Nervous States is a recent book by Will Davies, in which he plots the way in which facts are increasingly discredited as a means for navigating the world. He argues that truth has become a political issue that heightens rather than resolves disagreement and potential for conflict. In place, we are elevating feelings to be our key navigational aid and source of information. When placed alongside the inequal outcomes of economic progress, he argues that the resulting resentment and alienation that many people feel have become guiding emotions that are often shaping behaviour.
Davies largely applies these principles to politics and society, but they can surely just as easily be challenges to be levelled at large brands, particularly in the Consumer Packaged Goods (CPG) category, as these have dominated consumer lives for decades. So just how might this be the case? This article aims to set out a provocation on this topic as it may, in no small part, help to explain the threats that large brands face from a wide range of challenger brands.
Are big brands hurting?
A recent Ehrenberg-Bass report on the state of big CPG brands, reviewed the evidence for a number of claims relating to their health, under the heading of ‘Are big brands dying?’. The report found little or no evidence for the following:
- Big / global brands are declining whilst small / local brands are growing
- Brand loyalty is declining
- People increasingly distrust and reject big brands
- Small brands command high levels of loyalty
- Digital media has given small brands a cheap way to reach customers
- Small brands are successful without advertising
- E-commerce has opened up direct-to-consumer opportunities for small brands
At one level, there seems little to disagree with, it is well argued with empirical evidence. There is a good case to calm the speculation about the industry which can get a little feverish at times. Indeed, a recent analysis by Lawrence White, a New York University economist concluded that ‘there had been a ‘moderate but continued increase in aggregate concentration’. Another study by The Economist found a similar trend. Of the 893 industries it researched, two thirds had become more concentrated since 2007. In other words, large firms are representing a greater share of the overall economy.
On the other hand, there is plenty for CPG firms to be concerned about. Annual industrywide CPG unit sales have been flat to negative since 2008 so there is surely a case for healthy debate about the future of the industry. And there are other worrying statistics available which seem to reflect a tougher market environment than the Ehrenberg-Bass report suggests. For example, a recent study from Condé Nast and Goldman Sachs suggests that smaller brands have gained market share in 62% of the top 50 packaged food categories. Unilever’s ice-cream woes at the hands of a nimble rival over the summer are a case in point.
The changing landscape
Technology has transformed the modern company, leading Erik Brynjolfsson, director of the MIT Initiative on the Digital Economy to point out that “More and more important assets in the economy are composed of bits instead of atoms”. Indeed, there is a new breed of company that are light on physical assets but heavy on data assets — Airbnb, Facebook and Netflix are obvious examples. These have all changed the terms of competition in their respective industries. But this is not limited to these types of ‘digital’ companies; it is estimated that some 70% of the value of a modern company is now derived from intangible assets.
So, scratch the surface of any market category and you see the way in which technology is fundamentally changing the dynamics. Want to buy a new pair of jeans? Try the Digital Denim Doctor which uses an airport style scanner to find you the perfect fit. Want to make sure you have white teeth? Oral-B Smart Series toothbrush connects your mobile phone to your toothbrush to ensure you optimise your brushing technique. Want a coffee? Nespresso’s capsule system offers promises freshly brewed coffee on a subscription basis.
In addition to technology creating new business models, we are also seeing it creating new channels to market, as consumers increasingly shop online rather than in-store. This creates a fundamentally different set of challenges for consumer goods brands as the buyer dynamics are very different. Consumers are more easily able to compare features and prices but also read reviews and gauge popularity of products. This means that smaller brands are able to get to market and reach critical mass much more quickly. Indeed, the different dynamics mean that the best-selling brands on Amazon are frequently not the leading brands in bricks and mortar. This helps explain a 2016 report which suggested that the best-selling Grocery and Beauty brand on Amazon was often not the brand that dominates that category offline. The buying dynamics are starting to look fundamentally different and with Amazon grocery sales consistently rising at 30%, this should ring serious alarm bells.
What is driving the rise in challenger brands?
As we have seen, digital is offering challenger brands’ lower barrier to entry. But, to return to the central provocation of this article, this may not be the whole story. The rise of challenger brands may in fact have their roots much further back and if we want to understand why they are starting to have success now, we need to take Will Davies’ thesis and look at the historical position of CPG brands.
In the distant past consumers’ access to food was variable and subject to price variation, quality and safety issues. It was also hard to know what you would get at what price. CPG brands on the other hand offered some form a guarantee and reassurance – in the same way we see is the case today in many developing markets.
The rise of CPG brands reflected an emerging consensus from economics – people wanted to maximise what they could get, for the money they spent. We seek to accumulate and consume in the most effective way possible. Why would we not want to have food delivered cheaply, efficiently and above all safely? As more of our shopping activity went through CPG brands then a mathematical model of human behaviour seemed to work well in many ways. If prices go up then we can see, pretty mathematically, the way in which demand goes down. Or if advertising increased then we can see the way this generates sales.
