the lifecycle of brands: and retailers cycle of cpg... ·...

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DEBORAH WEINSWIG, EXECUTIVE DIRECTOR–HEAD OF GLOBAL RETAIL & TECHNOLOGY [email protected] US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 Copyright © 2015 The Fung Group. All rights reserved.

December 2015

THE LIFECYCLE OF BRANDS:

CONSUMER GOODS AND RETAILERS

D E B O R A H W E I N S W I G E x e c u t i v e D i r e c t o r –

H e a d o f G l o b a l R e t a i l & T e c h n o l o g y F u n g B u s i n e s s I n t e l l i g e n c e C e n t r e

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H K : 8 5 2 . 6 1 1 9 . 1 7 7 9 C H N : 8 6 . 1 8 6 . 1 4 2 0 . 3 0 1 6

• The average year of founding for the world’s 100 most valuable brands was 1937, with century-‐old consumer-‐goods brands remaining among the most valuable brands in the world.

• The most successful brand owners bolster the value of their brands through extensions and advertising.

• Consumer-‐goods brands may offer some lessons to retailers, even though there are big differences.

• Retailers too often do not undertake the same kind of brand-‐building communications that we see from product brand owners.

• Retailers could raise the value of their brands by shifting the focus of their advertising more toward brand building rather than price promotions and discounts.

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December 2015

THE LIFECYCLE OF BRANDS: C O N SU M E R G O OD S A N D R E TA I L E R S

Brand equity is the most valuable asset that many companies own. This is especially true in light consumer goods, where success is based more on branding and marketing and less on technical innovation. For categories such as household products, beauty and personal care, and food and beverages, imagery takes precedence over innovation—and the most important intellectual properties are trademarks, not patents.

This brief report looks at the lifecycle of brands and how brand owners can and do extend those lifecycles, keeping even century-‐old brands among the most valuable and most sold in the world. We then turn to retailers, assessing commonalities and differences among their brands, and considering whether retailers can learn lessons on brand cultivation from consumer goods firms. At the end of the report, we include a list of the most valuable global brands in 2015, along with the year each was established and the sector it belongs to.

The Standard Lifecycle Model The standard “business school” model of the product and brand lifecycle implies an inevitable or near-‐inevitable stagnation and then decline once a brand reaches a stage of maturity. This model suggests that it is a matter of when, not if, an established brand begins declining.

The stages in this model are:

• Introduction: product sales are low and growth is slow.

• Growth: sales rise quickly as awareness grows and the brand is built.

• Maturity: the market is well served by the brand and its competitors. Companies aim to win sales from each other and maintain customer loyalty.

• Decline: companies cut costs to retain loyal customers; focus on best-‐selling products.

This model can be a useful reminder that managers need to invest in brand cultivation in order to stave off the very decline it forecasts (although it is far from applicable to all brands and industries). Companies that focus on renewal through investment in brand rejuvenation can sustain growth for even their long-‐established brands in potentially saturated markets. This possibility is suggested by the dashed line in the figure below.

For categories such as household products, beauty and personal care, and food and beverages, imagery takes precedence over innovation—and the most important intellectual properties are trademarks, not patents.

Companies that focus on renewal through investment in brand rejuvenation can sustain growth for even their long-‐established brands in potentially saturated markets.

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Figure 1. Brand/Product Lifecycle Model

Source: Businesscasestudies.co.uk/FBIC Global Retail & Technology

Brands Can Thrive

Defying the lifecycle model are dozens of older brands that continue to rank among the world’s most valued corporate names. Each year, consultancy Brand Finance publishes its Global 500 ranking of the most valuable brands, and each year we see century-‐old brands maintain their prominence. Our analysis of the 2015 Global 500 suggests that the average year of founding for the world’s 100 most valuable brands was 1937. Here are some of our other insights regarding the top 100 brands in the list:

• Finance and professional service brands, many of which focus largely or entirely on the business-‐to-‐business segment, are among the oldest brands in Brand Finance’s top 100. These include American Express, Wells Fargo, Santander, Generali, Royal Bank of Canada, HSBC, Barclays, Deloitte and PwC.

• Light consumer goods brands tend to be less established, reflecting the “second industrial revolution” in manufacturing and the evolution of trademark protection in the later 19th century. The longest-‐established consumer goods brands in the top 100 are Nestlé (brand founded in 1867), Coca-‐Cola (1886), L’Oréal (1909) and Marlboro (1924).

