Olay, Nivea, Neutrogena and L’Oreal are all established beauty products brands with a broad array of medium-priced product lines and multiple product offerings in each.  More to the point, for purposes of this thought exercise of mine, is that each of them offers a range of good quality facial cleansers, a product I buy on average about once every two months.  The exercise was to determine what, if any, brand loyalty existed in my facial cleanser purchases over the last 2 years.  The answer appeared to be: none.  Nada.  At some point over those past 24 months and (give or take) 12 purchases, my domestic shelf space has been occupied by at least one representative facial cleanser SKU from each of those brands.  I wondered why this was the case.  And then I remembered that it was not always thus.  Long ago (more years than I care to disclose) there was a rather splendid product by Neutrogena called the Facial Cleansing Bar.

a simpler time for consumers

It was a large amber, translucent bar of pure goodness, I thought at the time, and for many years it was the only thing that would ever come to mind in association with facial cleansing. That product still exists, but the last time I bought a bar was back in an era when folks were marveling over the newfound wonders of that thing called email… I wondered: what had happened along this journey from the devoted, faithful me of old to this fickle consumer circa 2010?  What could any one of these companies do to win back my loyalty, and presumably that of many others like me?

Brand success depends on both walletshare and mindshare. If a brand manager wants to get to my wallet then he or she has to first get to my mind and convince me why, out of all the marketing messages that assault me with mind-numbing regularity throughout the changing venues and vistas of my daily routine, this is the one that is most worthy of my time and money.  The problem is that our economy is awash in multiple products, multiple messaging formats and multiple physical & digital marketing channels.  More brands than ever before vie for our attention and our dollars (or rupees, or renminbi); and in so doing the ability of any given brand to make a meaningful impact is diluted by the sheer magnitude and frequency of audio-visual-textual images clamoring to engage our senses.  This, it seems, is what happened to that wonderful amber cleansing bar by Neutrogena – it got lost in the proliferation of categories, products and beauty care messages that exploded into our lives over the last 20-odd years.  This proliferation explosion has engendered many results both positive and negative – one of the latter of which has been to weaken the brand’s ability to connect heart and mind.

If mindshare leads to walletshare, then heartshare leads to mindshare. I don’t believe this paradigm has changed – I think it is no less true today than it was in the golden age of brand advertising (see any episode of Mad Men for a useful reference point).  But the path to the heart is different today, and much trickier.  It’s not all about the brilliant ad that manages to imprint the differentiating qualities of its product so firmly in the cultural mindset that whole households could recite them in their sleep (it is still partly about that, but much less so than the days when the Don Drapers of the world dreamed up the copy over three-martini lunches).  In fact it is not about any one thing, but rather about multiple things – things that form a complex multi-dimensional mathematical equation that would have those ad men of old reaching for the Scotch bottles they kept in their office credenzas.  Namely: how do you match the right message with the right format, for the right geographic region and customer segment via the right marketing channel, for optimal effect? The answer to this equation is not obvious – in fact it is entirely unknowable to the unaided human brain.  To solve it requires vast computational power and advanced scientific methods for solving multivariable problems where many of the variables are interdependent (which adds several levels of complexity to the math needed to get to the solution).

To put it more mundanely, it requires disentangling the clues from that vast sea of transactional information that form a composite picture of the customer-product interaction leading to my walking to the CVS checkout counter with a particular facial cleanser in hand.  What are the demand chain activities that could make this customer-product interaction more predictable; and more personally satisfying for me, the customer?  Is it a pricing question, or a product mix question, or a channel promotions question or an image question?  Traditionally, marketing managers have viewed these as separate issues rather than forming an integrated portfolio of activities around which to optimize a particular objective (like brand value).  But they are not separate, and they cannot be optimally solved in the isolation tanks of marketing department silos.

