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. 

References

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.