Professional Documents
Culture Documents
MM May/June 2004 ❘ 35
EXECUTIVE Research shows that smaller brands owned by bigger companies deliver significantly less
growth than independent smaller brands. Part of the problem is that smaller brands need to
briefing challenge the “rules of the game” in their category and develop radical new offerings based on
a different view of their market. Big corporations tend to be more averse to risk, so it’s often hard for a smaller brand to
challenge the very principles that drive the success of the company’s major brands.
While big, leading brands are critical for large food and their categories. Our first example is Stonyfield Farm and its
beverage manufacturers, second-tier brands remain important organic yogurt. The challenger’s vision here was based on a
revenue generators for big companies in the food and bever- general consumer trend that had not been leveraged in
age categories we examined. These smaller brands account for yogurt—the need for organic food. Stonyfield Farm bet that
anywhere between 19% and 45% of big companies’ revenue in consumers would want to eat organic yogurt just like they
our eight categories. So what if these big companies were able demand other types of organic food, and it has been proven
to grow their smaller brands just as well as smaller compa- right with consistently increased market share in its category.
nies? Exhibit 2 on page 38 shows that improving their second- Stonyfield Farm has also found that most organic yogurt buy-
tier brands’ growth performance would significantly improve ers are likely to be women, many of whom may suffer from or
big companies’ overall revenue growth in these categories. fear osteoporosis. So they have developed specific initiatives
Clearly, there is a case for big companies to try and grow their around “strong women” and osteoporosis. One example of
smaller brands more. these initiatives is the Strong Women Summits, the first of
Then what is it that smaller companies are doing with their which was held last summer in California.
second-tier brands? And why is it so hard for big companies to Now you may argue that Stonyfield Farm is an odd exam-
do the same? The simple answer is that smaller companies give ple given that Groupe Danone—a major international dairy
these brands all their attention, while for big companies these player—owns 85% of its stock. But the company started out
second-tier brands often have second priority. But a closer look being independent, and Danone has done little to change the
tells a different story: Successful second-tier brands are often company’s direction since it started buying shares of the
challenger brands—brands that change the rules of the game— company in 2001. CEO Gary Hirshberg remains in charge
and it tends to be easier for smaller companies to challenge and manages the company autonomously from Danone.
established market perceptions. Another example of a challenger brand based on a new
Building a challenger brand begins with a different view of product offering is Carl Buddig and its sliced lunch meats.
your category—a new way of segmenting the market. This
new segmentation will often be based on trends that are hap-
pening outside of the category or on consumer needs that ■ Exhibit 1
have been disregarded by major brands. It will lead the chal- Small companies manage second-tier brands better than big companies
lenger brand to develop an offering that is new, typically in
terms of the product, the positioning, the price, or any combi-
nation of those elements to address an untapped need in the 2002-2003 Retail Sales Growth of Second-Tier Brands* (%)
marketplace. The process is not always deliberate, however,
and many brands may have stumbled on a great idea without Natural Lunch Salad Cold
Cheese Yogurt Meat Beer Juice Dressing Ice Cream Cereal
a formal segmentation analysis. Yet this challenger’s view of
the category is the element that most successful second-tier 14.7
36 ❘ MM May/June 2004
Carl Buddig has successfully challenged the general percep- brand with products using quality, natural ingredients. Paul
tion that healthy food can’t also be tasty food. The idea that Newman built his brand on this combination, donating 100%
many consumers are looking for tasty, low-fat lunch meat in a of his profits after tax to educational and charitable purposes.
wide variety of flavors has been critical to Carl Buddig’s mar- “It started as a joke and got out of control,” as Paul Newman
ket share gains in sliced lunch meats. And Carl Buddig has puts it on his Web site. While donating 100% of profits to phi-
acquired a strong reputation with consumers for providing lanthropy clearly is not a “for-profit” business concept, the
high-quality, tasty lunch meats in a wide variety of flavors. In point is that Paul Newman has built a powerful challenger
the “Buddig Original” line alone, the brand offers nine distinct brand in salad dressings by developing a new positioning in
flavor varieties, and Carl Buddig also offers a premium line of salad dressings, rather than a new product.