• The retailers in the top 100 list tend to have been founded more recently, reflecting the greater degree of fragmentation in retail than in the product categories sold by retailers. Walgreens (founded in 1901), IKEA (1943), Lowe’s (1946), H&M (1947), Walmart (1962), Target (1962) and ALDI (1962) are the top retail brands, according to Brand Finance’s 2015 ranking.

Here, we focus on consumer products, and explore two key questions: How have long-‐lived, major consumer goods brands thrived? And can retailers learn lessons from these product brands?

Brand Lifecycle Model

Alternalve Outcome

Time

Decline

Maturity

Growth

Introduclon

Renewal

Our analysis of the 2015 Global 500 suggests that the average year of founding for the world’s 100 most valuable brands was 1937.

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December 2015

What Are the Secrets of Longevity?

Branding and marketing are crucial to success in the light consumer goods categories, so we focus in particular on these. Below, we identify two core activities pursued by successful, long-‐lived light consumer goods firms such as Nestlé and Coca-‐Cola: brand extension and advertising.

Brand Extension

The most successful brand owners are able to continually extend an established brand into new products. This can serve multiple purposes, including:

• Targeting of more specific consumer segments, e.g., different demographics.

• Responding to changing needs, e.g., diet versions of a product or more natural products.

• Leveraging existing brand equity to tap high-‐growth segments or categories.

• Increasing the overall potential market in which the brand competes by moving into adjacent categories.

In Coca-‐Cola’s case, this strategy included developing and launching Diet Coke (which has zero calories) in 1982, Coke Zero (zero calories, tastes like regular Coke, masculine positioning) in 2005, and Coca-‐Cola Life (with natural sweeteners) in 2013. These brand extensions have allowed Coca-‐Cola to respond to consumers’ changing needs and their developing awareness of health and nutrition issues.

Source: Coca-‐Cola.co.uk

In Nestlé’s case, brand extension has been part of corporate strategy from the early days, with the company expanding from its wheat-‐and-‐milk-‐based Farine Lactee baby food (Henri Nestlé’s original product) through product development: the company launched condensed milk in 1877, followed by milk chocolate in 1904 and instant coffee in 1938.

New product development is not the only route to diversifying a brand’s presence, though. Acquisitions provide opportunities to extend an existing brand, too. Nestlé, for instance, bolstered its presence in chocolate through its acquisition of Rowntree Mackintosh in 1998, subsequently rebranding

The most successful brand owners are able to continually extend an established brand into new products.

New product development is not the only route to diversifying a brand’s presence, though. Acquisitions provide opportunities to extend an existing brand, too.

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December 2015

most products with the Nestlé umbrella brand. Joint ventures are another path to extending a brand: Nestlé moved into the breakfast cereals category in 1991 through a joint venture with General Mills.

Such extensions mean a brand can thrive long after demand for its original product—such as baby food, in the case of Nestlé—has dwindled.

Unilever’s Dove provides another case study of a brand increasing its relevancy and widening the market in which it competes through brand extension. First launched in the US as a cleansing bar in 1957, according to Unilever (other sources say 1955), in recent decades, Dove has ballooned to encompass body washes, moisturizers, self-‐tanners, deodorants, shampoos and a dedicated line of men’s toiletries under the Dove Men+Care brand.

This strategy has allowed Unilever to turn Dove from a single-‐product brand into an umbrella superbrand that transposes brand equity from one category to another.

Advertising

Advertising is the second key to brand longevity. Along with marketing communications more generally, advertising has the ability to keep a brand “forever young.” It is perhaps a restatement of the obvious, but investment in advertising is crucial to maintaining momentum for consumer goods brands. This is all the more important for those brands that do not have the option of rejuvenating themselves through product reformulation or improvement (food and beverage names such as Coca-‐Cola fall into this group).

When we consider a list of the world’s biggest advertisers, we see two trends:

• Small-‐ticket consumer goods brands, such as food and beverage and fast-‐moving consumer goods brands, are very prominent.

• The top tier of advertisers is dominated by long-‐established firms.

Such extensions mean a brand can thrive long after demand for its original product has dwindled.

Along with marketing communications more generally, advertising has the ability to keep a brand “forever young.”

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December 2015

Figure 2. Largest Global Advertisers (and Year They Were Founded), as Measured by Ad Spending: 2013 (US$ Bil.)

