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Small businesses replace big brands, how should these counterattacks!

 

One reality that cannot be ignored today is that niche brands are taking market share from big brands. It is generally believed that new consumers advocate healthy, natural foods and personal care products, and millennials especially advocate originality rather than mass production. To win back the hearts of these new consumer groups, there are not many choices for large consumer goods companies. Or is it the risk of diversifying energy and resources to develop niche brands, or to follow the example of 3G Capital (the holding company of Burger King, Heinz and Kraft) to acquire big brands and increase revenue through deep cost reduction. In short, many people think that the era of endogenous development of big companies is over.

actually not. Consumer tastes have changed, but their deeper needs have not changed. If a new competitive strategy can be adopted, large consumer companies can still take advantage of agile and flexible new rivals. In other words, the giant Goliath can defeat the shepherd boy David.

First, they must grasp the new trends of consumer demand, discover consumer needs that they have not found, but the niche brands are fully satisfied, and then build a stronger, complementary brand portfolio. We were surprised to find that almost no large consumer companies do this.

Second, they want to learn from small brands and accelerate the adoption of new ways to communicate with consumers.

Third, in a fragmented world, the ability to efficiently meet diverse needs is a competitive advantage.

Fourth, they need to learn the focus, internal assistance and speed of small-scale competitors. These companies rely on agile principles to be active in entrepreneurial centers around the world, and can quickly prototype, test, learn, and continue to cycle.

If it doesn’t change as soon as possible, today’s giants will probably be forgotten by consumers tomorrow.

Why can David win big?

Over the past 50 years, multinational consumer goods companies have strengthened their brands, expanded their product mix, and steadily increased their market share and revenue, creating strong shareholder value. It used to be the era of big media, big retailers, and big brands.

About five years ago, smaller companies and brands* began to divide the cakes of big brands.

Between 2011 and 2016, approximately $22 billion in industry sales in North America shifted from large to small businesses. Europe has also experienced the same changes.

As a group, start-ups seem to understand the needs of consumers better than big ones. This is because today’s David has a better slingshot: production outsourcing allows them to “rental” manufacturing capabilities, new distribution channels make it easier for them to enter the market with small sales, and social media channels allow them to build at low cost. Brand. Startups have never won consumer support like today.

Consumer demand

The idea that consumer preferences shift is irrelevant, but it is misplaced. Based on our research in this field and the cooperation with global consumer companies over the past five years, we have come to the conclusion that the fundamental drivers of consumer demand have not changed.

People have core needs and desires: they want to enjoy or rejuvenate. They want to rest and relax. Many people want healthy food and drinks. These are not new requirements. What’s new is that start-ups have the ability to tap these unmet needs and make a profit. Thinking about the development of energy drinks, Red Bull, Monster and Rockstar did not find new demand. They just think of the * method to meet the original needs, and the change in supply also allows them to turn ideas into successful business.

New supply economics

In the era of big media, big retailers, and big brands in the past 50 years, the game guide in the consumer sector has focused on scale, because scale can reduce the unit cost of purchasing, manufacturing, brand marketing, trade spending and recurring costs. Reducing costs allows companies to spend money on innovation, key account management and global functional deployments, and ultimately strengthen their advantage against smaller competitors.

The scale brings cost advantages and barriers to entry, but now these advantages are falling apart. Small businesses are increasingly able to compete or even surpass large-scale competitors in four key areas. The advantages of small businesses are mainly reflected in the following aspects:

*, light asset production. Small consumer companies no longer need to have production tools; they can lease production capacity from co-manufacturers. Through outsourcing, small businesses can achieve small batch production at low cost.

Second, new distribution channels. Small businesses have been blocked by big retailers. These retailers can only carry a limited number of brands, and the development of private brands has narrowed the channels. Today, new retail channels are growing rapidly, especially in *premium stores, convenience stores and online channels, with a large number of interested consumers.

Some of the new channels can provide small businesses with marketing opportunities, business tools and data insights that were previously held in the hands of large companies. For example, Amazon offers marketing and consumer insight services, product sponsorship opportunities, and bill-to-pay computing resources. With Amazon’s help, small businesses can also find their target customers.

Third, low marketing costs. Social and digital media give small businesses the opportunity to build their own brands and attract new ones without having to pay for large media spending in advance. Unlike global consumer brands, small businesses don’t have to get paid through paid media, such as TV commercials. Instead, they try to establish connections between individuals and target consumer groups, using social and digital media to reduce marketing costs.

Fourth, internal collaboration. Small businesses are often faster and more creative than multinationals in building brands. The founder-led companies focus on efficiency and do not have to bear the internal transaction costs of large companies. As a result, small businesses are more agile and more timely in detecting and responding to consumer needs.

How does the giant Goliath regain its vitality?

David may be able to win a few battles, but Goliath is always Goliath.

Large companies must return to their roots – understanding customer needs, creating products that meet those needs, and building brand engagement. In the process, they need to learn to manage complexity instead of eliminating it. In addition, they have to break down functional silos that hinder agility and rapid development.

These are not new goals, but given the new competitive landscape, achieving these goals is imminent. As a result, companies need to act in concert in four areas.

Upgrade from consumer research to demand science

Large consumer companies typically have multiple brands, which also results in the success of one product being offset by other failures in the same product portfolio. This is not necessarily the case. The key is that companies need to change their understanding of market segments.