95% fat-free meat in six different flavors. Last year, Carl Cheap can be trendy sometimes, as beer brand Pabst Blue
Buddig leveraged the convenience trend that is becoming Ribbon has discovered recently. The cheap beer that tradition-
increasingly popular in lunch meats by launching “Snack- ally has catered to a male, middle-aged, blue-collar East Coast
Buds.” These single-serve lunch meats are sold
in a pack with four individually perforated
pouches and two different varieties are offered
so far.
Newman’s Own salad dressing is an exam-
It tends to be easier
ple of a challenger brand developed around a
new positioning. Newman’s brand is based on
for smaller companies to
a combination of observations: People like
celebrities, like to participate in philanthropic challenge established
projects (especially if they can get some benefit
out of it as well), and like a quirky, fun food market perceptions.
audience is now hip with young trendsetting members of the
skateboarding and mountain biking countercultures. This is
an interesting example of how an old brand that is well-estab-
lished in an unexciting segment, where it has been slowly los-
ing market share, can be revived in another segment with a
very different positioning. This opportunity is particularly
relevant for more fashion-driven categories, such as beer and
liquor. While Pabst wasn’t at the origin of the trend—skate-
boarders were precisely looking for a brand that was out of
fashion with the mainstream—the brand has been careful to
maintain its positioning, avoiding mainstream advertising
and promotions campaigns, sponsoring relevant bicycle races,
and giving away T-shirts at targeted events. Pabst has also
leveraged the trend to get into trendy bars that are popular
with this young, hip crowd and has achieved double-digit
growth in a category growing at 2.5% yearly.
Malt-O-Meal has challenged the cold cereal category by
being a successful low-price player. This small independent
brand has grown in a category controlled primarily by large
food manufacturers. Malt-O-Meal makes cold cereals that are
bagged rather than boxed and command a lower retail price
than boxed cereals. While major players such as PepsiCo’s
Quaker brand have seen their bagged cereals business sag-
ging—Quaker even sold that business to Malt-O-Meal in
2002—Malt-O-Meal has been successfully building its bagged
cereal franchise, with products such as Tootie Fruities, Mateys,
and Dyno Bites. The insight behind Malt-O-Meal’s success is
that there is a need for cheaper cereals that are bagged rather
than boxed, but still are marketed in a fun fashion, with attrac-
MM May/June 2004 ❘ 37
tive product names and colorful bags. Malt-O-Meal has done a ■ Exhibit 2
great job executing on this vision by redesigning its packaging Second-tier brands matter for big companies
last year and launching the “Profit Plus” program with its
retailers. It offered consumers 50% more high-quality cereal for
2002-2003 Category Retail Sales Growth of Big Companies* (%)
the same price as boxed cereal brands, while delivering higher
profit margins to retailers. And from a supply standpoint, the Natural Lunch Salad Cold
acquisition from Quaker helped Malt-O-Meal increase the Cheese Yogurt Meat Beer Juice Dressing Ice Cream Cereal
national coverage of its products.
12.8
8.9
Big Lessons 6.4 6.6 5.7 6.4
There are many different ways in which smaller brands can 3.1 3.8 2.7
1.4 1.8 1.3
0.8
successfully challenge the established wisdom in their catego-
(0.8) (0.5)
ry and achieve strong growth. So why do big companies seem (2.5)
to have such a hard time growing their second-tier brands?
The answer seems to lie with the very concept of a challenger Actual Pro Forma, assuming second-
tier brands** had grown at the
brand. As a major manufacturer, with an organization that is rate of second-tier brands
primarily focused on its major, category-leading brands, it is owned by smaller companies
38 ❘ MM May/June 2004