Thursday, December 16, 2010

For the Love of Dogs and Cows

With all the excitement this year around the explosion of new gadgets, games and electronics, I wonder - of all the product categories in a typical grocery store or mass merchandiser, just how many of them are not growth categories at all, but rather are really in the maturity or decline phase of their life cycle. If one defines “maturity” as having growth of less than +5% per year and “decline” as anything negative,  I would bet over three quarters would fit the description.  Big categories, too. Think of all the brooms, bleach, cleansers, skin creams, flour, peas, rice, frozen pizza,etc.  that fill the shelves. 
The classic BCG grid (Boston Consulting Group) is a useful framework to determine how to manage brands in a mature/declineBCG_1 category.
If a category is not growing, (bottom half of the grid) there are only two boxes for players to be in.  Low share players are “dogs” that are not strong, and  should not be resourced long term unless unless they can build leadership share.  High share players, on the other hand,  are “cash cows” which command good prices and profits as leaders in their market and are therefore “milked” for cash which can be used to reinvest in other endeavors.  Too much milking however, and you slide down in share and go to dog quadrant
Marketers in low growth categories don’t see the world this way, of course. They dream of the ideas that can catapult them to share leadership while creating a newly vibrant growth category. 
The more likely truth in these markets is that innovation and advertising investment will be used to do nothing more than hold onto or gain share. This can be an expensive job and it is where the big players have advantage.  Think soda, cereal, candy; huge categories that are not growing and each of the players is fighting like crazy for share.  Smaller brands get destroyed in these wars.
Many large companies spin off and sell dogs because they require too much internal resource to resuscitate and turn into market leaders.  Other companies, however, have made good money scooping up dogs in these declining categories because their lower overhead business model make it possible to squeeze out more profits. 
Thus is the reality of many brand business models.  Unfortunately (or fortunately) for the marketing folks in this world, most household cupboards are not filled with IPads, but many do have lots of spaghetti sauce and dishwashing liquid.

1 comment:

Jim Matorin said...

Fun stuff! Some manufacturers better start innovating or they will move from cows to dogs. Innovation takes investment.