German brands face blitzkrieg

Competition is the cornerstone of brand marketing. Yet in Germany, competition has reached such a pitch that it is increasingly a barrier to brand growth.

Following a study of the current business climate, Bernd Michael, chief executive of Grey Middle Europe, has identified the major elements threatening brands.

Michael argues that three elements have combined to create a climate of “murderous competition” in Germany. First, competition in the retail trade has led to a worsening of terms and conditions for branded manufacturers. Then, the situation has been exacerbated by retailers’ increasing concentration on private label goods. The third element is over-capacity. Having built up surplus stock, manufacturers have been forced to increase marketing expenditure to unhealthily high levels.

With all of these conditions hitting the German marketing world simultaneously, brand marketers are faced with the pressing task of shifting the advantage back in favour of brands. Their job is made no easier by two further factors: lack of space for all the brands in the market and low margins that leave scant resources for innovation and therefore inadequate funds for strengthening brands to face the future. With little added value being created, brands lose strategic importance for the companies that make them.

So what can be done? The first part of Michael’s recommendation relates to brands ranking number three, four or five. These, he says, will only survive by focusing more narrowly on their strengths. That is, by no longer competing with the entire market but by developing niches within which they can become number one or two. In this way they can then avoid direct competition with the market heavyweights and establish a viable franchise in segments where there is still money to be made.

In the case of major brands, Michael believes a new “marketing intelligence” is required. Marketers, he says, must realise that it makes no sense to dump large quantities of goods onto the market at any price, yet make no money at the end of the day. Quick fixes prove self-destructive in the long term – it pays to concentrate on initiatives which offer consumers genuine value from the brand. A core consideration, then, must be to win back consumer trust through innovation and through establishing the true, demonstrable added value of brands compared with low-priced rivals.

Although fo-cused on the German market, these observations and proposals will have equal validity for embattled marketers throughout Europe who recognise that the renaissance of brands will be driven by the regeneration of value, long-term vision and a recognition that in most cases, less is more.

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