The twin forces of globalization and rapidly accelerating technology are driving what has been called a global imitation cycle. The consequence is the increasing commoditization of a wide range of products. Where price, and price alone, becomes the differentiator.
What follows is the inevitable erosion of margins, further exacerbated by cheap labor in many parts of the used-t0-be undeveloped world.
To some extent, outsourcing and offshore production have temporarily leveled the playing field, slowing the process. But almost everyone has caught on; we've entered the phase of rapidly diminishing returns. The playing field - the world - to quote Tom Friedman, has become flat. Producers anywhere can now take advantage of cheap labor, while none can avoid the growing scarcity of energy and raw materials.
Further accelerating commoditization.
For some manufacturers, this has led to the lowering of standards, laxity in quality-control inspections, and an alarming decline in product safety -- with devastating consequences in the marketplace. Even China, the world's production powerhouse, has seen its national reputation plummet in exports from toys to frozen seafood. Suddenly, "Made in China" has rendered entire categories of products suspect, becoming a marketing liability not easily overcome, even by below-cost goods. (It's also clear that China's remarkable growth is unsustainable in the face of air, water, and soil pollution, the cascading degradation of the environment, and the inexorable price pressure on energy and raw materials. The price advantage will diminish with time, but not enough to resolve the commoditization problem.
So, how is a marketer to cope?
Fortunately, there are options. In an age of differentiation, the product defines the company. A brand with a demonstrable or perceived uniqueness can lift its company's reputation, and with it, the perceived value of its other products.
In an age of commoditization, the company defines its products. This used to be called "reputation." In the old days, people used to say, "No one ever got fired for buying IBM." The company's name and logo were a built-in uniqueness, which could not be copied or imitated, except by guys who sell Ronex watches on street corners.
Today, when virtually everything can be reverse engineered, imitated, designed along different lines, or flat-out copied, uniqueness is difficult to maintain for very long. But the uniqueness imparted by a company name, or that is inherent in the brand itself, can't be copied. Barring catastrophe, or willful malfeasance, that kind of uniqueness, once established, takes a very long time to erode.
There are uniquenesses that inhere in the product itself, which can't be imitated or reverse-engineered. They can be created, or they can be discovered where they have long remained dormant, or unrecognized.
Some years ago, a small soda company in New York was threatened with having to discontinue an 108-year old brand because its natural consumers had become geographically dispersed, devastating its "on premise," or deli-restaurant, business. The brand was also sold in mom and pop grocery stores, but these, too, were an endangered species. The result was that sales were down to 100,000 cases, which is about what Pepsi sells in the time it takes to read this sentence. Worse, the brand's flagship flavor was Dr. Brown's Cel-Ray, a celery-flavored beverage which is a decidedly acquired taste. Price pressure from store "brands" of commodity soda put an even greater strain on the parent company's other lines, so it lacked the resources for aggressive promotion.
The brand managers, who'd been with the company for several decades, had tried to distribute the brand in supermarkets, but were unceremoniously shut out. What to do?
It was evident to me that nothing would help the on-premise situation. The deli restaurants, in decline, were already selling all they could, to fiercely loyal customers, one bottle at a time. Ditto for the mom & pops. The only possible solution was to crack the supermarket barrier.
"Forget it," said the sales manager, "You don't understand the soda water business, kid. We can't even break into Waldbaum's, and we've been pounding on their doors for thirty years."
New York City is a notoriously difficult market to crack. Even cash under the table doesn't work any more.
So we tried a unique approach. Many of Dr. Brown's former customers had relocated to Westchester County, which all by itself is a respectable market. In addition, it's an inexpensive media market, if you exclude TV, which serves the entire megalopolis. (Our annual budget was $1 a case, or a meager $100,000, which is about what Pepsi spends in the time it takes to read this sentence. ) So we prepared a test market introduction, using the Ganett chain of newspapers, and local radio. We built this ad campaign into a distribution program which, in this case, was the ball game.
Yes, we offered standard stocking fees to the supermarkets. But that had never worked in the past. What did persuade them was an argument that went as follows: "At present, your supermarket competes on price, and since you all sell the same goods, your margins suck. In addition, because prices inevitably converge, your customers follow the specials around town. If you stock our brand, it won't account for much all by itself. But this brand has loyal customers who miss it, and who will go out of their way to find it. Once in your store, they'll buy a six pack of soda, and a hundred bucks worth of meat. How will they know you carry Dr. Brown's? We'll give you big, four-color posters to hang on your windows, announcing the availability. The posters will not mention price."
That sales pitch got us 86% penetration into Westchester County supermarkets. Which sold several flavors, in six packs, and 827 ml bottles.
The initial poster featured a mouthwatering photo of an overstuffed pastrami sandwich on seeded rye, with a dewy soda-fountain glass of sparkling Cel-Ray, and a pot of mustard and dill pickles framing the soda bottle with its newly-designed label. The legend proclaimed: For prompt, temporary relief of the minor pain of nostalgia. That was the magic, unique, un-copy-able ingredient: the nostalgia of loyal customers who loved the brand, missed it terribly, and were willing to go to great lengths to get their hands on some. (The poster can be found on my website, dickjackson.com.
Sales skyrocketed. For starters, we had automatically upgraded single-serving sales to six pack sales. Second, New York City supermarkets regularly talk to their Westchester County counterparts, and so on. Within eleven months, the brand was selling 750,000 cases in the New York metro area. Now we could afford some modest TV in the tri-state arena. (See two ten-second TV spots on my website.) Today, Dr. Brown's is available in supermarkets around the country, from Maine to Los Angeles to Miami, and across the Midwest.
Dr. Brown's, a consumer brand, is an example of a single product that lifted the product lines of an entire company, and the fortunes of that company. (The phenomenal success attracted the attention of a much larger competitor, who, after making an offer the company couldn't resist, purchased the whole shebang, in order to get its hands on the brand that had been about to be terminated by its owners.)
The principle of positioning a brand, repositioning a brand, or fashioning a brand out of a commodity, holds true as well for high-tech products, where uniqueness can have the half-life of a ripe banana. And for industrial products which have long ago lost their uniqueness, if indeed they ever had any.
Commoditization is a challenge. Just not an insurmountable one.
Dick Jackson
See my website http://www.dickjackson.com
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