Architecting Success

Architecting Success

Architecting Success

Brand architecture – the organizational system or structure underlying a portfolio – is something we don’t typically notice when it’s working well. The best examples go undetected: consumers naturally grasp a brand’s offering through carefully designed naming, color scheme, packaging, messaging hierarchy and organization of the physical or digital shelf. Like the bones of a house, we notice architecture only when it’s flawed – or worse, absent. Amid SKU proliferation, channel fragmentation & cluttered messaging, brand architecture can mean the difference between a product being selected or abandoned in a matter of seconds. This article unpacks brand architecture – when and why it works or doesn’t – with the goal of positioning it alongside other foundational tools in the brand management toolkit.

  • Companies managing multiple brands in the same category need to create clear “swim lanes” to ensure brands in the portfolio work together – not in competition – to capture a greater share of the pie. Especially in big CPG firms, companies often jump on a trend and leverage scale to deploy it broadly. Consider a pet company with multiple brands of dog food. Seeing the migration of “grain-free” from human to pet eating patterns, they might add a grain-free SKU to each of their brands. Without a clear portfolio architecture, lines between brands become blurred. Perceived differentiation declines, and along with it, willingness to pay.
  • Individual brands in growth mode find themselves in the (enviable) position of launching new products to reach incremental consumer segments, needs or occasions. Motivated by a desire to bring products to market quickly, these brands create new sublines, formats and/or varietals – but then encounter challenges when consumers are forced to discern differences between legacy and new products. Consider a juice manufacturer responding to consumers’ desire for less sugar and fewer calories. The creation of a new “Lite” subline to complement existing “Diet” products, while well-intentioned, may ultimately confuse shoppers who lack the time or patience to read nutrition panels.

Enter architecture, the art & science of organizing a collection of products or brands to drive clarity, distinctiveness & incrementality. Successful businesses use architecture to penetrate new consumers and/or need states, help shoppers quickly intuit differences across a portfolio and even create guardrails for innovation.

While there are numerous ways to organize a portfolio, most ladder up to one or more of the following:

Brands organize portfolios based on price tier, often in the form of a good / better / best construct.

Example: Composite decking company Trex offers products in four tiers – Trex Enhance® (Good), Trex Select® (Better), Trex Transcend® (Best) and Trex Signature® (Luxury). Differences in warranty duration, available colors, heat resistance and durability justify price differences and shoppers choose a product that matches their budget and definition of value.

Brands organize portfolios based on a highly discernible product attribute like flavor, ingredient type or format.

Example: Ferrara’s Nerds candy offers consumers four ways to enjoy: classic, rope, big chewy & gummy clusters. This architecture has myriad benefits, from courting consumers who typically buy other formats (e.g., gummy lovers) to justifying incremental shelf space and commanding a premium for novel experiences.

Brands organize portfolios based on the end users for whom the products are designed, often corresponding to specific markets or channels

Example: CLIF bar offers products for kids (ZBAR), women (LUNA), protein-seekers (BUILDERS) and hardcore athletes (BLOKS). Through this structure, Mondelez can not only recruit new consumer segments to the franchise but also prioritize distribution in specific channels like sporting goods stores.

Brands organize portfolios based on what the product does for consumers.

Example: OLLY famously pioneered benefit-led communication in the vitamins & supplements category. While the brand targets wellness-oriented women 25-44, its portfolio organized by sleep, mood, beauty, gut health, women’s health and immunity allows Unilever to effectively show up for VMS shoppers prioritizing these benefits while informing distinctive memory structures (sleep = purple, gut health = green).

In the case of newer categories that require more consumer education, like, say, nootropics, it’s often appropriate to organize based on one of the first two dimensions (i.e., what the product is). In our experience, however, some of the best brands organize their portfolios based on an amalgamation of these dimensions – effectively combining what it is with who it’s for and what it does.

The world’s largest hospitality company with 39 brands, Marriott understands architecture well. Take its flagship and namesake brand, which spans the select service, premium & luxury tiers. Each brand has a unique set of services and amenities, offered at varying nightly rates (what) inspired by distinct traveler profiles (who) and how they view the role of a hotel in travel (why) – united by the master brand’s core visual identity and brand promise.

  • Courtyard by Marriott is for value-conscious guests who want convenient, flexible, no-frills travel experiences
  • Marriott is for conservative travelers who find safety & security in familiar hospitality experiences from a well-known, trusted brand
  • JW Marriott is for premium guests who associate travel with wellbeing and seek elevated amenities & experiences that inspire

Everything about these sub-brands – from the 2D and 3D visual identities to the nightly rates, staff uniforms, check-in experience, onsite amenities and F&B programming – flows from this carefully orchestrated architecture.

