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The Company Behind The Biggest Consumer Brands

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Re: The Company Behind The Biggest Consumer Brands

#11

Post by HRoark »

mc32 wrote: post #10
patio11 wrote: post #7

Earlier quoted context omitted.

Not quite so true -- the consumer product industry has many players, but only a few mega-winners. They're not largely winning because they "control prices"/"keep competitors away" (which sounds like there is something disreputable happening), they're winning because given the choice between a $3 bar of Dove and a $0.25 bar of white soap, Dove will generally win. (See e.g. house brands at supermarkets vs. branded prod…

Maybe realted, maybe not. I read somewhere a few years ago one of the DIY stores like Home Depot or what-have-you did a study and decided that swapping out the $1 paint brush for the $5 brush didn't decrease the volume sold, but 5x'ed revenues on that product. Their insight was that someone going in and buying a few gallons of paint were not going to comparison shop on brushes (and drive elsewhere) to save a couple o…

Interesting, this is psychological misinterpretation. People have a tendency to think that price = quality. There was similar scenario presented in the book Influence: The Psychology of Persuasion that had to do with a jewelry owner.

Re: The Company Behind The Biggest Consumer Brands

#12

Post by stock_toaster »

patio11 wrote: post #4

Consumer product companies sort of foreshadowed what happened to food (+), is happening to clothes, and will probably eventually happen to everything physical. The fundamental product (soap, razor blades, etc) is done . It works, involves no novel technology, and can be created at infintessimal marginal cost by any player in the industry. (Try to guess what the price of the soap in a bar of soap is. If your answer is…

> It is an observable fact that, for any particular basket of food, we pay less than our parents did.

Is that true? I looked up prices of food for 1981[1] and compared it with similar data from 2011[2]. These appear to be grocery prices based on newspaper fliers recorded by some library in new jersey (only one data point but it was what google showed me). I wonder if there is any readily available restaurant pricing data over time.

I found this calculator for inflation[3] which is based on this data[4]. The result seems to show that most grocery food was cheaper in 1981 than 2011 in Morris County, NJ at least. Unknown food quality, and I did not look at data regarding purchase power, salaries, etc, etc. I imagine most things are cheaper now, but has food actually gotten much cheaper since our parents? I would readily agree that we have more variety, availability, and options though.

[1]: http://www.gti.net/mocolib1/prices/1981.html

[2]: http://www.gti.net/mocolib1/prices/2011.html

[3]: http://inflationdata.com/inflation/Inflation_Calculators/Cum...

[4]: http://inflationdata.com/inflation/Inflation_Rate/Historical...

Re: The Company Behind The Biggest Consumer Brands

#13

Post by mkramlich »

patio11 wrote: post #4

Consumer product companies sort of foreshadowed what happened to food (+), is happening to clothes, and will probably eventually happen to everything physical. The fundamental product (soap, razor blades, etc) is done . It works, involves no novel technology, and can be created at infintessimal marginal cost by any player in the industry. (Try to guess what the price of the soap in a bar of soap is. If your answer is…

I get your points, love your writing and have a lot of respect for you in general, but on your point about soaps you're dead wrong. Aside from a few major US mainstream brands, which are admittedly pretty similar in cleaning ability, there is a very wide variety in the quality and experience of different soaps. some soaps clean better, some worse. some moisturizing, some dry you out, some neutral. some heavily perfumed, some not. some use artificial chemicals, some use natural/organic ingrediants. some smell natural, some smell chemically. some are big and last a while, some seem to degrade and shrink away to nothing very quickly. some are oily, some not. some have chunks to make them more corse, some not. variety of colors, variety of smells. some good at washing off oils from my hands, some bad. some rectangular, some oval (which effects UX and grippability.) some soaps cause skin irritation (in some people) and others do not. some soap taste bad (if you get in mouth accidentally), some do not. some will make your eyes sting painfully if it gets in it, some less so. granted, if you only take say 2-3 major US brands into account, your observation is not too far off base. But if you have experience with dozens of different types, different vendors, you'll discover a wide variety of meaningful differences in soaps. Even just (bath) bar soaps. Though I've noticed differences in pump bottle hand soaps as well.

Re: The Company Behind The Biggest Consumer Brands

#14

Post by unreal37 »

patio11 wrote: post #4

Consumer product companies sort of foreshadowed what happened to food (+), is happening to clothes, and will probably eventually happen to everything physical. The fundamental product (soap, razor blades, etc) is done . It works, involves no novel technology, and can be created at infintessimal marginal cost by any player in the industry. (Try to guess what the price of the soap in a bar of soap is. If your answer is…

It's an interesting perspective, but I can't agree with you that consumer products (and food) are "done".

I am not going to suggest you actually go out and do the Pepsi Challenge with pasta sauce, but I don't actually believe that there are no food brands you, Patrick, are loyal to based on taste or quality, that you buy even though they might be more expensive than another.

Is there a brand of rice you get because it comes out just a bit better than the other one you tried? Or a rice cooker that is notoriously reliable compared to another that dies after a year? Or a bread brand you get because it lasts longer before going bad?

Ignoring all the marketing, I am sure if you did an objective Consumer Reports-style study of almost any category of consumer product or food, you would find some that perform better at what they do, or taste better, or are actually healthier for you by an objective standard, or have the best combination of price/quality for you.

Coke and Pepsi are distinguishable from each other easily. A McDonalds Fry and a Burger King Fry are too - completely different. And there is such a thing as quality even if you aren't conscious of it.

Re: The Company Behind The Biggest Consumer Brands

#15

Post by pgeorgi »

mc32 wrote: post #10
patio11 wrote: post #7

Earlier quoted context omitted.

