. There are countless other longtime packaged goods market leaders and many other brands that have their best share in their home market* Why?
The theories that don’t work (at least not completely)
1) Product superiority: Tide works better, smells fantastic. Heinz is thicker, has a secret formula. No doubt that actual product quality plays a role but it doesn't explain why Heinz does better in Pittsburgh than anywhere else. And is it possible that Tide has been market leader all these years just by keeping product advantage over the competition?
2) Buy Local: Local people support local brands and local brands support the local economy. Seems logical for Heinz which has always been active in a fiercely loyal community but it doesn’t explain why, for example, Milwaukee’s Miller Beer has always done so well in Chicago. (But maybe that’s, in part, because it’s at least not St Louis’ Anheuser-Busch.)
3) Mother knows best/habit: Several people talked about how the purchase of Tide/ Heinz is a tradition passed down in the family from generation to generation. Buying products with this heritage is both reassuring and familiar and gives you one less thing to think about when you are at the store.
4) Conditioning: After a while, people get used to certain aspects of products that may be technically quite similar. The taste of Heinz, the smell of Tide, the thickness, the packaging, the color. Try to get a diehard Diet Coke drinker to drink a Diet Pepsi (or vice versa). We’re all sort of like rats in the end.
5) Decision set/habit: Another variation of mother knows best. “Jeff G” who worked on a competitive brand to Tide, said that his company’s purchase decision research had shown that the first decision was “are you a Tide customer or not” Then, if not, you typically believe ‘All are the same’/ ‘I am Poor’ and your decision is based on price.
Then there were a set of theories that spoke to the power and advantage that a leader enjoys and can leverage in what is less than a perfectly competitive market:
6) Distribution advantages: Market leaders become category captains influencing what gets on the shelf and benefit from being able to justify more skus than anyone else. That “wall of orange” tends to crowd out everyone else at the point of purchase.
8) Fixed costs: Many of the costs of doing business in the CPG are fixed. Trade ads, for example. These can be absorbed with much less P&L impact by Tide than by the smaller players giving Tide a continuing margin advantage that it can either bank or spend on other marketing activities.
9) Brand equity/Sunk marketing costs: One place that they can spend those extra dollars is building up brand equity and connecting the brand to the important category drivers. Years of marketing spending build a strong brand foundation that's difficult to undermine.
10) Competitors are followers: In large part, competitors have not tried or been able to disrupt the category by coming up with big enough product innovations. One comment notes that, in detergents, only All has made a determined effort to take on P&G with breakthrough ideas.
Another interesting point is that this phenomenon is more pronounced in CPG products than in other categories. Being one-time leaders hasn’t helped retailers like A&P, Sears and Kmart. And, in the online space, being a one-time leader like CompuServe or AOL is more of a disadvantage.
Perhaps that's because CPG products differentiate more by their identity than by physical factors? If consumers can’t differentiate between products (at least not in blind tests), they need to rely on other factors to make their decisions.
So, can anything dislodge a package goods market leader? There were some thoughts on that as well:
1) The leader falls asleep at the wheel: The #1 brand is well protected from the competition for the reasons described above. And usually such brands have time to recover even if they make a series of missteps (New Coke?). But protracted neglect and no marketing investment may give challenger brands at least an opportunity.
2) Big market changes happen that disrupt the model: Typically, the pace of change in CPG is relatively slow compared to other categories (like consumer electronics) and there's less chance of a leader being caught completely unawares of new trends. Changing demographics (e.g. the rising influence of the Hispanic consumer) can have an effect and certainly creates opportunities for brands that previously were considered niche to become more mainstream (e.g. Nescafe Clasico).
3) Category reinvention: What business is Heinz in? Just ketchup? All condiments? BBQ vs. other meal choices? In the end, the biggest danger for market leaders like Heinz may come from the declining relevance of their categories. If ketchup becomes a less important part of the American dining experience, Heinz will suffer even it stays the leader. And, today, all packaged goods are suffering from the center-aisle problem with fresh alternatives on the perimeter gaining ground.
Bottom line: If you are a #1 brand in a CPG category, congratulations. You are in a strong competitive position for all sorts of reasons. Unfortunately, you've still got plenty to worry about. Retailers are scaling back shelf space for packaged goods to give more room to fresh products and, at the same time, they are launching own-label brands that are becoming more and more of a threat. That's, in the end, is where the real battle is these days.
* Current share in markets of origin for brands launched back in the late 1800s and early 1900s is 12 percentage points higher than their national share. Source: Brand history, geography and the persistence of brand shares by Bart J. Bronnenberg Tilburg University, Sanjay K. Dhar University of Chicago Booth School of Business, Jean-Pierre H. Dubé, University of Chicago Booth School of Business.
Monday, May 11, 2009
Photo: atomicjeep (flickr)