A Game of Inches
Consumer goods companies in the U.S. and Europe are finding post-recession growth difficult. Many consumer markets are mature and saturated. In addition, recent research from McKinsey's Consumer Practice found that more than 65 percent of consumers who switched to private-label or less-expensive branded goods during the recession no longer prefer the more expensive brand.
So where can business leaders turn to find new growth opportunities? Classic segmentations no longer do the trick because they either oversimplify or overlook consumer and shopper behaviors. And with many businesses working off the same basic playbook, companies find it difficult, if not impossible, to differentiate products and promotions. Introducing new brands and line extensions is no guarantee of success. In the Netherlands last year alone, for example, beverage companies introduced more than 125 new soft drink products or extensions, while the total category grew by only 2 percent.
In such a tight field, every sale matters. To win, consumer companies need to adapt to changing markets by digging more deeply into their data to uncover the rich pockets of growth that standard broad calculations often overlook. This will provide a better understanding of consumer needs, attitudes, and usage at a more granular, real-time level.
Those insights are necessary for companies develop a "market map" that identifies opportunities defined by three important elements: where to compete, how to win, and what winning is worth.
We have found that companies that adopted this approach have, on average, achieved 41 percent compound annual growth rates from 2010-13, outperformed overall growth rates in their respective categories by approximately 37 percentage points, and increased category share by 55 percent.
Using market maps to find out where to compete
Where to compete may seem obvious, but companies often take a myopic view of their markets, based on historical data–i.e., settling on areas where they've always competed–and an overly narrow perspective of potential customers. Building a market map helps companies identify a much broader set of underserved market segments by taking a closer look at when, where, why and how consumers purchase and use specific products, then grouping brands into competitive sets based on those drivers of behavior.
For example, a European consumer goods company faced decreasing market share in declining categories for its portfolio of dairy beverages. Analyzing consumer behaviors and purchase drivers helped the company divide its market into 20 micro-segments, such as "healthy and filling for breakfast" and "tasty and portable with lunch."
The mapping exercise led to a number of surprising insights, the most important of which was that the company had no presence in almost two-thirds of the attainable marketplace. This insight helped the company to adjust its strategy and develop new products to profitably address those gaps, moves that the company projected would grow revenues by 8 to 14 percent over three to five years.
Focusing actions to win
By dividing the overall market space into narrower segments, companies can map out the actions that will drive success in these spaces. Aligning consumer activities and behaviors with specific actions–for example, focusing a brand's marketing activities on lunchtime activities, targeting young professionals, or addressing feelings of exclusivity–will help the business identify the right levers to pull to capture opportunities in each micro-segment.
These actions can take several forms, including a new product launch, brand extension or repositioning campaign. For example, a consumer medical company discovered that consumers were generally indifferent to the various, easier-to-swallow forms of common medicines (capsule, caplets and liquid gels). The company adjusted the mix of products in its brand portfolio, which resulted in a 4 percent gain in revenue and a nearly 7 percent increase in ROI for its retail customers.
What winning is worth
Quantifying the potential value of proposed actions will help business leaders prioritize investments in existing brands, new innovations, and potential acquisitions based on short- or long-term growth potential.
Using this approach can deliver impressive growth. A maker of breakfast products used market maps to identify a number of potential innovation opportunities, prioritized by revenue potential. It doubled ad spending on its core brand, introduced new "snack size" options to extend the brand's reach, and replicated the core brand's key advantage–its positioning as a meal for people on the go–across other products. The positioning changes sharpened the brand's perceived benefit among key consumer targets and led to new product launches. All of these moves increased the breakfast brand's sales by 8 percent within one year.
As consumer goods companies face increasing pressure to find pockets of growth, they're discovering that classic segmentation methods are no longer sufficient. Squeezing more granular insights from their data–and taking action on those insights–will lead to both incremental and long-term growth.