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  • Jun 04, 2012

A casual survey of brands in the fast-moving-consumer-goods sector (FMCG) shows that, in the last quarter century or so, there have been few new brands, if any, which were launched by the large multi-national corporations. In fact the last launches one can remember are the launch (and its subsequent withdrawal) of Natural (?) by Unilever in the early ’90s and the Oral B range of dental cleaning aids by Gilette.

The poverty of new brands from large corporations does not imply that new brands have not been launched – Body Shop, Red Bull, Asics, Glaceau, brands from micro-breweries among others attest that the consumer wants are far from being completely sated. In the event, it is perplexing that MNCs endowed with significantly large resources in every aspect of commerce are merely on the sidelines of new brand innovation.

What ails new brand development?
Is it that the fear of failure that is a part and parcel of new ideas that cows down the modern corporate warrior? Is it that in a largely globalized economy there are easier pickings for generating significant returns on investment without the pain of developing and nurturing new brands? Has the relentless pressure to deliver quarterly results aligned to analysts’ expectations changed the modern business manager from an agent of wealth creation to a protector of status quo, and, shifted the focus of wealth creation from ‘for the owner’ to the employee? Or, is management education, with its relentless focus on risk mitigation, the culprit in having created a generation of managers who do not know how to take risks? Or, is it..? The questions are endless. The moot point is what does it bode for the corporations who do not invest in new brands.

A skeptic, at this point, may well ask, how have these companies have been continuing to grow. After all the Nestles, P&Gs, Unilevers, have not exactly been in a comatose state financially.

Dig below the surface and it would be apparent that the growth of these companies has, for the most significant part been, either due to acquisitions of those who dared to launch new brands – (eg L’Oreal and Body Shop, P&G and Gilette), or, by entering new geographies or expanding in them. Simply put McDonald’s has grown by expanding the sales of Big Mac, but not by creating McAloo Tiki!

Are new brands necessary?
So where’s the beef? After all, if sales are ever expanding and the companies are doing well financially what does it matter whether or not they have a new brand pipeline? It matters because while sales is the oil that keeps the corporate machine running, it is brands that are the prime movers that ensure sustainability of the corporation. And, it is not enough that a stable of brands in the pink of their health will sustain the corporation through all times. It is not merely theory, for, markets change and consumers change. In this process of change, however well managed a brand may be, it can be upstaged by newcomers. Business history is replete with the tombstones of brands that perished because of the unrelenting reality of change.

Quite simply then FMCG manufacturers should stop looking at their roles as allocators of capital but as creators of value.

The way forward
This is easier said than done, for, new brands development is fraught with risk. A study conducted in the 1980s demonstrated that only one in 67 new product (brand) ideas actually met with market success. In the more crowded place of the twenty-first century, success is bound to be even more rare. Therefore, the first task in front of FMCG manufacturers is to embrace failures and reward those who dare, not just those who perform.

The second task is to shift the focus of technology from – seeking incremental improvements to existing products – to – evaluating how the same task can be performed ‘better’. Borrow a leaf from the players in the technology field who are constantly innovating on doing things differently – MP3, streaming, iTunes has virtually (no pun intended) killed the music distribution industry and along with it the hardware that goes with it… the same story is happening in payment solutions, communications, computing, travel services, etc.

To be sure technology can only address ‘needs’, while brands are all about ‘wants’. So it can be argued that an epochal technology shift can well be tacked on to a well-managed brand. While there is no evidence to the contrary, anecdotal experience suggests that, existing brands, however well-managed, are not great forces in triggering the tectonic shift that propels new brands. Consider the case of Walkman. When it was launched the Walkman was the most iconic product and brand of its times and enjoyed the ‘must-have’ desire that an iPhone or iPad has today. Yet, when music became MP3, Walkman branded MP3 players were passé. It took an iPod to bring back the magic and the ‘must-have’ cachet to portable music players.

One can argue that the technology sector is no guide to the success or failures of brands. Perhaps. However, the technology sector is also a bellwether sector. So, while it may not be the sconce for brands, it still allows us to peer into consumer behavior and postulate what may happen. And, the indications are that existing brands in the fmcg sector will possibly be unable to make the generational shift.

A third area FMCG companies must re-orient themselves when thinking of new brands is to eschew the short-termism and stay the course for the long haul – in the support provided for new brands, in maintaining continuity of the people managing the process. ITC’s penetration of the tough snack and processed foods markets shows the virtue of staying the course. A company that was as little as a decade ago mainly a single product (but multiple brands) company has successfully transformed itself into a multi-product and multi-brand company straddling cigarettes, toiletries, snack foods and processed foods, apart of course from Hotels and its agri-businesses. Perhaps, brands are wired in ITC’s DNA. As a single product company for many years, it had perforce to develop and launch new brands constantly to maintain its hegemony in the marketplace. This experience probably has stood it in good stead in its assault of the toiletries and foods markets. Whatever the combination of factors, it is to ITC’s credit that it persisted with its brands and supported them through many years of losses till the brands could stand on their own, and a signal lesson that short-termness is guaranteed to ensure that new brands don’t take roots.

Given the stakes involved, it is time FMCG companies realize that adding one more razor or magic ingredient ‘X’, does not make a new brand. It requires far more dedication and homework. After all, the consumer can walk away; can the company afford to do so?

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