Why innovation is the key for growth

Recent Nielsen research attempted to determine the longer-term effectiveness of different marketing activities. Justin Sargent is marketing optimisation consultant at Nielsen.

What are the strategies that have enabled brands to develop? Analyses of changes in brand shares across different categories shows that no one type of marketing activity is successful for all sectors.

There is no single type of activity that explains changes in brand performance. In reality it is likely different events are going to work for different types of brands.

In the middle of last year, Nielsen Marketing Research launched a study to reach better understanding of the longer-term effectiveness of different types of marketing activity. The six-month project, entitled Strategies of Successful Brands, was supported by 15 major companies.

The approach taken for the project was to select 300 products from a number of retail categories covering a range of brand strengths and price positions. For each of the products, the market share (sterling), the penetration (percentage of consumers trying the brand) and the loyalty (percentage of category requirements satisfied by the brand) were recorded for the six months ending April 1992, compared with the six months ending April 1995.

Using a mixture of Nielsen data sources, information was collated to try to understand what was causing these key brand measures to change. Information collected included media expenditure; regular price change; frequency of price promotion; extent of special pack offers; and the amount of innovation.

An initial analysis of the information exposed the growth of own-label and the corresponding decline of branded products. Own-label products have gained an advantage in many areas – not only are they using a greater number of promotional mechanics than they were three years ago but they are also pricing themselves more competitively against key brands and pushing their shelf space ahead.

The result has been an increased tendency for consumers to switch within the market (70 per cent of own-label products are now generating more trial within a six-month period than three years ago) and a corresponding decline in consumer loyalty.

Nielsen categorised each brand into one of the following groups: alcoholic drinks, food, toiletries, household, non-alcoholic beverages. The idea was to examine the data and discover whether different strategies marked growing and declining brands within the groups. The findings show that different ideas do work better in different categories.

As can be seen from the table, innovations are important throughout. Whether the brand is big or small, providing more choice for the consumer is key to delivering long-term growth. Growing brands have on average 41 per cent more variants available to the consumer than they did three years ago.

Beyond innovation, manufacturers need to be aware of the nature of the category within which they are competing. For example, for food and drink, new ideas and an attractive price positioning entice and encourage consumers to stay loyal.

These are the markets where own-label has developed to the greatest extent, arguably because there is little risk attached to a consumer trying an own-label food or drink product (since products within these sectors are generally low-priced and frequently purchased) and it is also relatively easy for a consumer to assess the value of the product. Consumers know whether they like the taste or not and can therefore largely decide for themselves how good the brand is.

On the other hand, within markets like household and toiletries consumers cannot tell so easily how well the product is performing. This is perhaps why own-label is not so strong in these sectors.

For example, can a consumer be sure that the germs are really being removed from the work surface or the bacteria on their teeth is really being broken down? In these cases it seems that consumers are more reluctant to opt for the own-label product they know little about. They need the reassurance and information that advertising can offer.

That is not to say advertising will not work within the food and drinks industry – it does, however, imply that the challenges required to produce truly effective advertising are likely to be greater.

In reality, life is not so black and white. Switching to a solus type of marketing activity is unlikely to yield success. Brands will continue to need a mixture of activity to keep consumers fresh and other types of activity not evaluated within this study (eg direct mail) will also play their part.

Nevertheless manufacturers need to be aware of what is likely to work in the longer term, given the characteristics of the market their brand is competing within. Such understanding can only help to improve the efficiency of the marketing budget and improve their chances of long-term success.

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