Why aren’t FMCG companies innovating?

So why aren’t South African FMCG companies more innovative with their brand extension strategies? There are a multitude of local brands that carry substantial equity for their owners. Strong brand equity delivers value to shareholders.

With globalisation, liberalisation, and increased competitiveness in the business environment, branding and brand management have become critical to cope with protecting brand equity and surviving. Increasing numbers of off-shore brands are finding their way onto our supermarket shelves. Many of these are of superior quality to what our large ‘sleeping giants’ offer, are innovative and while at times they are positioned at a price premium, consumers are willing to try them.

In today’s dynamic environment, where consumers are constantly exposed to more and more brands, the importance of sensibly maximising the return on those brands, which have managed to reach critical mass, is vital. Sadly this is so often done in the form of yet another line extension, delivering a new flavor to the brand rather than through sensible brand extensions that build and add to existing brand equity.

Enhances brand name

A “very good” brand extension not only creates additional cash flow but also enhances the brand name (Aaker 1991; Glynn & Brodie 1998). Conversely a poor or average brand extension can harm the core or parent brand if the brand extension strategy was flawed. Strong brand equity permits the brand to enjoy sustainable and differentiated competitive advantages.

Take the strength of the brand name Ferrero. Leveraging the positive associations from the brand has allowed Ferrero the ability to move into new product categories such as biscuits through Ferrero Giotto, wafer bites with a creamy hazelnut centre.

Another example of great brands extending into new categories is the range of Mars brands. Bravo! Foods’ has introduced a range of high quality, fortified milk drinks that the company produces, markets and sells as part of a licensing agreement with Masterfoods USA, the confectionery and snack food division of Mars, Incorporated, under the Bravo! Slammers brand. How long before we see our favourite chocolate bar brands such as Bar-One, Aero, Smarties, Lunch Bar and Kit-Kat follow a similar path? Cadbury have taken the plunge and full credit to them but where are the others?

Brand extensions often pose great risk because they require the transfer of brand associations to a new category and often new capabilities are required which the brand owners do not have. A brand extension must fit not only with the parent brand, but it must also be introduced with a good understanding of the effect of the competing brands in the target category. After experience with a brand extension, customers change their attitudes and beliefs about parent brands.

Risky strategy example

The Yum-Yum peanut butter brand is a fine example of a risky brand extension strategy. The Yum -Yum brand is all about delivering quality, preservative-free peanut butter to consumers. To stretch the brand into chocolate coated peanuts might have made sense to the bean counters at Nola, but I wonder how much sense it makes to the peanut butter lovers out there? Was it too hard to be innovative, enrobing Yum-Yum peanut butter in real chocolate, retaining a smooth peanut butter center? Hershey’s does it in the USA with Reese’s peanut butter cups. Now that would have been great! Cadbury, Beacon and Mr. Sweet all make great choc coated peanuts – did the market really need another choc-coated peanut brand? It’s not what the Yum-Yum brand is about.

Extensions delivering attributes that are at odds with what consumers expect from the Yum-Yum brand can produce dilution of the specific beliefs associated with the Yum-Yum brand name. It has been proven that a brand extension that seemingly is performing fine might still transfer negative affect and associations to the core brand.

An alliance or co-branding venture with a manufacturer capable of producing a creamy peanut butter in a milk chocolate cup would have been a far superior brand extension strategy for Yum-Yum!

In today’s increasingly dynamic competitive environment, companies with established brand names are capitalising on the strength of these names, using them to enter new product categories. Unfortunately many have no intention of delivering true differentiation and innovation to the product category they are entering. They simply attach their strong brand names to another ‘me too’ offering in order to drive short-term turnover, milking the brand and devaluing brand equity.

If a brand extension is to be successful, it should fit and be consistent with the core brand message as perceived by consumers and must be seen to be credible and relevant. As we have observed before, it takes years to build consumer loyalty toward a brand, generating positive brand equity. It only takes a few small steps to eradicate all the good work done by those before.