Mint

Two missteps can endanger brands

Brands can lose their leading edge if they don't set the right target for innovation or slash advertising when revenues fall rather than investing to increase awareness.

Par Vivek Gambhir, John Blasberg and Pankaj Saluja

First published on août 25, 2008
min


There are two strategic steps that have year after year proven to help brands outperform their competitors. It cannot be all that difficult to remember two of anything, and yet we regularly see so many companies failing to stick to those two steps. Recently, we revisited research that our firm conducted six years ago, when our study of more than 500 global brands in the US showed that 90 of them had consistently outperformed their categories between 1997 and 2001. That research found that any brand could win with a differential commitment to innovation and advertising significantly increasing the odds. But when we looked again this year, we found that only 13 of the 90 brand winners from 2001 continued to outpace their categories through 2007. It was clear that many once-leading brands allowed themselves to fall behind. But why? The simple answer is that it is difficult to sustain commitment to innovation and effective advertising. While few would dispute that logic, we wanted to find out why proactive behaviour was so hard to maintain. So, we analysed the experiences of those 13 brands that were at the top in our first study and were still at the top when we revisited our work. Ultimately, we identified two major missteps that endanger even very successful brands—missteps that the 13 winner brands seem to have avoided. Letting the wrong innovations slip through Most consumer product companies have put stage gates in place for innovations as well as thresholds for what is permitted to get through. But for all these careful procedures, many companies simply fail to follow them. First, they fail to set the right target for innovation. Many companies drastically underestimate the value they need to create through new products to maintain strong growth. Second, if they do set a target, striving for it can result in too much innovation of the wrong kind. The pipeline gets jammed with many small- and medium-sized efforts, while the truly big opportunities get lost. Compounding the problem, innovation often gets delegated to junior managers who lack experience and the power to ensure that every part of the organization stays aligned around concrete metrics. Neutrogena, the global cosmetic maker, is a company that has avoided such a misstep. The company requires senior management's hands-on involvement in the innovation process and follows disciplined guidelines designed to focus only on innovations that feed long-term growth. New products cannot stray far from established brands and must prove sustainable. The company thinks of innovation in terms of initiatives with high value (not just specific products) that fit with the medical heritage of owner Johnson and Johnson. In India, the ubiquitous Fair & Lovely brand from Hindustan Unilever Ltd (HUL) has grown strongly for decades on the back of constant innovation. Launched in 1978 as a skin lightening cream, it created the "fairness" category in the domestic market, currently worth around $280 million (around Rs1,204 crore). HUL's relentless zeal for innovating around Fair & Lovely has seen it spin out variants such as an Ayurvedic cleansing bar and a bath paste, as well as new formats such as lotions, soaps, and gels—but it never lost sight of the brand's core benefit of fairness. India's biggest consumer goods maker also started selling the cream in sachets in 1991, pushing up volumes and expanding the market. Sachets now account for 50% of the brand's sales. HUL's innovation process for Fair & Lovely has reinforced the company's position in the personal care market: Today, Fair & Lovely is a $200 million revenue brand that caters to more than 25 million consumers, and has a share of over 70% of the Indian market. Lack of commitment following a launch Even if companies do an effective job of controlling the innovation pipeline, they may doom a new product's chances by taking a common route to short-term budget relief: slashing advertising when revenues fall rather than investing to increase awareness. Such a temptation is particularly strong in economically turbulent times. We are seeing this in India today. Many companies—faced with soaring input costs, falling profit growth and higher interest rates—are giving in to the impulse of cutting advertising budgets. Even during product launches, we have found a surprising number of companies curtail their marketing efforts after the first year, seeing advertising as the fastest and easiest place to cut costs. But our research shows that brands which consistently outgrow their categories are 67% more likely to spend more on advertising than the category average, committing a good two years to marketing campaigns post product launch, and maintaining investments in older brands. Winners understand the importance of not pulling the plug on advertising before a product has a chance to prove itself in the marketplace. For example, it took Danone, the French food product company, nearly 10 years of uninterrupted advertising, and several relaunches, to make Actimel yogurt a winner. Introduced in 1994 as a product for active adults concerned about their health, the liquid yogurt product initially failed to take off. Market research found Actimel was perceived as a yogurt drink, not a wellness product. In 2002, the company relaunched the product with a $15 million marketing campaign. In two years, Actimel represented 16% of Danone's yogurt sales in France. ITC Ltd's Sunfeast is an example of an Indian brand that is reaping the rewards of a strong and ongoing commitment to marketing following its launch. The company spends 35-40% of Sunfeast's total sales on marketing. Introduced in 2003, the brand has already taken a sizeable 12% bite of the urban biscuit market and continues to outpace market growth. It turns out our finding published in 2003 that "any brand can win" requires a caveat: Commitment to innovation and advertising is not enough; only R&D and marketing budget disciplines around innovation and advertising through the life cycle of the brand can keep winning brands winning. Vivek Gambhir is a partner in the India office of Bain and Co. and leads the consumer products practice; John Blasberg is a partner based in Boston and leader of the firm's North American consumer products practice; Pankaj Saluja is a manager in the same practice in the India office.

