Consumer packaged goods. A detailed market study.

Some estimates of the consumer packaged goods industry say that, as a whole, the industry is valued at more than $2 trillion.

From any perspective, that is a huge number to ignore. But it has its troubles. Highly competitive markets, powerful retailers and decreasing margins characterize the industry.

Moreover, larger players have a distinct advantage because they command greater influence with the retailers and, therefore, more easily modify pricing. Hard business to ignore, but it is even harder to succeed in it.

From a branding point of view, CPG companies have an extraordinary challenge. Most CPG companies brand individual products or a categorical selection of products.

For example, although we all know the name Proctor and Gamble when thinking about consumer packaged goods, few consumers could actually tell you things it brings to market. Most consumers do know the brands it sells: Tide, Crest, Pantene, just to name a few. Most people also know Slim-Fast, Lipton, Vaseline, Bryers Ice Cream and Dove soap, but 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-Clarke). Together, they account for more than three-quarters of the toilet paper market. Each of these players says one thing: “We’re soft.”

Mr. Whipple, Charmin’s grocery store manager “spokesperson” began that mantra nearly 50 years ago in commercials with five simple words, “Please don’t squeeze the Charmin.”

Today, Mr. Whipple now represents the norm: Cartoons, babies, puppies and caring moms dominate the imagery, each conveying a similar message of “We’re soft.”

Bordering on the bizarre, Cottonelle has even launched a campaign around the method in which consumers use toilet paper – roll over or roll under – even taking the unprecedented step in recommending all users of toilet paper to roll it over.

Charmin too has joined Cottonelle in an attempt to bring awareness to its brand by creating a website and an iPhone app entitled “Sit or Squat” that lets consumers find clean toilets all over the world and then share that experience via comment and recommendation to everyone.

One of the main problems toilet paper has 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, not just in toilet paper, but also in the most of CPGs: Weak brand loyalty.

Consumer Packaged Goods Show Weak Brand Loyalty

Consumer packaged goods is a diverse categoryKimberley Clarke Competes in many categories

The costs and risks that go with switching from one CPG to another are generally pretty low for consumers. In many categories, customers will often try something new or have a variety of products they use based on which is “on sale” at the time. Contrary to what P&G, Kimberly-Clarke, 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 CPG, cleverness like “Sit or Squat” or endorsing roll over when you put the toilet paper on the roll is not the most effective 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 (especially Wal-Mart.)

All of this pressure ultimately leads to a consolidation in SKUs across a category and ultimately reduces 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 is one of the most common consumer packaged goods in the store today and, as such, it is a case study of both the problems and opportunities CPGs face. For example, if it’s not the “softest” toilet paper, it is the “best on grease” cleaner, or the detergent that gives you the “whitest whites” or the cereal that is “part of a balanced breakfast.” It’s not just toilet paper manufacturers that all say the same things. The vast majority of CPGs 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? In fact, it is 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 away at brand loyalty in CPGs.

Source: Stealing Share

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