In using “Great to Good” in my title, I am quoting from new product development consultant Monica Wingate, of Fountainhead Brand Consulting, whose recent Evolve NPD Blog post summarizes key insights that she gained from the 2010 Market Research Summit held at University of Wisconsin, Madison’s A.C. Neilson Center for Marketing Research. I advise reading her post to learn how research methods will change in today’s challenging economy.
The conference insight giving rise to Wingate’s Great to Good reference is that “Companies will embrace the ‘new normal’ by focusing on taking out less important features and lowering the price rather than adding value and cost into products.” If this is branded consumer goods companies’ core strategy for the “new normal,” they are stepping into commoditization’s quicksand.
Why do I use the word quicksand in talking about commoditization? Because that is how commoditization happens – in an effort to compete better on price, companies increasingly remove their differentiators, which in turn makes price even more important.
What a mistake this path will be as a core driver of strategy!
From my perspective, the companies that spoke at the conference, e.g., Kraft and General Mills, appear to be stuck in the old paradigm of products competing on features, benefits and price. In today’s economy, companies win and lose on the strength of their business models.
Kraft is thinking: If we can’t differentiate our Oscar Mayer lunch meat enough to warrant its price premium, we’d better value engineer it to be more price-competitive. Rather, what leaders of the Krafts of the world need to do is rethink what their business is all about.
They need to decide upon a relevant, hard-to-copy value promise of the parent brand (e.g., Kraft) and/or build new corporation-wide advantages that increase customer value and provide advantage across all the business units and brands of the corporation. Otherwise, there is no reason why I the consumer should select Oscar Mayer lunch meat over the store brand in today’s copycat economy, especially because the store brand is likely cheaper.
To work on business model strategy would be a huge shift for senior leaders of many consumer goods companies. Their leadership teams would need to innovate core business strategy versus manage processes and oversee meeting earnings that Wall Street expects. It could be a really fun challenge that would enliven management teams and employees.
Will senior leaders of Kraft, General Foods and their peers be able to step into their truly highest value role – innovating their corporation’s business model? If they can’t, they better set out to dominate the design, manufacturing and distribution of store branded products.
Brad Shorr says
Hi Kay, How much of the movement toward commoditization is a function of our depressed economy? Do you think that when companies are out of survival mode they will return to a good-to-great mode of thinking? I see that you are talking about today’s economy, but what are the long term implications? It seems to me that companies that are successful in good times and bad maintain a steady focus on adding value and establishing compelling differentiation. I don’t think the commoditization mind set is that easy to slip into and out of depending on conditions. If Kraft goes down this road now, they may have a hard time catching up when price is no longer the big driver.