Numerous analysts and pundits have documented the recent significance of new entrants across categories. They have also noted the challenges these are putting on the large multinational FMCG firms. The dominance of their big brands is rapidly declining. The most detrimental situation is found in developed markets where brand appeal and heritage was once unquestioned. Small firms have stolen all of the momentum. During the last five years, they have represented over 80 percent of the new FMCG brands found in online and physical stores. Subsequently, they make up almost of all the category growth in the last few years. The retailers understand this all too well. They are now far more encouraged to showcase these smaller brands.
We have commented in this blog about why we think these small brands are outperforming the companies that laid the foundation for FMCG and marketing as a whole. However, a wonderful study by Neil Saunders of GlobalData called "How Can Big CPG Firms Fight Back Against Small Brands?" presents some very important ideas based on his recent research. It is more and more difficult to impress shoppers and only 23 percent of them think that the big companies develop interesting new lines. The smaller firms are winning the war of “new and cool,” which also translates in to a premium price tag. Neil points out that being small "throws a halo around brands that allows them to be associated with feelings of localness, honesty, trustworthiness, decency and sustainability.” This is especially true for younger shoppers. That cohort represents the future marketplace.
We expect that the goal of many smaller brands is believed by the same multinationals whose share they are stealing. There isn’t a lot of history to suggest that this is nearly as good for the brands after the earn-out as it is for the owners during the earn-out. However, if continued growth is the goal, then the focus must be directed toward the revenue management concepts for assortment, pricing, and merchandising that Middlegame analytics are aligned with. It is even more relevant for small brands to understand their position in category. They need to carefully study the implications of estimated transferred demand versus incrementality of space management, price optimization, merchandising allocation, and even media investment. Smaller brands mean smaller budgets and a limited tolerance for wasted effort. Initiatives that generate overwhelming cannibalization represent the double whammy of limited gains and the opportunity lost in terms of better use of the investment.Unfortunately, the math of extending the line is stacked against the smaller players due to their niche presence. It is the generally the brand name that creates the new and cool that impresses the shoppers. The brand is associated with the list of halos that Neil described. Adding a new SKU to the mix based on flavours, scents, or other variations of the same pack will probably only provide a whimsical substitute for the existing products. Players in this space need to start thinking about occasions and the role of any new product as we aligned in an earlier blog. We would be happy to help explain how to use the scenario planning capabilities if the CIA® platform. This can help you translate these ideas into real and sustained growth.
Middlegame is the only ROMI consultancy of its kind that offers a holistic view of the implications of resource allocation and investment in the marketplace. Our approach to scenario-planning differs from other marketing analytics providers by addressing the anticipated outcome for every SKU (your portfolio and your competitors’) in every channel. Similar to the pieces in chess, each stakeholder can now evaluate the trade-offs of potential choices and collectively apply them to create win-win results.Paragraph
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