Having been around for almost 150 years, Barilla has learned a thing or two about architecture. While most of its U.S. volume is classic blue box, in recent years the brand has proliferated to reach different consumers with nuanced needs at varying price points.

  • Gluten-Free, Whole-Grain and Protein+ are for pasta lovers with dietary and/or macronutrient goals
  • Al Bronzo is for home chefs who want a premium taste experience without the fuss of homemade pasta
  • Chickpea & Red Lentil is for carb avoiders who prioritize nutrient density but don’t want to sacrifice their pasta ritual
  • Ready Pasta is for consumers short on space, time & cooking utensils who still want a home-cooked meal

Notably, Barilla uses product naming, color, packaging shape and messaging hierarchy to quickly and effectively resonate with each of these consumers and use cases.

The good news is, it’s never too late to create (or optimize) the system or structure underlying your brand. You don’t need a degree in architecture – just a strong brand identity, a deep understanding of how consumers engage with your category and a network of partners to bring it to life.

Interested in learning more? Contact us at info@seuratgroup.com.

Innovation at the Moment of Truth

Innovation at the Moment of Truth

Innovation at the Moment of Truth

Innovation at the Moment of Truth

Introduction

Today’s Consumer Packaged Goods manufacturers face a challenging environment with overall industry growth forecast to be a modest 2.0-2.5% for 2018. While price increases have historically been a reliable growth lever, it has become increasingly difficult to realize price growth even when increased input costs justify a change.

The forces of value conscious shoppers, radical price transparency enabled by omnichannel commerce, and intensifying retailer competition have merged to reduce pricing power across the market.

Within this context, innovation remains an imperative for manufacturers to drive demand and realize higher prices. While most organizations focus on product innovation as the primary growth pathway, we at the Seurat Group see few manufacturers actively use packaging as a demand and value driver for their portfolio.

We believe package innovation is an under-utilized lever that brands can use to access incremental demand pools and realize higher price points among consumers, shoppers and customers.

Outside-In Package and Pricing Innovation

Historically, manufacturers have taken an inside-out approach to innovation and pricing decisions – both inside their category and inside the package. Within a category, revenue teams often lean on syndicated data to evaluate pricing within their category and brand portfolio to find the “optimal” price point.

Inside the package, manufacturers lean in on R&D teams to develop products that deliver enhanced benefits to justify higher price points – e.g., organic or clean label offerings.

While these steps are important, focusing solely on ‘inside’ dimensions limits opportunities to increase consumer share of stomach/ usage or to drive overall value growth.

Expanding to include an exhaustive ‘outside’ view elevates the importance of consumer, shopper and customer need spaces, and reveals opportunities for brands to meet new needs through enhanced benefits at higher price points.

Looking Outside-In
We have identified four best practices to unlock incremental growth opportunities for brand portfolios through packaging innovation and price architecture optimization:
Too often brands define their competitive set as products within their physical category at retail. Unfortunately, this approach is disconnected from how decisions are made along the consumer journey and misses choices being made among a broader set of products. Narrowly defining the competitive set misses opportunities to capitalize on whitespaces that may exist in adjacent categories. For example, broadening the frame of reference from ‘Pretzels’ (~$1 billion in sales) to ‘Total Salty Snacks’ (~$28 billion in sales) unlocks opportunities for a brand to compete for incremental demand and dollars.

Within a broader frame of reference it is critical to build solutions for consumers grounded in a deep understanding of the needs that drive product selection. Traditional price and package optimization often has a narrow focus on identifying gaps within a category’s current range of package sizes and prices.

However, this often limits growth to stealing share from within the category or subsidizing sales from a brand’s current product range. Re-orienting to start with broader consumer needs allows for brands to identify incremental demand spaces that are under-served and utilize package innovation to access incremental profit pools.

For example, understanding that a consumer is looking for an interesting, on-the-go snack to alleviate boredom on their commute, rather than a small bag of chips, establishes a whole new foundation to inspire package innovation.

Defining a unique role for each product at the customer level – and the specific needs of shoppers in those customers – are key inputs into package innovation and pricing. The result is an omnichannel product portfolio that delights customers and shoppers and is naturally differentiated across points of distribution.

As online retailers shepherd in the age of Radical Price Transparency (see our growthpaper ‘Radical Price Transparency’), manufacturers increasingly need ways to manage cross channel price matching. Channel specific package innovation provides the dual benefit of better meeting customer needs and minimizing pricing conflicts.

A product’s packaging plays a key role in addressing expanded consumer, customer and shopper needs. In order to access incremental demand spaces, innovation must incorporate package design elements required to win occasions from competitive products.