There are two strategic steps that have year after year proven to help brands outperform their competitors. It cannot be all that difficult to remember two of anything, and yet we regularly see so many companies failing to stick to those two steps.

Recently, we revisited research that our firm conducted six years ago, when our study of more than 500 global brands in the US showed that 90 of them had consistently outperformed their categories between 1997 and 2001. That research found that any brand could win with a differential commitment to innovation and advertising significantly increasing the odds. But when we looked again this year, we found that only 13 of the 90 brand winners from 2001 continued to outpace their categories through 2007.

It was clear that many once-leading brands allowed themselves to fall behind. But why? The simple answer is that it is difficult to sustain commitment to innovation and effective advertising. While few would dispute that logic, we wanted to find out why proactive behaviour was so hard to maintain. So, we analysed the experiences of those 13 brands that were at the top in our first study and were still at the top when we revisited our work.

Ultimately, we identified two major missteps that endanger even very successful brands—missteps that the 13 winner brands seem to have avoided.

Letting the wrong innovations slip through

Most consumer product companies have put stage gates in place for innovations as well as thresholds for what is permitted to get through. But for all these careful procedures, many companies simply fail to follow them.

First, they fail to set the right target for innovation. Many companies drastically underestimate the value they need to create through new products to maintain strong growth. Second, if they do set a target, striving for it can result in too much innovation of the wrong kind.

The pipeline gets jammed with many small- and medium-sized efforts, while the truly big opportunities get lost.

Compounding the problem, innovation often gets delegated to junior managers who lack experience and the power to ensure that every part of the organization stays aligned around concrete metrics.

Neutrogena, the global cosmetic maker, is a company that has avoided such a misstep. The company requires senior management's hands-on involvement in the innovation process and follows disciplined guidelines designed to focus only on innovations that feed long-term growth. New products cannot stray far from established brands and must prove sustainable. The company thinks of innovation in terms of initiatives with high value (not just specific products) that fit with the medical heritage of owner Johnson and Johnson.

In India, the ubiquitous Fair & Lovely brand from Hindustan Unilever Ltd (HUL) has grown strongly for decades on the back of constant innovation. Launched in 1978 as a skin lightening cream, it created the "fairness" category in the domestic market, currently worth around $280 million (around Rs1,204 crore).

HUL's relentless zeal for innovating around Fair & Lovely has seen it spin out variants such as an Ayurvedic cleansing bar and a bath paste, as well as new formats such as lotions, soaps, and gels—but it never lost sight of the brand's core benefit of fairness.

India's biggest consumer goods maker also started selling the cream in sachets in 1991, pushing up volumes and expanding the market. Sachets now account for 50% of the brand's sales.

HUL's innovation process for Fair & Lovely has reinforced the company's position in the personal care market: Today, Fair & Lovely is a $200 million revenue brand that caters to more than 25 million consumers, and has a share of over 70% of the Indian market.

Lack of commitment following a launch

Even if companies do an effective job of controlling the innovation pipeline, they may doom a new product's chances by taking a common route to short-term budget relief: slashing advertising when revenues fall rather than investing to increase awareness. Such a temptation is particularly strong in economically turbulent times. We are seeing this in India today. Many companies—faced with soaring input costs, falling profit growth and higher interest rates—are giving in to the impulse of cutting advertising budgets.

Even during product launches, we have found a surprising number of companies curtail their marketing efforts after the first year, seeing advertising as the fastest and easiest place to cut costs. But our research shows that brands which consistently outgrow their categories are 67% more likely to spend more on advertising than the category average, committing a good two years to marketing campaigns post product launch, and maintaining investments in older brands.

Winners understand the importance of not pulling the plug on advertising before a product has a chance to prove itself in the marketplace. For example, it took Danone, the French food product company, nearly 10 years of uninterrupted advertising, and several relaunches, to make Actimel yogurt a winner. Introduced in 1994 as a product for active adults concerned about their health, the liquid yogurt product initially failed to take off. Market research found Actimel was perceived as a yogurt drink, not a wellness product. In 2002, the company relaunched the product with a $15 million marketing campaign. In two years, Actimel represented 16% of Danone's yogurt sales in France.

ITC Ltd's Sunfeast is an example of an Indian brand that is reaping the rewards of a strong and ongoing commitment to marketing following its launch. The company spends 35-40% of Sunfeast's total sales on marketing. Introduced in 2003, the brand has already taken a sizeable 12% bite of the urban biscuit market and continues to outpace market growth.

It turns out our finding published in 2003 that "any brand can win" requires a caveat: Commitment to innovation and advertising is not enough; only R&D and marketing budget disciplines around innovation and advertising through the life cycle of the brand can keep winning brands winning.

Vivek Gambhir is a partner in the India office of Bain and Co. and leads the consumer products practice; John Blasberg is a partner based in Boston and leader of the firm's North American consumer products practice; Pankaj Saluja is a manager in the same practice in the India office.