Brands Should Spend Less on Promotions, More on Innovation

JULIE GALLAGHER

MIAMI — Manufacturers spent $34 billion promoting their brands last year, but it wasn't enough to halt the erosion of national-brand share to retailers' private labels, up one share point to 20%.

What's more is that the investment yielded no measurable growth in household penetration, basket size or category volume, according to Romesh Wadhwani, chairman of SymphonyIRI Group, who suggests CPG companies reassign funds to product innovation.

“What's the point of spending $34 billion and getting nothing out of it?” he asked attendees at the SymphonyIRI Group Summit 2011 here last month.

To secure shopper loyalty, marketers must understand what's driving spending. Items gaining placement in the home are those that answer the critical questions, “How will it improve my life? How will it lower my costs? And how will it save me time?” Wadhwani said.

Indeed, shoppers have become a lot more selective. Take, for instance, the average household pantry size, down 40 items from 400 in 2007. In-home household care products have likewise fallen off 10%.

“Think about shelf space in the pantry rather than in-store and you'll see dramatic change in top-line growth,” suggests Wadhwani.

Trends are also emerging in alternate formats. Only about 4,000 SKUs are merchandised within the three fastest-growing channels in 2010: drug, dollar and club.

“Is it possible that shoppers have reached the conclusion that some stores are too big and too complex?” questioned Wadhwani. “If that's the case, how are you going to play into it with your product innovation program?”

Shoppers are particularly discerning when it comes to new items. Of the 150,000 products introduced last year, 1% broke the $7.5 million revenue mark, with just six bringing in more than $100 million.