Stealing Share's Analysis and advice

Consumer Packaged Goods – A Market Study.

March 17, 2023

Consumer Packaged Goods Marketing
Recent studies estimate sales of the consumer packaged goods industry in the US to reach more than $760 billion by 2020. From any perspective, that is a huge number to ignore. But the industry has its troubles.

Highly competitive markets, powerful retailers, and decreasing margins characterize the industry. Larger players have a distinct advantage. They command greater influence with retailers and, therefore, more easily modify pricing.
Hard business to ignore, but it is even harder to succeed in it. (Read a detailed story on the consumer packaged goods segment— Breakfast Cereals.)
From a branding point of view, consumer packaged goods companies have an extraordinary challenge.

Most consumer packaged goods companies brand individual products or a categorical selection of products. For example, we all know the name, Proctor and Gamble. But few consumers could actually tell you what it brings to market. Most consumers do know the brands it makes: Tide, Crest, and Pantene, just to name a few. Most people also know Slim-Fast, Lipton, Vaseline, Bryer’s Ice Cream, and Dove soap. However, many do not know they are all made by Unilever.

Promoting all of these individual brands is costly and largely inefficient, especially in a category where brand loyalty is relatively low, and margins are even lower.

Consumer packaged goods have done little historically to differentiate themselves on the store shelf, which means the number of alternatives and substitutes are interchangeable.

To get an idea of how CPGs generally work, let’s look at toilet paper:


Toilet Paper
The largest toilet paper marketers are Charmin (P&G), Quilted Northern (Georgia Pacific), and Cottonelle (Kimberly-Clark). Together, they account for more than three-quarters of the toilet paper market. Each of these players says what toilet paper is supposed to do: Be soft and help you clean.
After ditching long-time spokesman Mr. Whipple, Charmin went the way of the bears.

The blue (and sometimes red) family of bears who worry about harsh toilet paper or, in a mild twist, not getting clean. In their own way, the Charmin bears represent the norm.

Cartoons, babies, puppies, and caring moms dominate the imagery, each conveying product benefits. None of them convey emotional meaning. Even Cottonelle has even launched a campaign last year about a product benefit. In this case, it was a so-called invention. A game-changer called a Clean-Rippled Texture that does what?

Makes you “feel fresh and clean.” Cottonelle tries to convince audiences that the new texture will make you “Rethink Your Roll,” a copyrighted theme that’s only about product benefits. Did Cottonelle ever wonder whether customers care about a new texture in toilet paper? One of the main problems facing toilet paper brands is that, because it is such a common purchase, there is a high degree of discounting and couponing. Consumers are constantly switching from one brand to the other because of price or discount.

This switching behavior is a symptom of a greater, more widespread problem that exists in all consumer packaged goods. Brand loyalty is so weak the brand must discount its own products. Consumer Packaged Goods Show Weak Brand Loyalty


Consumer packaged goods are a diverse category
The risks that go with switching from one consumer packaged goods brand to another are generally pretty low for consumers. Buy the wrong toilet paper? Oh well, it’ll be the right one next time.

For many consumers, they’ll just buy what’s on sale. Contrary to what P&G, Kimberly-Clark, Georgia Pacific, and Unilever might believe, having weak brand loyalty is an indication of weakened brand equity. In dollars and cents, we can measure brand equity as the amount of money a consumer would pay in excess over the next lowest-priced brand. If this is the true monetary measure for a consumer packaged goods brand, cleverness like “Rethink Your Roll” represents an ineffective brand equity strengthening strategy.

With constant discounting and sales promotions, consumer packaged goods are always competing on price. And that price pressure is coming from the players within the category and from the retailer as well. That’s especially true if you want to appear on Walmart’s shelves. The retailer demands manufacturers give them the best price. All of this pressure ultimately leads to consolidation in SKUs, reducing innovation (even though the toilet paper industry has innovated in recent years in the form of flushable wipes). The less elastic pricing becomes, the more undesirable it becomes to innovate or extend that category.


Toilet paper as an example
Toilet paper is one of the most common consumer packaged goods in the store today. It is a case study of both the problems and opportunities consumer packaged goods face. For example, if it’s not the softest toilet paper, it helps you get clean. Instead of any meaning attributed to consumer packaged brands, you get the best on grease, detergent with the whitest whites, or the cereal that’s part of a balanced breakfast. Is there any category more full of cliches than consumer packaged goods? (Maybe automobiles.)

