In this day and age, we hear more and more about the importance of innovation and how consumers are seeking variety in their daily purchases. With these new trends all around, it is tempting to go down the variety lane with your brand as well.
However, as a recent paper by The Ehrenberg Bas Institute for Marketing Science & the University of South Australia shows, there are a few things to keep in mind before going down that lane.
Why do brands innovate?
Innovation along with marketing and building distribution have been highlighted as key pillars for brand growth and survival. Many of the innovation projects share the same ultimate goal – innovate in order to attract new consumers to the brand. As described in the book ‘How brands grow’ by Byron Sharp, the key to brand growth is winning new users, i.e. gaining in penetration.
For a simple example: consider a cereal brand that only produces cereal bars with fruits and nuts but recently discovered they are missing out on part of the market – consumers who consume wholegrain cereal bars with exotic fruit flavors. So, the brand sets out on an innovation project to bring wholegrain cereal bar with exotic fruit flavors to the market, to win new consumers for the brand. But how important is the new product innovation and what role is left for the core product, in this game where the budgets are often limited and trade-offs have to be made?
How important is the big head?
The article Portfolios: Patterns in brand penetration, market share, and hero product analyzes data sets consisting of 13,681 brands and 92,877 SKUs across 15 product categories (FMCG) in the UK and US over several years. By analyzing the contribution of each SKU to total brand penetration and sales, the conclusion is that, regardless of product categories and brand sizes, half of the SKUs a brand offers is responsible for attracting 79% of the brand buyers and 73% of their sales. Further on, zooming in specifically on the big head (top-selling SKU), interesting differences are observed between brands with different portfolio sizes. For brands with 2 to 3 SKUs, the big head (star SKU) brings in on average 6 in 10 buyers and 60% of its sales. For brands with 6-10 SKUs, the star brings in on average 40% of the brand penetration and 34% of the sales. Even for brands with 11 or more SKUs, the big head is expected to bring close to 3 in 10 buyers and 20% of the total sales.
What are the implications of the above? First of all, this analysis confirms the importance of the big head in a brand’s portfolio. While the figures vary based on portfolio size, on average the big head is expected to bring in about half of the brand buyers and 40% of the sales, while the remaining SKUs in the portfolio contribute buyers and sales at a diminishing rate.
Meaning that, while product innovation is important, it should not come at the cost of the core product. Ensuring physical availability (distribution & visibility in the outlet) and building mental availability for the big head is still highly important and should not be jeopardized in the name of new product innovation.
To ensure that innovation projects do not come at the cost of the big head, having a continuous brand tracker in place is key for every brand. By tracking mental availability and perceived physical availability of all SKUs, you can keep your finger on the pulse. E.g. in periods when the new SKU launch is prepared or executed, you can closely monitor the changes in the KPIs for the big head, to make sure you do not jeopardize its position. Brand tracking also helps you assess how successful the launch of the new SKU is – what level of awareness the new SKU has achieved. Further on, with an ongoing brand tracker, you can potentially also analyze the unique penetration that each SKU brings to the brand, which will give valuable insights for your brand’s future portfolio management.
As a conclusion, while innovation is core to keep growing as a brand, it is important to keep an eye on and protect your star SKU or big head while doing so.
For brands following penetration thinking, the tracking of distinctive assets is a core part of their brand performance measurement. This is also what we do for brands like Jacobs Douwe Egberts and Mastercard, where we track the performance of their key identity elements against competing brands. With our Implicit Measurement tool we’re able to identify the extent to which brand attributes (logos, colors, tag lines and sound bites) are distinctive and associated strongly and uniquely with brands. Find out more on this research technique on our How to sharpen your brand bookzine