Value focused strategy is key to brand growth

Sometimes the most basic marketing questions, turn out to be the most difficult to answer.

For example, if you were asked how your day-to-day marketing activities benefit consumers, would you be able to answer in a detailed and confident way? In what way, for instance, did the latest ad campaign improve consumers’ lives? How valuable to them was that packaging change, that new point-of-sale material, that direct mail- shot, that line extension, or that product formulation tweak?

The closer we look at this simple question the more we discover a major disconnection between the company and customer. Companies say they are focused on the consumer and accept that competitive success depends on delivering superior consumer value, but key performance indicators (KPIs) which drive corporate decisions do not revolve around measures of enhanced consumer value. Instead, the measures are internal commercial and financial criteria – sales forecasts and margins, for example.

That’s not a problem in itself. What is, is that most companies have little idea how different ways of delivering value to consumers – through quality, responsiveness, keen prices, convenience, service and entertainment, for example – translate into business results in terms of growth, market share, loyalty, market penetration and profitability.

Ideally, there should be clear, measurable links between the two, which managers could use to influence their decisions.

As Gerhard Hausruckinger, a consultant with Roland Berger & Partner, told the Efficient Consumer Response (ECR) Europe conference in Paris last week: “Only by measuring value delivered will you be able to enhance value received in the long run.” Instead, what we have is a big, impenetrable black box stuck between the two.

We know at some general level that value delivered affects value received, but we cannot disentangle the details.

A first stab at this massive project was unveiled at the Paris conference. In a joint project, consultants PriceWaterhouseCoopers and Roland Berger suggested seven core KPIs for value delivered (depending on whether consumers are loyal, switchers or other), along with a simple but powerful matrix for value received: “value share = penetration x loyalty x spending index”, where penetration is the percentage of households buying your brand; loyalty is the percentage of their total spend on your brand; and spending index is household spend level compared with the market average.

It is perhaps telling that the value received formula is far simpler than the one for value delivered. For loyal consumers, for example, calculating the value delivered uses three measures: satisfaction, enthusiasm and franchise. These complex measures are both difficult to determine and apply to marketing. Ulf Kalmbach, a director of German retail group Rewe and a member of the ECR Europe board, comments: “I am not sure if we can easily bring the consumer measures into our day-to-day decision making. It takes a lot of new data and new knowledge that we don’t have yet.”

No doubt there is some benefit to be gained from tackling such hard measurement issues. But perhaps the reason it is so difficult to tackle is that marketers are focusing on the wrong areas. It is interesting, for example, that a new pan-European research project into the implications of home delivery for European grocery manufacturers and retailers was announced at the conference by Roland Berger. Among the first backers were Procter & Gamble and Swiss Internet shopping outfit Le Shop (current sales growth is 30 per cent a month, albeit from a very low base).

Likewise, another Roland Berger report, How to implement consumer enthusiasm, rammed home the scale of the challenge now facing the industry.

“Traditional marketing approaches and classic marketing tools can no longer be relied upon to achieve significant growth,” argues the report, and cites advertising, price, and new product initiatives as examples of failing techniques. Neither can category management, the recent industry holy grail, be depended on. “Category management,” the report says, “concentrates on the optimisation of single categories and does not take a holistic view of how to achieve strategic growth.”

The more we look at how to achieve strategic growth, the more today’s “more of the same” strategies appear inadequate. While marketers on both sides of the grocery industry have been focusing resolutely on value for money consumers are increasingly searching for value for time – and many of the things marketers do to deliver improved value for money rarely contribute to improved value for time.

According to the Roland Berger report, sectors outside the packaged goods market, including beauty, catering, recreation, sports and entertainment, are all enjoying significant growth, but the packaged goods’ share of total spend continues to decline.

“Consumers are exhibiting multidimensional behaviour, tending towards a crossover between leisure time, entertainment, fashion and information.” To tap into these trends, it suggests grocery companies embrace new marketing strategies based on alliances with non-competing partners to provide total solutions irrespective of industry boundaries.

A separate contribution from the Henley Centre’s Howard Southern and Research International’s Maureen Johnson supports such views. They predict that retailers in the future will either become expert value builders – focusing on price and convenience – or will become values builders, incorporating “experiential and social values into their brands”.

Values builders will offer products and services which are “experientially enriching”, predicts Southern. They will strive to meet people’s desires for “experiences which add value to life, reflect their identity, criteria of authenticity or taste, moral or ethical values”. Similarly, brands which help make consumers’ lives easier and simpler to manage by, for example, “managing health care or providing home care management systems will prosper”, suggests Johnson.

If these consultants are right – and their suggestions are based on research among senior executives in blue-chip packaged goods companies across Europe – packaged goods marketing is on the point of a sea change. “The big companies have recognised the writing on the wall,” comments Johnson. “Mass marketing is a thing of the past. These ideas are already being embraced by those companies that are thinking seriously about the future.”