It’s not just toilet paper manufacturers that all say the same things. The vast majority of consumer packaged goods do as well. Even worse, their messages are simply basic descriptions of the product. Think about this logically. In the toilet paper example, all players claim “soft.” As a consumer, is the other choice a hard block of wood? It’s safe to say that consumers prefer a brand of toilet paper as being soft, gentle, absorbent, or can be rolled over or under. In short, most consumers believe that all brands of toilet paper will work.

This belief that all products will work further erodes brand loyalty in consumer packaged goods.

Product Parity
If we’re being honest, most consumer packaged goods are all the same. And consumers believe that too. Certainly, there are minor differences between like products – bleach or no bleach, spicy or mild, diet or regular. But they all do what they claim, to the most extent. Consider this. We’ve conducted blind taste tests with the three major beers (Budweiser, Miller, and Coors). Drinkers could not tell the difference.

The difference is in the brand. Attributes such as efficacy and good taste are the most basic requirements for a product to exist on a store shelf in a given category. They are table stakes, the ante you need to even play in the game. Consumer Packaged goodsThere are natural strata in the retail environment, usually determined by the price. There are premium items, fighter brands, and economy-priced items in nearly every consumer packaged goods category.

Sure, better or different ingredients are used in higher-priced items. They also may offer marginally superior performance. But pricing strata also help consumers understand product hierarchy and enable manufacturers to offer more choices even as manufacturers continue to slice the segmentations thinner and thinner.


Good brands overcome parity
How do you command premium prices? It’s not efficacy or ingredients that cause it. Brand loyalty does. There’s a reason why Apple gets away with charging $1,000 for a phone while Android can’t – even if product differences are debatable. However, preference for many consumer packaging brands comes from sheer habit established over a prolonged period of time.

Consumers simply grow accustomed to seeing their ads and consider them safe choices. Heritage and longevity play an important role in the purchase decision for these products. But products that rely simply on those attributes are vulnerable to having their market share taken. Only a few consumer packaged goods create strong brands that resonate enough to fend off challengers.


The Pepsi Challenge
Consider the Pepsi Challenge. Pepsi convinced consumers that it tastes better than Coke. In commercial after commercial, Pepsi was victorious over Coke in blind taste tests. Bumper stickers proclaimed the driver “took the Pepsi Challenge,” and the message found its way to lockers and walls around the country. People believed the commercials – and so did Coca-Cola.

Thinking Pepsi’s taste was the difference-maker, Coke panicked. It changed the formula of its own soda, producing one of the great brand failures of our time. New Coke, which resembled Pepsi in taste but was a disaster for consumers.

Then someone smartened up.


Scientific research to back up the power of brand
Now flash forward to 2003. A neuroscientist named Read Montague from Baylor pondered the power of the Coke brand for nearly 20 years. If traditional product attributes like taste were so vital to the success or failure of a product, why had New Coke failed? Moreover, if people preferred Pepsi’s taste, why did Pepsi not own the market?

Dr. Montague performed his own Pepsi Challenge with a little help from an MRI machine. He first put Coke and Pepsi head to head in a blind taste test and found that a little more than half preferred the taste of Pepsi.  The MRI showed no significant differences in brain activity between those who preferred the taste of Pepsi and those who preferred the taste of Coke.

Next, he told participants what brands they tasted. Something extraordinary happened. Three-fourths of those involved in the test suddenly preferred Coke over Pepsi. Even more remarkable, the MRI showed increased blood flow to the frontal areas of the brain where higher-order thinking and reasoning occur for those who preferred Coke.

In essence, the brand of Coke excited the participants. Once the participant knew of the brand, it triggered the brain to look for images, associations, and, most importantly, emotions associated with the brand. Dr. Montague had seen the power of brand in a physiological response. The power of the Coke brand did not sit resonate because of efficacy or taste. The power was in something else, something addressing the psych-emotional makeup of the consumer.


Brand as A Tool, Not an Excuse
As marketers, it is easy to say consumers choose something because of its brand. It is an easy fallback position or excuses to revamp the visual identity of a product. However, as the Coke example points out, the brand is much more powerful than something wielded by a graphic designer or copywriter.
The test demonstrates how persuasive a brand with meaning can be for a consumer packaged goods brand.

On shelves where there is parity and battles over price, the only way consumer packaged goods can compete is through resonating their brand with those they wish to influence.

However, echoing the chorus of your competitors by claiming a product attribute (i.e. soft) or being overly clever is not the way to do it. In fact, consumer packaged goods that are engaging in this sort of pseudo-brand building have the most to lose by it. Read how a brand can be a marketing tool here. Sometimes, in fact, we wonder if brands even see what the competition is doing. Below are two ads from a few years ago. Both are diaper brands. Notice how similar they are to each other. And consider that you wouldn’t even know who the ads were for if there wasn’t a logo at the end.