The apparently straightforward relationships between the market levers and consumer behaviour spawned a mathematical / economics (econ) relationship with the consumer. Few embody this more than Byron Sharp. He considers there are ‘laws’ that could be numerated from sales data concerning the underlying predictability of humans. Although he never makes it explicit, the model of human behaviour he uses is drawn from Behaviourism. He essentially makes the case that advertising creates associations (mental availability) – and the distinctive cues (stimulus) will generate positive outcomes (response).
Of course, there is a certain truth to this. It can be used to explain many different consumer behaviours. But it has also had come unintended consequences as there is a case to be made it encouraged an econ-style relationship with the consumer. A mathematical model of consumer understanding offers nothing when it comes to peoples’ experiences of life and their need for purpose and meaning. Econ thinking has little to say about many aspects of life – who they love, what they eat, how they party, care for their children, instead focusing on the assumption that people simply want to maximise as much as possible
Of course, brands often make appeals to emotion and lifestyle. But this approach has increasingly been eroded as the notion of humans as econ-machines has gained momentum, that all is needed to achieve habitual usage is to ensure people are exposed to advertising messages in the right place at the right time to ‘condition’ them into purchase behaviour. Although this is rarely made explicit, it infers that Behaviourist techniques of stimulus and response are alive and well, albeit operating under a more contemporary gloss.
If brands use the ‘economics’ model, which effectively considers humans to be the equivalent of lab rats, albeit sophisticated ones, then a wide range of ways in which brands can build a sense of trust and a deeper ‘human’ relationship are given less investment. Consumers are treated as ‘objects’ rather than ‘subjects’, as things that operate according to a set of laws and principles rather than people with feelings and a need for meaning.
Moving back to Will Davies thesis, there is a sense that large CPG brands have long had huge power in our lives. They have often often been positioned as the source of progress in the world – and in the process aligned themselves with other bodies that represent us – such as governments. This is not necessarily a bad thing as brands can and often are a force for good. The problem here is that for many people who feel alienated by the lack of economic and political dividend, resentment has grown against power and authority. Populist movements have channelled this resentment. It is perhaps no surprise than when riots happen, not only are governments that are the focal point for resentment but the retail outlets of big high street brands also fall victim.
In a world where people have poor self-esteem due to their circumstances and ‘being forgotten’, one of the main things they want to do is take control. We see this in the UK’s Brexit travails, and we can see it in consumer markets. In these circumstances there is no point trying to have a rational conversation – facts have lost their power.
A brand may be correct in an assertion that a low-price challenger is actually poorer value with less ethically sourced and lower quality ingredients, but facts have too often become tainted with their use to support a particular interest. As brands have sought to promote agendas through think tanks and PR companies, facts have become politicised. Instead of facts, as Davies points out, consumers are now looking to emotion as their means of navigation and source of information.
Arguably it is the same sense of resentment that is feeding the rise of challenger brands. The language of disruption is one which appeals to the resentful consumer who is looking for a way to puncture vested interests.
Small brands understand the power of emotional messaging. Look at Dollar Shave Club who talk about their brands being “fucking great”. Or beer brand Brew Dog who also use “swear-friendly” marketing techniques. Or Fuse Tea which has an emotional and engaging authentic backstory.
Pricing is also an emotive issue and challenger brands can often come into the market with lower prices than the established brands. Of course, what is less apparent to consumers is that these brands are awash with VC money (chasing unicorns) that means they can enter the market at low prices. Big brands have not helped themselves by using their economics model to calculate how to maximise, for example, the price of razor blades. The optics do not look good.
These challenger brands are also hugely digitally savvy so it can be hard to see how they are operating. Different messages, services and prices will effectively be offered to different people as a result of personalised advertising, making it difficult for established brands to understand the competition.
Against this backdrop it is easy for small brands to make big inroads. As Davies points out, resentment is a hugely powerful emotion that has inspired armies and revolutions, let alone switching razor blades. And digital offers an agile way to provoke, harness and channel this emotion.
What can big brands do about it?
The difficulty is, like governments and other previously trusted sources, they are somewhat boxed in. There is no point appealing to facts as messages will appear inauthentic. Should there be appeals to emotion? Perhaps but the challenge here is that having been an econ for years, will consumers really trust the messenger? Basic psychology suggests not.
This is a difficult one for brands to advertise themselves out of. What Davies suggests for governments probably also applies to brands. What is really needed is for brands to make and keep very genuine promises to consumers that reflect the meaning and purpose that people are looking for in their lives. Basic drivers for humans, once their immediate needs are meet is ‘meaning’ – we want to be engaged in something we love that has value above and beyond our own lives. If brands can find a way to fundamentally commit themselves to do just this as a first step, then people will perhaps start to relate to the brand in a different way.
And there is some evidence for this. We can see the success that Unilever has had when they recently revealed their fourth consecutive year of growth for its ‘sustainable living’ brands, which delivered 70 percent of its turnover growth and grew 46 percent faster than the rest of the business.
Done well, these sorts of strategies mean that the brand can move from something that is merely setting out to maximise their profits at the consumers’ expense to something that brings some humanity into their lives – that helps them to achieve purpose and meaning by engaging with it.