Vying for a quick-fuel, on-the-go occasion highlights that a package must have portable, quick to eat, no mess (e.g., one handed) elements in order to win a consumer’s dollars. In order to be successful, package innovation needs the same focus, investment and attention as product innovation.

Conclusion

As manufacturers seek ways to increase growth in a low-growth environment, package and price innovation can unlock significant incremental profit pools for new and existing brands. Looking “Outside-In” and utilizing the four best practices outlined above provides the foundation for brands to develop concepts that connect to incremental demand spaces and price points.

The Seurat Group helps clients look “Outside-In” to uncover incremental brand growth opportunities through package innovation and pricing. Please contact us directly at info@seuratgroup.com with any comments or questions. We welcome your input.

Trade Promotion In Turmoil

Trade Promotion In Turmoil

Trade Promotion In Turmoil

Trade Promotion In Turmoil

Trade Promotion in Turmoil

Trade promotion continues to increase as manufacturers prop up short-term performance, fend off emerging competitors, and appeal to retailers’ demands to meet their category objectives.

Today, it is not uncommon for food and beverage manufacturers to have trade spending as a percent of sales climb above 25%. At these levels, trade spending can jeopardize brand equity and quickly commoditize categories.

The average trade event lift is down as the Ad vehicle becomes less effective, display less prominent; more retailers shift to a hybrid/EDLP strategy, and overlapping competitors promote during the same week.

The overall impact is return on trade investment is declining as every dollar invested in trade becomes
less efficient.

Trade spending is increasing at a rate faster than sales for many brands, creating a situation that must be addressed by brand owners in order to meet increasing profit targets.

Retailers are asking for greater manufacturer investment as they expand demand generation efforts through social and digital marketing vehicles to reach changing consumers through their preferred means of communication.

Left unchecked, trade spending ROI is forecasted to continue its decline due to key macro trends facing the Consumer Packaged Goods industry:

 

 

Spending power is unchanged for the majority of Americans as real wages remain flat, despite improving employment numbers.

Additionally, the lessons of the ‘Great Recession’ have left a lasting focus on value for consumers across the income spectrum. 

 

 

Retailers across the market, from Dollar General to Whole Foods, need to be sharp on value and are resisting attempts by manufacturers to increase margin in the form of higher prices or lower trade investment.

Adjustments to trade spending are particularly difficult since manufacturer trade investment is the one item that swings retailers from a loss to profitability.

 

New challenger brands are driving growth across categories and are receiving favorable treatment by retailers desperate for topline growth.

Challengers come in many forms, including those offering big brand benefits for lower prices, and retailers’ own Private Label.

 

 

Increasing global demand for commodities, combined with disruption in the agricultural sector, is driving increased input costs for many products.

Manufacturers struggle to pass along cost increases through higher prices, and when implemented, these increases are often dialed back through increased trade investment.

Macro Trends Will Have Impact

These macro trends will impact all manufacturers that are not agile in adjusting how their trade funds are managed, integrated into the marketing plan, and deployed at retail.

As the #1 marketing lever to drive desired brand and category purchasing behaviors among shoppers, adjusting with the times is critical to meet performance goals.

A change in approach is particularly timely for brands in categories where organic topline growth is difficult to achieve. While topline growth may be slowing, the expectations of Wall Street are not changing, and increasing profit delivery is a must for managers.

Fortunately, trade spending is a lever that has an immediate impact on the P&L and it should be optimized to achieve financial and marketing objectives.

Best Practices

We recommended five best practices to counter the drag of macro forces and both increase the financial return on trade investment and ensure trade investment is strategically aligned with brand goals:

 

Examine trade program impact on shopper behavior in order to create a ‘common language’ to drive alignment between marketing strategy and trade strategy.

Key enablers of this practice are granular, shopper behavior insights at the point of purchase that serve as the ‘planning currency’ between sales and marketing.

Managers need to examine trade performance using more than volume and spending. A true profit view is critical for optimizing trade investment to have the greatest impact on the P&L.

A key enabler is identification of item level profitability and trade spending at the point of execution.

Shoppers are influenced by a wide variety of inter-related factors when making a product choice in store. These factors extend well beyond a ‘syndicated view’ of the store and include everything from shopper marketing programs to the way price messages are communicated at shelf (e.g.,“Save $1.00” vs. “$2.99”).

Manufacturers seeking to gain an edge over competition and increase the efficiency of spending need to incorporate all of these factors into trade analysis and identify the contribution of each factor in driving demand.

Optimizing trade based on year-over-year adjustments or event-by-event, post promotion analysis is no longer an option in a world where average event performance is decreasing.

Manufacturers need to widen their analytical approach to include all of the events/factors in their ‘universe’ in order to identify winning factors that can be more broadly exploited across the business along with NEW programs to bring to market.

