Manufacturers of packaged goods are under attack from all sides. Traditional methods of branding, such as heavy advertising, are less and less effective as costs soar, television audiences decline, brand loyalty weakens and own label quality improves. The alternative, of pushing brands through the trade, is hardly more rewarding. Retailers are demanding fatter margins and higher fees for promotions. They are not only giving manufacturers' brands less space, but they are taking over the manufacturing role in the supply chain by managing warehousing and delivery themselves. Scale no longer provides significant cost advantages to the large manufacturer either; smaller, dedicated suppliers with fewer overheads have emerged. Thus, profit margins have been eroded, and are being further undermined as firms cut prices to bolster declining volumes.
Once upon a time, packaged goods manufacturers reigned supreme. For the past 20 years, it has been the turn of the grocers. Retailers like Tesco, Asda and Sainsbury now enjoy the economies of scale; now it's they who brandish corporate identities over an entire range of products. In contrast, manufacturers rarely seek the shelter of an umbrella brand name; instead, they dissipate their resources across many brands. Indeed, the manufacturer's legendary power to create a brand has been much reduced -- so much so that a number of brand projects have lately been cancelled. Worse still, manufacturers are generally defeatist, conceding that an aggressively supported own label is always likely to win.
With retailer consolidation and sophistication so advanced, manufacturers who will not accept defeat have no option but to reappraise two key aspects of how they compete. They must look internally at the culture, organisation structure and management systems for any defects which may inhibit the effectiveness and enterprise of their brand strategy. They must also look externally, at their relationship with their customers, for initiatives which work successfully to benefit both sides.
Internally, the originators of brand strategies are the brand managers -- but here lies a real problem. In the 1960s, when packaged goods manufacturers ruled the world, the key factors for success were product quality plus creative advertising, supported by massive budgets. The qualities required were energy, enthusiasm and bright ideas. So who were more qualified to lead this charge than the brightest and the best of the university crop? Procter & Gamble's success with this marketing-led charge of the brand managers was swiftly copied by packaged goods companies throughout North America, and then in Europe. It placed responsibility for developing competitive strategies firmly on marketing.
Today the climate is distinctly more hostile. In this environment, the brand manager is a frustrated scapegoat. He has responsibility, but without the experience or skill needed to take appropriate action. His experience is entirely focused on marketing, so he resorts to the techniques he knows (like price-cutting), even if the impact is felt only in the short term -- and is destructive in the long. The company is |buying' business with large discounts and incentives to the trade while selling its future.
Some companies are beginning to realise that current approaches are not working. P & G itself is changing its brand management set-up in some areas, by appointing |category' managers, with a slightly broader range of skills and experience, to coordinate strategy development. This tactic does not, on the face of it, promise any great breakthrough; it still leaves responsibility for brand strategy mainly in the marketing department with the brand manager. Other companies have appointed corporate planning managers to strengthen strategy development. Since these are often research analysts or business school graduates, not commercially aware and experienced business people, their contribution generally takes the form of more sophisticated number crunching. …