Not quite so true -- the consumer product industry has many players, but only a few mega-winners. They're not largely winning because they "control prices"/"keep competitors away" (which sounds like there is something disreputable happening), they're winning because given the choice between a $3 bar of Dove and a $0.25 bar of white soap, Dove will generally win. (See e.g. house brands at supermarkets vs. branded prod…

Maybe realted, maybe not. I read somewhere a few years ago one of the DIY stores like Home Depot or what-have-you did a study and decided that swapping out the $1 paint brush for the $5 brush didn't decrease the volume sold, but 5x'ed revenues on that product. Their insight was that someone going in and buying a few gallons of paint were not going to comparison shop on brushes (and drive elsewhere) to save a couple o…

And you can often still find the $1 paint brush if you're willing to look outside your typical field of vision (eg. above or below the "home row" that a normal sized human sees at first glance).

They prefer to sell you the $1 brush over selling nothing at all (because you're shopping elsewhere, after feeling ripped of once).

Re: The Company Behind The Biggest Consumer Brands

#16

Post by sigkill »

HRoark wrote: post #11
mc32 wrote: post #10

Earlier quoted context omitted.

Maybe realted, maybe not. I read somewhere a few years ago one of the DIY stores like Home Depot or what-have-you did a study and decided that swapping out the $1 paint brush for the $5 brush didn't decrease the volume sold, but 5x'ed revenues on that product. Their insight was that someone going in and buying a few gallons of paint were not going to comparison shop on brushes (and drive elsewhere) to save a couple o…

Interesting, this is psychological misinterpretation. People have a tendency to think that price = quality. There was similar scenario presented in the book Influence: The Psychology of Persuasion that had to do with a jewelry owner.

I don't know why you've been down voted but this is exactly what I read yesterday in Dan Ariely's Predictably Irrational. A $2 aspirin worked better than a 50 cent one. That is to say, people who paid more for the exact same medicine were less likely to come back after a month for the same problem. It's actually crazy on how true his observations are, even on yourself.

Re: The Company Behind The Biggest Consumer Brands

#17

Post by daemon13 »

Just to add some points/clarity.

The industry being discussed is called FMCG, abr. of Fast Moving Consumer Goods.

FMCG industry is characterised by few major players, controlling most of the market leading brands.

Such control is achieved through (1) marketing, (2) distribution and (3) mergers and acquisitions (M&A).

The simplified explanation:-

1. Marketing.

To win the consumer market, the brands shall win over the general population by delivering brand message/advertising through channels that reach the most of the population. Last 10-15 years such channel was TV. TV advertising is very expensive.

The cost of launching new brand varies (country, market, etc) from $ 3-5M (small brand, one country) to several hundred $M (global launch, major market, etc).

To maintain the market share, brand ad spending shall more or less match such spending of the competing brands.

The annual marketing budget of FMCG company can reach 15%-20% of revenue, with appr. half going to TV.

So a company with annual sales of $10B would spent annually on marketing $1-1.5B. As a specific example, 10 years ago Coca-Cola was spending on marketing in excess of $1B.

Therefore, new entrants/smaller companies can not match such spending either for new launches or for sustaining the market share for their own brands.

2. Distribution.

Most of the big players, like P&G, Coke, Pepsi, etc do direct sales/delivery and own fleet of vehicles to deliver goods to both chains and individual stores. Such fleet may cost tens of millions of $. Without such fleet in place [and existing relationships/clout with retail], new entrants can not ensure proper distribution/availability of their products. So even if they find money to spend on marketing campaign, when the customers will go to stores, they will not find the advertised brands and will buy what's available.

3. M & A.

Those companies/brands that find a way to break in through

- clever strategy

- by playing in new and emerging market segments (Gatorade, etc)

- catching a trend (BodyShop, etc)

are acquired by Big Co after they become clear winner and catch with consumers, but before they reach critical mass.

Re: The Company Behind The Biggest Consumer Brands

#18

Post by daemon13 »

daemon13 wrote: post #17

Just to add some points/clarity. The industry being discussed is called FMCG, abr. of Fast Moving Consumer Goods. FMCG industry is characterised by few major players, controlling most of the market leading brands. Such control is achieved through (1) marketing, (2) distribution and (3) mergers and acquisitions (M&A). The simplified explanation:- 1. Marketing. To win the consumer market, the brands shall win over the…

I did not delve into private labels, pricing matters, retail strategy and pricing, P/E and other bits, since the above is key and post was getting lengthy.

Re: The Company Behind The Biggest Consumer Brands

#19

Post by rmc »

sigkill wrote: post #16
HRoark wrote: post #11

Earlier quoted context omitted.

Interesting, this is psychological misinterpretation. People have a tendency to think that price = quality. There was similar scenario presented in the book Influence: The Psychology of Persuasion that had to do with a jewelry owner.

I don't know why you've been down voted but this is exactly what I read yesterday in Dan Ariely's Predictably Irrational. A $2 aspirin worked better than a 50 cent one. That is to say, people who paid more for the exact same medicine were less likely to come back after a month for the same problem. It's actually crazy on how true his observations are, even on yourself.

With drugs there is also the placebo effect. This is where people will get better if the 'drug' is thought to be more effective. If you give people 4 sugar pills instead of 2, they feel better faster. This isn't wishy-washy 'feel better' stuff, but an actual improvement. People's brains can influence they bodies.

Real drugs are tested against placebos, and they have to 'beat the placebo' before we call them 'drugs'. (i.e. if they don't beat the placebo, they clearly don't work). And obviously although placebos work, they don't work very well, so you can't 'think yourself free of cancer'.

The placebo effect is one of the current unsolved mysteries of science today.

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