Source: Advertising Age/Nielsen/Kantar Media/Statista/company websites/FBIC Global Retail & Technology

Can Retailers Learn Anything from Consumer Goods Brands?

Lessons from brands cannot be translated directly to all retailers—or at least not all lessons to all retailers. This is because the links and commonalities between product brands and retail brands can be complex:

• Big product brands are much more global than the largest retail brands. Retail tends to be more highly fragmented along national lines.

• Retailers can gain from advertising by product brands when they are one of a limited number of distributors or are monobrand retailers.

• Brands can also be retailers, such as in the case of Apple.

In the core brand-‐building elements that we identified, there are commonalities, too. Retailers, like brands, extend their name. Retail brands are extended horizontally, through the opening of spin-‐off retail chains (such as off-‐price variants) or store formats (such as smaller store formats), and through the acquisition of existing chains. But retailers also extend their brands vertically, through the building of their own-‐brand ranges. Supermarket retailers, for instance, have become experts in building their brands through tiered offerings of good/better/best ranges, all under their own banner.

Retailers also advertise very heavily. According to Kantar Media/Statista, retail was, in aggregate, the biggest spender on advertising in the US in 2014. Retailers spent almost US$16 billion on advertising in the US last year, well ahead of the total for categories such as personal care products and food.

A big difference, we conclude, is that while the biggest brands typically advertise to build value in their products, the largest retailers often advertise in order to promote discounts or sale periods. Retailers—from

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2.9

2.9

3.1

3.2

3.4

3.4

5.9

7.9

11.5

0 2 4 6 8 10 12

PepsiCo (1898)

Mars Inc. (1911)

Coca-‐Cola (1886)

Nestlé (1866)

Volkswagen (1936)

General Motors (1908)

Toyota Motors (1924)

L'Oréal (1909)

Unilever (1872)

Procter & Gamble (1837)

*We have used the earliest year in which the company, or its predecessors, can be said to have begun operating. In some cases, this differs from the date a particular brand was established.

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December 2015

grocery to apparel to electronics specialists—too often do not undertake the same kind of brand-‐building communications that we see from product brand owners.

From a brand-‐value perspective, this kind of price-‐focused positioning can ultimately be destructive: it stands in contrast to the investment in brands represented by brand-‐building advertising.

Figure 3. Brand-‐Building Elements: Brands vs. Retailers

Key Takeaways

Mature brands are likely to see slower sales growth as markets reach or come closer to saturation, but there is no certainty that they will decline and then die. Some of the world’s top consumer goods brands have long lives and, notably, are owned by firms that invest very heavily in advertising. Extending brands is another means of rejuvenating them by increasing their relevance and targeting specific segments.

There may be some lessons for retailers in the building of consumer goods brands, although differences must be recognized: shoppers buy global brands, but they often buy them in different ways in different countries—and from different retailers.

Retailers already extend their brands and invest heavily in advertising. A key distinction between the biggest brands and the biggest retailers is the former’s willingness to invest in brand-‐building advertising. Retailers tend to advertise price promotions and discounts more than brands do. This leads us to conclude that retailers could raise the value of their brands—and, in turn, boost shoppers’ willingness to spend more on them (and pay full price)—if they shifted the focus of their advertising more toward brand building.

Brands

Build brand value through adverlsing

Extend brands organically into adjacent categories

Extend brands through acquisilons or joint ventures

Retailers

Focus adverlsing on discounts and promolons

Extend brands horizontally, into different formats or channels

Extend brands verlcally, by developing own-‐brand ranges

Retailers—from grocery to apparel to electronics specialists—too often do not undertake the same kind of brand-‐building communications that we see from product brand owners.

Retailers could raise the value of their brands—and, in turn, boost shoppers’ willingness to spend more on them, if they shifted the focus of their advertising more toward brand building.