Fortunately for the beleaguered brand decision-makers of the world there are holistic quantitative marketing solutions that can help them leverage the insights necessary to build and sustain their brand’s value by treating these questions as components of an integrated whole.  The starting point for these solutions is the recognition that what happens in one part of the demand chain affects things that happen in other parts.  As a consumer, my world is more complex now than it used to be and most likely my attention span for any one message is shorter.  But some configuration of activities undertaken by a company – or more than one company along a supply chain – can have a significant impact on me at that reinforces the value of the brand and gives it a meaning more closely aligned with how I actually make purchasing decisions today.

These solutions may lack the simple goodness of that old facial cleansing bar – but they may yet win the heartshare of facial cleanser (and many other) consumers all the world over.

If there is a lot more to purchase, or a lot more stuff that can be incorporated into the products you make, each party in this supply chain needs to have the financial ability to entertain such a large set of choices.  Looking at income growth and inflation alone conceals the true nature of spending power.  It is not as much about whether or not our incomes today are keeping up with the prices of things we bought yesterday. It’s about whether or not our incomes are keeping up with the additional things we can buy. It’s about whether or not manufacturers’ incomes can keep pace with the exploding set of ingredients they can choose to put into their products, and whether distributors can cost-effectively stock and sell an ever-widening mix of products, and so forth.  The rate at which these new things emerge is faster than the rate at which incomes grow – and therein lays the crux of the pricing problem (firm birth data obtained from U.S. Census Bureau and Income data obtained from U.S. Bureau of Labor Statistics):

Even though inflation may be growing at a rate that is in line with wage growth, the burgeoning number of items available to consumers (and perhaps even critical to consumers – just a decade ago there was no anti-bacterial lotion, and yet now you can’t walk 10 feet in a hospital without walking past an anti-bacterial gel dispenser) makes consumers have less spending power.

This spending power is a 2-dimenional thing, but we have tended to focus on only one of those dimensions – i.e., we’ve levied most of our focus on inflation versus income growth, and have not focused as much on product variety versus income growth.  Today, there are many more things to buy both directly and indirectly (for instance, when we purchase a car today that contains twice as many parts as a car from 20 years ago, we are indirectly purchasing “more things”) and this breadth of choice bites deeply into our spending power.

It is not just whether or not the prices of things that we bought 20 years ago have grown in pace with our incomes, its whether or not the sheer number of products and the total global value of those products have kept pace with the total global value of our incomes. And by this measure, spending power has failed to keep pace.  The obvious response as a seller is to flock to everyday low pricing – but, this “obvious” response actually fails to respond to the right problem (which is one of burgeoning product assortment).  Price reductions alone will not bring spending power up to the levels of power we had just a generation ago.  And the problem is only going to worsen, for innovation will continue to accelerate and the diversity of goods and services offered in the global economy will continue to mushroom.

So, what’s a pricing manager to do in the face of this shrinking spending power headwind?  First and foremost, recognize the strong interplay between your marketing efforts and your pricing.  Every dollar invested in marketing will impact the prices that you can charge for every product in every market (or, for B2B vendors, sales & marketing dollars directly impact the prices that you can charge for every product that can be sold to every customer – so, if you have 100,000 customers and 50,000 SKU’s, you have 5 Billion customer-item combinations that you need to understand).  Marketing effectiveness and pricing excellence are joined at the hip, which means that marketing managers and pricing managers must couple their decisions optimally.  This is especially true now because your marketing voice is drowned out each day by more than 3,000 other voices.  The chart below shows the sharp rise in advertising expenditure in the U.S. alone (data obtained from Coen Structured Advertising Dataset):

Secondly, recognize the strong interplay between your product assortment and your pricing.  In the face of ever-widening product choices, being able to identify the right bundles of products for the right customers or customer segments is pivotal to combating ever-narrowing spending power.  Remember, everyone’s Achilles heel in this race to sell is the explosion of assortment mixes.  If the crux of the problem is product assortment, then therein lay the solution.  Identifying which products to co-sell with other products, and what price that entire combination should have for every single customer or within any single market is the key to winning this race.