How can consumers choose between them?


Beware of Store Brands
For medium and small consumer packaged goods companies, it is a constant struggle to meet retailer demands and open new delivery channels. Unless a small consumer packaged goods brand has distribution through a larger company, it’s difficult and sometimes impossible to break through with the retailer.

Now, with so much product parity and retailer power, store brands are taking a bigger share across all socio-economic strata.
Consider some of these numbers. In 77 of 240 supermarket categories, the category of private label holds the top spot in market share. Of 100 of them, private-label brands rank second or third.

Is it just about the price? Yes, but the reason why is complex. With so many categories showcasing the same product features and advertising message, how else are consumers to choose? By being so similar in everything (product, brand, feel, tone, message, etc.), CPG brands have taught consumers to choose on price.


Retailers’ influence wanes, and Amazon’s increases
Over the last 10 years, retailers are fading away like an iris shot at the end of a silent movie. That leaves CPG brands will fewer outlets – and more power to the retailers. Walmart stands in a greater position to demand the lowest price, and even Target, the home improvement stores, and Walgreens can just about name their conditions. And CPG brands will have to meet them. Or die.

That doesn’t even account for the battle royale of Amazon, where brands can go directly to the customer. But still face the daunting task of being noticed and purchased. It’s a jungle out there.

For many of the smaller manufacturers, the chain’s national buyers know they hold all the cards. They squeeze every penny out of the manufacturer and, at best, reward them with single-facing and sub-prime shelf space, causing the manufacturer to always look over its shoulder to see what the buyer is going to do next. For larger manufacturers, there is not nearly as much pressure. The retailers count on the larger manufacturers to bring customers into their stores through marketing and advertising initiatives.

That’s especially true in the era of Amazon, where large manufacturers have other options. In fact, large consumer packaged goods brands are moving much of their marketing dollars to Amazon, where consumers buy direct.


Private Label
As we mentioned earlier, bunch up the private label brands in any product category, and you either have the market leader or the runner-up. So, even when a retailer is dictating terms, the CPG brand has two choices: Agree or plunge its resources into Amazon.

Once consumers enter a store, they see private labels or store brands in prime position on the shelf. Go into any CVS or Walgreens, the name brand and store brand packages look very similar and may have a similar name. Store merchandisers give private label prime shelf space, usually to the left of the brand name, and charge a lower price in the hope the consumer will choose the private label product.

When that happens, the retailer becomes both the delivery system and a competitor.


What this all means to consumer packaged goods
Given the number of store brands in a given store, it is only a matter of time before retail chains start making more of an investment in marketing their own brands. Yes, there is a high degree of both parity and pricing pressures in this industry already. Even the largest consumer packaged goods manufacturers like P&G and Unilever continue to fragment their voice through marketing individual category brands.

They are successes because they simply out-spend the competition. But that model is inefficient, and few can match the more than $7 billion P&G spends worldwide in marketing in 2017. But consumers don’t buy P&G. A positive experience with one P&G product does not translate to equity with another P&G product. But that is not the case with the store brands. For store brands, it is easy for a consumer to see the relationship and, therefore, transfer brand equity from one product to the other.


The brand name response
For the P&G and Unilever’s of the world, the brand model (a house of brands) hasn’t changed, and probably won’t in the near future. Although…Unilever has begun inserting its logo on the front of the packaging, and both giants are promoting the parent brand. It’s still not the most efficient model, but at least a modified house of brands signifies where consumer packaged goods brands should look,


Staying relevant
Some consumer packaged goods products have taken a distinctly modern approach to marketing their brands. Devour is a relatively new member of the frozen meal market, and the appeal is STRICTLY adult. Even the tagline is suggestive — Food you want to FORK. As store brands continue to erode market share from traditional national brands, a strong branded push by a large retail chain for their store brand could significantly weaken the relevance of an entire portfolio of name brands. If successful for one chain, others would surely try to repeat it. It’s only a matter of time. And it may already be happening.

Think about the emergence of Walmart’s house brand, Great Value. Or Target’s Market Pantry or even Costco’s Kirkland Signature. They are the response to both Amazon (fostering customer loyalty) and the consumer packaged goods themselves. The result? Walmart posted its best numbers in 2017, largely driven by grocery sales and Great Value. As it stands now, national brand names still hold power, although their grasp weakens. Will we ever see an entire store made up of store-brand items? Probably not, but we wouldn’t discount it. Unless traditionally strong brand names address their weakening brand positions now, they will remain relevant and wonder how come Walmart, Amazon, and other owns the CPG industry.