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December 2015

Appendix: The Top 100 Brands in 2015 and Date of Founding Brand Date Founded* Sector

1 Apple 1976 Technology 2 Samsung 1938 Conglomerate 3 Google 1998 Technology 4 Microsoft 1975 Technology 5 Verizon 2000 Telecoms 6 AT&T 1983 Telecoms 7 Amazon.com 1994 Technology 8 General Electric 1892 Technology 9 China Mobile 1997 Telecoms 10 Walmart 1962 Retail 11 Coca-‐Cola 1886 Beverages 12 IBM 1911 IT Services 13 Toyota 1924 Automobiles 14 Wells Fargo 1852 Banks 15 BMW 1916 Automobiles 16 T (Deutsche Telekom in Germany) 1996 Telecoms 17 Volkswagen 1936 Automobiles 18 Shell 1907 Oil & Gas 19 Walt Disney 1923 Media 20 ICBC 1984 Banks 21 Mercedes-‐Benz 1926 Automobiles 22 Vodafone 1991 Telecoms 23 HSBC 1865 Banks 24 China Construction Bank 1954 Banks 25 Citi 1976 Banks 26 Bank of America 1928 Banks 27 Intel 1968 Technology 28 Chase Bank 1877 Banks 29 Home Depot 1978 Retail 30 Facebook 2004 Technology 31 Nike 1964 Apparel 32 Cisco 1984 Telecoms 33 Oracle 1977 IT Services 34 Agricultural Bank of China 1979 Banks 35 Mitsubishi 1870 Conglomerate 36 Honda 1948 Automobiles 37 McDonald’s 1955 Restaurants 38 American Express 1850 Credit Cards 39 Pepsi 1898 Beverages 40 Nestlé 1867 Food 41 Allianz 1890 Insurance 42 Siemens 1847 Technology 43 Bank of China 1912 Banks 44 Ford 1903 Automobiles 45 CVS Caremark 1963 Retail 46 Orange 1993 Telecoms 47 UPS 1907 Logistics 48 AXA 1982 Insurance 49 Hyundai 1967 Conglomerate 50 Santander 1857 Banks 51 IKEA 1943 Retail 52 ExxonMobil 1920 Oil & Gas 53 Chevron 1930s Oil & Gas 54 Nissan 1933 Automobiles 55 HP 1939 Technology

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December 2015

Brand Date Founded* Sector

56 Mitsui & Co. 1959 Conglomerate 57 PetroChina 1999 Oil & Gas 58 Comcast 1969 Media 59 PwC 1849 Accounting 60 BT 1981 Telecoms 61 Walgreens 1901 Retail 62 Sinopec 2000 Oil & Gas 63 SoftBank 1981 Telecoms 64 Target 1962 Retail 65 Tata 1868 Conglomerate 66 Total 1954 Oil & Gas 67 Boeing 1916 Aerospace & Defense 68 BNP Paribas 1872 Banks 69 BP 1909 Oil & Gas 70 NTT 1952 Telecoms 71 H&M 1947 Retail 72 Deloitte 1845 Accounting 73 MUFG 1880 Banks 74 Fox 1935 Media 75 Sam’s Club 1983 Retail 76 GDF Suez 1858 Utilities 77 ALDI 1962 Retail 78 Barclays 1736 Banks 79 eBay 1995 Technology 80 China Telecom 2002 Telecoms 81 China Unicom 1994 Telecoms 82 FedEx 1971 Logistics 83 ING 1991 Financial Services 84 Baidu 2000 Technology 85 Marlboro 1924 Tobacco 86 Generali 1831 Insurance 87 Lowe’s 1946 Retail 88 Airbus 1969 Aerospace & Defense 89 au Telecoms (Japan) 2000 Telecoms 90 NTT DoCoMo 1991 Telecoms 91 Hitachi 1910 Conglomerate 92 L’Oréal 1909 Conglomerate 93 Royal Bank of Canada 1901 Banks 94 Bradesco 1943 Banks 95 KPMG 1987 Accounting 96 Subway 1965 Restaurants 97 3M 1902 Technology 98 LG 1995 Conglomerate 99 NBC 1926 Media

100 J.P. Morgan 1871 Banks

*We have used the date when the current brand name, or a close approximation or a substantial part of the brand name, is considered to have been established. In some cases, this differs from the date that the company was founded or incorporated. Source: Brand Finance Global 500 2015/company websites/FBIC Global Retail & Technology

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December 2015

Deborah Weinswig, CPA Executive Director—Head of Global Retail & Technology Fung Business Intelligence Centre New York: 917.655.6790 Hong Kong: +852 6119 1779 [email protected] Filippo Battaini [email protected]

Marie Driscoll, CFA [email protected]

John Harmon, CFA [email protected]

Aragorn Ho [email protected]

John Mercer [email protected]

Shoshana Pollack [email protected]

Kiril Popov [email protected]

Jing Wang [email protected]

Steven Winnick [email protected]

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