Traditional consumer research is too blunt to grow and grow across the entire portfolio. It assumes that consumers can be divided into meaningful market segments based on demographics, attitudes, or usage levels, so questions such as “Let us understand millennial needs in East China” are raised. This assumption assumes that all millennials in East China have similar needs, and these needs are the same on Tuesday morning and Saturday night.

Reinventing the consumer participation model

The transition from big retail and big media eras requires a new consumer engagement model. Historically, in the pursuit of scale, most brands often sacrifice the individualized demand, and * expand the customer base to a large extent. Digital tools and big data are now breaking the trade-off between “coverage” and “richness” because it provides affordable, effective, personalized connectivity on a scale.

Many consumer companies have begun digital transformation around precision advertising, customization and viral marketing. While these new features are valuable—they can increase the efficiency and value of media spending by 40%—they are unlikely to create lasting competitive advantage.

Next, companies should strive to establish separate connections with their millions of customers. Big data and artificial intelligence (AI) bring us closer to the marketing grail of “Thousands of People”.

Data is a prerequisite for customization, and large companies are easier to collect and aggregate large data sets than small ones. They have a natural scale advantage over smaller peers and are able to generate proprietary data across multiple content, e-commerce, and customer relationship channels.

L’Oreal, the world’s largest cosmetics company, is building relationships with millions of customers through a wide range of digital activities. For example, more than 20 million people downloaded L’Oreal’s MakeupGenius. The app allows consumers to “try on” cosmetics, turn iPhone screens into virtual mirrors, and generate profiles. L’Oréal has partnered with Founder Factory, a startup platform, to facilitate the investment of digital startups such as insitU, which has created personalized natural skin care products.

These new methods enable L’Oreal to sell products directly to consumers, attract traffic to stores (thus increasing their value to retailers), quickly test new products or content, and gain insights from a large consumer community in real time.

It is not easy to develop personalized connections on a large scale. It needs to change the marketing function and need a new way of working. For example, L’Oréal has hired 1,600 digital experts; in addition, 14,000 employees have received digital training.

Embrace the complexity of bringing value

In a fragmented world, niche brands target attractive demand spaces rather than big brands that want to satisfy most people. But for large companies, solving multiple target groups with multiple brands and products will inevitably bring complexity to product and channel strategies. A strict demand-centric approach helps identify the complexity of creating value and the complexity of increasing costs, inefficiency, and loss of focus. This method relies on two factors

 

The first is to subdivide the long tail. Traditional consumer companies often try to eliminate low-volume brands in order to focus on the best-selling products. But in today’s fragmented world, this practice may stifle development.

The second is to reduce the complexity of the product without reducing the diversity. The long tail theory applies not only to brands, but also to variations within the brand. The diversity of size, taste and quantity can increase customer loyalty and sales. But companies often launch products without fully understanding the complexity, cost, or impact on customer value.

Understanding the difference between beneficial diversity and useless complexity can help global consumer companies seize the lucrative growth space and avoid cash black holes. Companies can reduce the complexity of their product portfolio while meeting consumer demand for diversity.

This combination of market and supply chain insight allows companies to identify “platforms” that can achieve a balance of value and cost*. These platforms can be used as a basis for meeting new customer needs, price points, channel products or additional complexity* areas.

Reshaping corporate DNA

The organizations of most large consumer goods companies are built to take advantage of global scale, efficiency and control. They tend to be strict functional silos, bureaucratic mechanisms and processes, and complex management matrices. As a result, the decision-making process is slow, far from the actual customer’s focus, weak collaboration, and low employee engagement.

And entrepreneurial companies that focus on a relatively narrow product portfolio and market, the founders are on the front line, able to communicate their vision, goals and passion directly to the team, and continue to receive feedback from the field and the front line. Their organizational structure is also dynamic, not managed by functional silos, strict bureaucracy and cumbersome processes, but by shifting people to where they work and constantly adapting to changes in priorities and the world around them.

Big companies can’t match the organizational structure of young competitors, but they can fundamentally change processes, structures, and ways of working to adapt to the new competitive environment.

Large companies can manage many small companies with agile principles. Agile teams are fast, cross-functional, experimental, and autonomous. They are managed by the product “owner” and are responsible for ensuring that consumers are at the heart of key decisions. These teams operate in a culture of iterations and frequent feedback of “testing and learning” – once they find a winning formula, their cross-functional teams can be quickly promoted. These practices, which originated in software development, also apply to banks and airlines.

Large consumer companies are also experimenting with agile methods. For example, marketing organizations are beginning to break down product-based silos and dynamically deploy resources across the entire portfolio. For example, a company trains a newly hired assistant brand manager for two years and then sends a number of projects that are selected based on the company’s strategic goals and the skills and development goals of the employees.

Organizational changes like this can bring multiple dividends. By enhancing agility and experimentation, companies can not only grow faster, but also be more attractive to * talents, and a more streamlined organizational model will also bring cost-effectiveness.

Many industry commentators and analysts believe that the scale advantage is fading, and large consumer companies are facing a long, slow and painful war of attrition. We do not agree with this view. The game will not always be biased towards small companies. But for large consumer companies to thrive in today’s strategic environment, a new guide is needed. The four parts outlined above are ambitious and ambitious, but only those companies that can actually put them into action can get what they want.

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