OPINION: Is a growing brand a healthy brand?

Andrew Palmer
By Andrew Palmer | 11 December 2012
 

At Nielsen, we are constantly being asked ‘Is my brand healthy?’ While this is a complex question, the true value of a brand lies in its ability to deliver value to stakeholders in the future. However brand health is defined, it always comes down to future profitability.

There are three core questions you should ask to assess your brand’s long-term situation in the market:
1. Does my brand have sufficient household penetration or a sufficiently sustainably unique selling proposition to maintain retailer engagement and support in terms of distribution?
2. Is my brand delivering growth in a sustainable manner?
3. Do I have sufficient baseline volume to offset any inefficiency within my promotional program?

If you answer ‘yes’ to all three, your brand is likely to have the potential to deliver value to their shareholders for considerable length of time, and is therefore in a healthy position.

As an example, here’s a look into the Australian coffee category over 10 years to give insight to what it takes to be a thriving brand.

From 2002 to 2011, the Australia coffee category included 1,387 unique products under 122 brands. Of the 53 brands on offer in 2002, only 23 were still available 10 years on. With brands leaving at a rate of three per year, the question is: can we define the characteristics of brands that have a greater probability of success?

Looking back to the previous three questions:

1. Does my brand have sufficient household penetration or a sufficiently sustainably unique selling proposition to maintain retailer engagement and support in terms of distribution?
One of the first observations of the coffee brands that survived was their ability to achieve household penetration. On average, the tier two and tier three brands (which includes those that achieved less than five per cent market share) that survived the 10 years had more than double the household penetration when compared with the equivalent size brands that failed.

So what do brands with low household penetration need? The obvious answer is growth.

2. Is my brand delivering growth in a sustainable manner?
Healthy brands deliver sustainable profitable growth. As such, not all brands that are growing can be defined as healthy. As many FMCG professionals would know, growth in any year can be easily bought via promotions. However, promotions aren’t always profitable overall – and positive gains in one area are often offset by larger negative impacts elsewhere.

Also, consumers wise-up to promotional activity within a category pretty quickly, and for long-term growth, marketers need to ensure they have a less transient baseline of buyers.

Looking at the coffee category example, just eight brands (representing 91% of the category value) met the criteria for growth – defined as growing faster than category average for three out of five years. But would Nielsen consider all of these brands as healthy? This depends on where the growth is coming from.

3. Do I have sufficient baseline volume to offset any inefficiency within my promotional program?
Of the eight growing coffee brands, one brand was in particular trouble. Although the brand had eight per cent overall growth, its baseline was declining at four per cent annually. The problem for this coffee brand would be if the efficiency of its promotional volume was also declining (the promotions  become less profitable over time) , then overall brand profitability would be in decline as the safety net from their base buying group had been reduced.

The trick is to either make sure your promotions are profitable or have sufficient levels of baseline to make this equation balance – quite the balancing act indeed!

Andrew Palmer
Regional Director
Nielsen’s Marketing Effectiveness Practice

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