Emerging markets have been strongholds for big consumer-packaged-goods brands like Colgate, Avon, Axe, and Olay, which are backed by large, incumbent companies. But these global consumer power brands are losing ground to smaller brands in Indonesia, India, China, and Brazil. To respond effectively, the incumbents will need to consider their inherent strengths in a new light. They will need to cultivate different portfolios, adjust their expectations about brand failure rates, and put ideas back at the center of their business.
Big global brands in the $1.2 trillion consumer-packaged-goods industry are facing a competitive wake-up call in some unlikely places: China, Indonesia, India, and Brazil. Executives of well-established companies in this space know that the alarm bell has been ringing for some time as they lose ground to smaller, more local brands — but responding effectively has proven difficult.
Emerging markets have been strongholds for big consumer-packaged-goods (CPG) brands like Colgate, Avon, Axe, and Olay, which are backed by large, incumbent companies. In China, Indonesia, and India, this market has been growing at about 9% per year over the past 10 years; Brazil has seen about 3% annual growth. But big “power brands” have been losing market share to smaller rivals. In China and Indonesia, their negative trajectory is getting worse. According to Accenture research, in the past 10 years, the top three big consumer goods brands have lost more than 5% of their share in three of those four markets. These are markets that, in addition to double digital CPG growth, have bourgeoning middle classes, fragmented mass media, and often have complex “last mile” delivery of products due to complex infrastructure. Plus, many aspiring consumers in these markets are often buying a brand for the first time, according to our research.
In these markets, small brands have power. Consider that in 2017, 75% of the top 3 brands in the categories and countries we considered were small, new, or local brands. Brands like Vini deodorant in India or Chando facial care in China have entered the top 10 of those markets within five years of launching. Large consumer brands need to better understand what’s behind this growth to more effectively compete.
Small consumer brands are better built to create hyper-targeted products and distribute them locally. Global supply chains, built to make and move large volumes of more broadly attractive products, are inflexible by comparison. Small companies are casting narrow research nets, and gaining real-time, direct insight into (and feedback from) niche consumer groups. They quickly use this unfiltered information to develop and refine hyper-relevant products. Big R&D processes, built to assess mass need, are cumbersome by comparison.
And smaller companies are using social media and consumer engagement on the ground to great effect. They don’t need the “stamp of quality” that comes with the backing of a long-established global company; consumers themselves are building brand trust in real time with their reviews, creating a new competitive arena in which smaller offerings can flourish through word of mouth.
Take Wardah, a small-but-growing women’s cosmetics brand in Indonesia. Wardah took hold by being better at finding a consumer segment, and at engaging with consumers within that segment. Wardah is not only meeting a need among Muslim women for make-up and skin care products that are tailored to the local consumer’s skin type, but these products also meet halal standards, which is an important factor for this consumer segment. Wardah communicates the unique positioning of its product through its packaging as well as directly at Islamic colleges and at traditional beauty stores. Beauty Advisors educate women on how to use Wardah’s products and explain how the product is formulated using halal methods, keeping in mind their religious values.
At its start, Wardah had far less to invest in marketing than its big-brand competition, so it took a direct and personal route. In the past five years, Wardah has more than doubled its market share in the personal care category in Indonesia. Large, global companies have long been aware of consumers’ desires for halal products; ignorance hasn’t been their stumbling block. The problem has been global brand-focused business models that don’t allow them to serve this consumer segment in ways that meet their needs.
To compete in this new environment, big brands need to become more pliable, and develop an ability to build more personal and trusting relationships with smaller groups of consumers. They need to be what we call “living businesses” — intelligent enterprises that use data to deeply understand, anticipate, and adapt to smaller segments of consumer needs, and to evolve as consumer needs evolve.
Our research and client work suggest three distinct ways in which large, long-established companies can better compete with small, highly focused brands.
1) Include smaller, local brands in your product mix and accept the increased complexity that comes with them.
Although large incumbents owe their scale to big brands, to win in the future they will need to build hybrid portfolios that include small, focused, local brands alongside their big global brands. Importantly, while these brands might remain smaller than their bigger siblings, current trends suggest that they will ultimately contribute significantly to a company’s overall growth. Companies need to be ready to embrace the operational complexity that comes with having wider, more diverse product offerings.
To support their newly complex portfolio, big incumbents need to put global assets at the service of small, local brands. Most big companies have worked hard to standardize business models and create simplified operating structures to leverage economies of scale across a wealth of ‘core’ assets i.e. product development, manufacturing expertise, distribution reach, consumer insights, talent and suppliers. One way to do this is through a modular approach—mixing and matching assets as needed to serve a new brand.
Examples of this strategy can be seen from Coca-Cola and Unilever – Coke for its Zico coconut water brand, sold in India, and Unilever for its Hijab Fresh moisturizer. When these products were launched, Unilever and Coca-Cola brought global distribution strength and R&D to these markets to launch these brands quickly, leveraging localized consumer insight. This kind of dexterity will be necessary to compete in the future.
2) Adjust expectations about brand lifecycles and failure.
“Build brand equity for the long term” has been a mantra for large global companies and rightly so. With huge up-front investments, these organizations have developed brands that have lasted decades and continue to be relevant. However, such an orientation also leads to extensive research, obsessive testing, long innovation cycles, and huge investments to build awareness and distribution. It leads to product launch processes that take 18 -24 months. And it breeds a culture of risk avoidance, to the extent that some big companies haven’t launched a new brand in years.
Contrast this with small, local companies that get to market faster, correct their mix as they get real consumer feedback, and invest in line with the revenues they generate. Patanjali, a local consumer goods company in India, offers an example. Patanjali’s Dant Kanti toothpaste brand held 1% of the market share across India in 2011, and grew to about 13% in 2017. This was in a category that has long been dominated by Colgate, which had carefully built a dominant position over the last 80 years with few challengers. Yet Patanjali has made dramatic inroads in just five years, with very limited investment. Initially, Patanjali’s marketing efforts consisted of participating in Yoga camps, and it sold its products only through its own retail outlets. In doing so, it was also gaining timely, hyper-focused consumer feedback, which it used to shape its portfolio and grow its business.
To compete against small upstarts, big companies must accommodate a more experimental operation that tolerates more moving parts, and moves smaller brands out into the market more quickly. In doing so, brand failure rates will rise. They must also align their expectations for what small brands can deliver. Hyper-targeted, highly relevant brands could “peak” at just a few percentage points of market share. They can still be profitable, and they have to be willing to do so in a shorter bursts with more flexibility.
3) Put ideas at the center again.
Big brands need to get closer to local consumers and empower teams on the ground to generate new ideas. They can utilize their scale by leveraging their access to data in service of those ideas and facilitating rapid testing, just as they once built an advantage with global supply chains in service of getting big brands to consumers.
Sometimes this happens through M&A — we have seen a spate of examples where big companies acquire small companies, their brands, and their talent in recent years, such as Unilever acquiring Dollar Shave Club and J&J acquiring OGX. Acquiring small brands, however, is just one alternative for large companies. Encouraging a flow of new ideas internally through relevant external partnerships is still critical for these companies to succeed.
The good news for incumbent, global companies is that they can still flourish in a landscape that increasingly favors small, focused, local brands if they are willing to be nimble and engaged with their customers. The winners will be those that make those changes with speed and conviction.
The authors would like to thank Regina Maruca and Harini Mohan of Accenture Research for their contributions to this article.
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