Plan beyond a ‘Trade Program’ by taking a total demand generation approach. Integrate leading shopper marketing strategies, investment, and programming into a total customer demand plan for retail partners.

Conclusion

We see manufacturers who take a structured approach and utilize the five best practices above realize a 10X return on the investment required to conduct analysis and implement a change in strategy. In addition to its size and importance, optimizing trade programs enables manufacturers to have an immediate, positive impact on the P&L to achieve planning targets.

The Seurat Group’s TradeCatalyst™ approach is a flexible trade optimization framework that integrates a variety of data sources and combines trade analytics with deep shopper, competitor, and retailer insight to identify the optimal, integrated trade strategy. The approach helps manufacturers better utilize trade as a marketing tool and increase the return on every dollar invested in trade programs.

Contact the Seurat Group to learn more about ways to optimize trade promotion in order to increase sales and profit delivery: info@seuratgroup.com

Radical Price Transparency

Radical Price Transparency

Radical Price Transparency

Radical Price Transparency

The growth of ecommerce and proliferation of new marketplace models is having an outsized impact on how manufacturers and retailers manage price and promotional spend. Algorithmic price matching ensures that online retailers always offer the lowest marketplace price and provide the best value to their shoppers, but increases the risk of a “race to the bottom” for unsuspecting brands. As Amazon and other Omni – channel retailers build their consumables offer, the risk to mainstream manufacturers will continue to grow in the form of eroded brand value and commoditized categories.

The Impact: With trade rates increasing faster than sales, trade continues to be a place where manufacturers turn to enhance the value equation offered to consumers, make up for gaps in price architecture and address pressure from retailers to improve their sales and profit.

We at the Seurat Group believe there is a widening gap between today’s approach to trade promotion and rapidly changing Omni – channel market dynamics. There is an opportunity for manufacturers to use their trade program structure more strategically to deal with the coming change.

Radical Price Transparency

The Seurat Group believes this alarming trend – what we call “Radical Price Transparency” – is at a critical inflection point and manufacturers need to reorient how they think about trade and price architecture. While many manufacturers still feel insulated from the impact of ecommerce – given that online CPG US dollar sales hover around 2% – we believe the impact of these models extends beyond share of category. The share of price influence and perception driven by online platforms far exceeds today’s dollar share. Brands need to prepare for the continued shift of both dollar and price influence share online.

Batteries eCommerce Brand Share ($)

This issue of “Radical Price Transparency” is highlighted in the case of Batteries. The commoditization of the category online has been driven by practices of online retailers like Amazon. Scraping data across channels and exploiting imperfections in price architecture, Amazon Basics (Amazon’s PL line) catapulted to the #1 battery brand online while reducing total category price per unit across channels. This highlights the ability of Amazon to expose architecture imperfections and commoditize categories by effectively leveraging pricing data.

Solution

The Seurat Group recently conducted a survey of 40+ CPG Manufacturers on their trade management practices and identified 3 core solutions to help address the impact of Radical Price Transparency.

We believe the best-in-class approach to trade management programs is outcomes-based: a program where funds are tied to achieving specific targets (product distribution, share of shelf, etc.). This allows for manufacturers to build stronger partnerships with retailers by ensuring incremental funds are earned only when specific category and brand goals are achieved. Today, only 2 in 10 manufacturers surveyed are executing an outcomes-based program, leaving a significant opportunity on the table for many manufacturers2.

Companies are over-investing in online, but need to confront deal-scraping as a reality in today’s – and tomorrow’s – CPG world. While manufacturers flag market places for going below MAP, there is still little leverage to fully prevent the practice from occurring. Investing in vehicles-such as deal bundling (see figure) – limits the deal-price visibility an online algorithm can detect. This retains the value of the deal and avoids transferring it across channels.

The life blood of price-scraping is the imperfections that exist in company’s price architectures today. Offering a customer or channel specific deal no longer occurs in a vacuum, but instead can easily cause a domino effect of price matching and a “race to the bottom” that drives profit out of the category. Manufacturers need to structure price & pack offerings that are specific to the needs of a channel and its customers to avoid triggering price competition across channels.
Conclusion

Radical Price Transparency is the new-normal in CPG. As manufacturers continue to drive trade and pricing efficiencies, and as ROI-positive events are harder to come by, there needs to be a shift in how trade programs are structured to combat this new reality. Instituting an outcomes based program with strong policies & controls, smart discounting & an Omni-channel pricing architecture improves profit and alleviates the increased risk of commoditization from ecommerce.   For more information on trade capabilities, pricing strategy, or if you would like to participate in our upcoming 2018 CPG Manufacturer Trade Survey, contact us at info@seuratgroup.com or visit our website SeuratGroup.com.