Don't Give Up on Legacy Brands

5/10/2018

It had already become a familiar narrative by the time Unilever spent $1 billion to acquire Dollar Shave Club in 2016: Big legacy brands can’t compete with young, scrappy start-ups, so their only avenue to acquiring more market share is to buy them out. If you can't beat them, join them, right?

This narrative is incredibly pervasive. Most people on every side of the issue — big CPG, digital native brands, the media and the public — accept it at face value. The problem is, it's a myth. Legacy brands are more than capable of competing in today's market, as long as they have the will and the leadership to do so.

The Myth of 'Emerging CPG'
It's widely believed that "digital native" brands have a key advantage over legacy brands such as Unilever and Procter & Gamble. Let's unpack this myth, beginning with some of the most common assumptions influencing the conversation.

1. Consumers are addicted to products from start-ups. Yes, some start-ups have done very well by focusing on consumer loyalty as a central marketing objective. But legacy brands still sell in volumes that start-ups can only dream of. For example, P&G's Old Spice, introduced over 80 years ago, enjoys plenty of loyalty thanks in part to a very successful marketing campaign launched in 2010. Are their consumers any less "addicted"?

2. Start-ups can focus on niche markets. It's true that high-volume, mass market goods are the biggest source of revenue for most legacy brands. But that doesn't mean they don't also have higher-end niche product lines in their portfolios. For example, Blue Moon, a niche brand from MillerCoors, is America's bestselling wheat beer.

3. Start-ups will do anything to steal your business. Start-ups often get credit for taking risks and making big, bold investments that larger companies aren't willing to make. But the real reason digital native brands work so hard to attract an audience is because they don't have one. They need to work hard for attention because, if they don't get it, they'll go out of business — and the vast majority of them do go out of business. 

Our perception of digital native brands is skewed by survivor bias: We spend a lot of time talking about the successful ones and quickly forget about the failures.

When legacy brands do enter the conversation, they're often compared unfavorably to startup success stories, with the implication that they can't compete. But they can. They have solid, well-established brands with more legacy, equity, R&D — and a lot more money to invest. And unlike start-ups, legacy brands can gamble without putting their survival on the line — as long as they have the will to do so.

Our perception of digital native brands is skewed by survivor bias: We spend a lot of time talking about the successful ones and quickly forget about the failures.

Challenges for Legacy Brands
Digital natives gamble with everything they have, but a huge amount of money for them is a relatively small amount for big CPGs. The question is whether legacy brands can learn to inject the same passion and focus into what, to them, is a relatively small investment. 

With growth flat, many are choosing to increase their market share by acquiring start-ups, but this is really only a stopgap solution. Any existing limitations preventing responsiveness and flexibility will be passed down to the acquired brand, so the qualities that made it successful in the first place will start to diminish. 

To retain customer loyalty and share of voice, legacy brands first need to address their internal limitations. They need to confront two primary challenges:

1. Large, unwieldy organizations struggle to respond to market forces and consumer demand with the same speed and efficiency that small, digital natives enjoy. There are big CPG brands that have dozens or even hundreds of stakeholders involved in product development. These are large, cross-functional teams with several layers of leadership. In contrast, digital native companies may be made up of a few dozen people in total, with only a handful of decision makers. This lets them make decisions in real time, to change course in response to new information, and to adapt to market realities on a daily basis.

To overcome this, legacy brands need to empower smaller teams to be more autonomous, freeing them up to react to market forces and course-correct at a "start-up pace." For most large CPGs, this is easier said than done due to their brick-and-mortar footprint: the supply chain, salesforce and retailer base will all be impacted by changes. As a result, many choose to introduce more flexible approaches only to new SKUs and brands that are not accountable to established distribution channels.  

2. Legal and regulatory practices and restrictions affect long-established brands, limiting their ability to innovate responsively. Legal and regulatory realities can also restrict a large brand's ability to optimize its products and marketing in response to real-time consumer feedback. A particularly restrictive example is product titles, which often require legal and regulatory approval. If a title is lacking in key category search terms like "whitening" or "hair spray," digital native brands wouldn't think twice about changing it and may even do A/B testing between titles to see which one is most effective. Legacy brands will often be blocked by legal, preventing them from optimizing titles to improve search performance.

Another classic example is "listening" to shopper reviews. In certain categories such as over-the-counter drugs, large brands may be required by law to record anything a consumer says to them about the product and report it to the FDA. Therefore, some organizations take extensive steps to ensure they are not exposed to customer reviews. While digital native brands take advantage of this large and free body of consumer data to optimize consumer engagement, big CPGs often deliberately ignore this valuable resource. 

Adapting is risky. Big CPGs are trying to rewrite their playbooks for eCommerce, which is still a nascent retail environment. The best practices — giving teams more autonomy and exposing themselves to more potential regulatory risk — contradict their deepest instincts. They need to learn how to get out of their own way, to experiment with new investments and different models, and to be willing to fail sometimes. 

E-commerce is like the Wild West, and digital native brands are the bandits prowling the highways. But scale and share of voice are going to be a critical advantage as the channel matures. Legacy brands can afford to rewrite their rulebooks, as long as they have the will and the leadership to do it.

About the Author
Danny Silverman is chief marketing officer at Clavis Insight, a leading source for e-commerce insights. He is a global e-commerce marketing, business strategy, technology and sales expert with over 14 years of experience working with some of the world's largest brands to enhance equity and drive sales at online and omnichannel retailers with data-driven insights and experience-informed action. Prior to joining Clavis, Silverman spent eight years at Johnson & Johnson, where he built the company's e-commerce strategy and global Amazon relationship. 

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