There are two kinds of brand: national and niche.
National brands are their own planets. They have the incumbent’s advantage, channel control, big reputations, deep pockets, and, if they’re lucky, consumer loyalty. The downside is that they do have a gravitational field that sometimes takes them captive. They must struggle constantly to get to know the consumer and the culture, and respond as both change…ever more quickly.
Niche brands are nimble, opportunistic, and maximally responsive. They know their consumers up close and personal. They can change in real time and they do. Their challenge is to find the resources to scale up, and the marketing professionalism needed to master new problems as they climb. Inevitably, growth takes the entrepreneur out of the segment she knows into segments she doesn’t know and usually from a few segments to many of them. A higher order of marketing professionalism is now called for.
These brands found a way to live together. Niche brands would do the product testing, the innovating, the market experiments. If and when the big brands liked what they saw, they would reach down and buy the little brand up. The niche entrepreneurs would get a big fat pay day and, after the “non-compete” expired, they would go back to what they love best, creating brands that are little and responsive.
That was then. This is now.
According the the AdAge today:
[I]n many cases, package-goods players are developing their own niche products rather than relying on the old model of waiting to see if an upstart niche brand will be successful and then snatching it up, much like Coca-Cola did when it purchased the now-mass Vitaminwater. “For a while, the larger companies said, ‘We’ll let someone else do it, and then buy them if they’re any good,'” said Bill Bishop, chairman of consulting group Willard Bishop. “Now it’s become evident that you give up too much in opportunity by letting it get developed by the smaller players.”
The big question: can big companies do innovation of this kind? It means getting closer to the consumer and to the culture, and moving more nimbly than ever before. Almost certainly, it means adding a Chief Culture Officer to the C-Suite.
The old model, big brands buying little ones, presupposes a lag time. And there are two problems: 1) as Bishop points out, it leaves money on the table. 2) what lag time? The world moves too quickly for the big brand to move at its leisure.
Coke used to be able to watch and wait. There were also hundreds of little brands milling about in the niche world. This wasn’t laziness. It was an efficient way of reducing risk. Let the niche markets try out any and all possibilities. Let consumers vote with their purchases. Let that invisible hand world sort the world for us. In this system, Coke let others take the risk, so that it find the profit.
But now the corporation has to play at that lowest level, of absolute novelty, sorting is pretty much out of the question. At this level, every branding idea is still pretty much of an idea, and the world has not had a chance to vote. In this world, the noise to signal ratio is very different. There is lots more noise, precious little signal, and damn little sorting of any natural kind. Now the corporation has to do this sorting by itself.
But of course the corporation is famously tone-deaf when it comes to culture. (This is precisely one of the reasons it had to leave innovation to someone else.) Now it wants to do the sorting for itself, the corporation needs someone who knows culture and who can read culture with skill and acuity. It needs a senior manager with perfect pitch. It needs a Chief Culture Officer.
McCracken, Grant. 2009. Chief Culture Officer. New York: Basic Books. Published in October. available for pre-order on Amazon.com here.
York, Emily Bryson. 2009. Giants to Exploit Niche Markets. Adage.com. July 13. here.
Thanks to Wordle.net for the image.
I’m with you here. But really, big brands are not only going to have to walk the tightrope (innovation) they’re going to have to do it while riding a unicycle (go in-house with a Chief Culture Officer). In the past not only would they have waited for the niche brand to do the innovating, they would have had an outside consultant tell them which innovator to gobble up.
That’s a lot of culture change. And as you stated, the lag time is now approximately as long as it takes to read this comment. If I were a CCO (my lips to God’s ears), I’d spend as little time inside the corporate walls as would be allowed.
Actually, nimbleness may not be required if large numbers of potential niche brands can be launched at low cost and only the winners harvested. Blind variation, selection, and retention can be performed by markets but also by large organizations that set up to do it. This is one of the advantages of scale–a large chain of restaurants can try a bunch of variations at specific units and gather reliable statistics on the results, ditto for retail chains, and ditto for a consumer packaged goods firm with lots of cash flow and strong distribution across multiple geographic markets. You need a Chief Experimental Office of sorts to run, interpret, and implement the results.
I don’t buy it. They may talk it. They may pretend they can do it. But my guess? They are still going to be prowling. Maybe a little bit closer to the consumer, but they are going to watch the innovators. And then take their ideas. Perhaps they’ll do this like Forever 21, Zara or Pottery Barn does — watching the cultural innovators in Europe and Asian and then copying or refining something. Years ago I interned at Paper Magazine, they had a slogan at their decade mark: “Who cut the edge?” Let me tell you, it’s not going to be the big companies. They make get really close to the edge, but they will never be able to innovate like true avant garde.
It relies on the concept of “the corporation” as a monolith doesn’t it? What if they’ve become more organic, spoke-and-hub or nodal… or could easily become that way.
Big advertising agencies are a good example of this. In Singapore we have one of the big global players in the business district with a suitably impressive office. The same brand also has a funkier smaller unit up the road (“Lab”), an even edgier “intervention” business in a different part of town that does great online and social media work, a media buying company and several other units.
The guys and girls in the small edgy units would be totally out of place in the big agency’s office. They’re tapped to a totally different market (and they do great work in it).
The spoke-and-hub model doesn’t seem much of a stretch to me… and how different do these nodes from niche brands?
Grant – When will the Kindle edition of the book be available? rob
Very interesting thoughts, I think the Big Brands can do this, but are apathetic to do so because it is just easier to spend money and buy up the niche brands then take the time to develop something themselves. I also believe that if they chose to get closer to the customers they would have to be more transparent and accessible to their client, which they are not willing to do.