BRAND - What is Changing the Brand Game?

No Name Merchandise and a Cohort of Buyers That Aren't Brand Conscious

The First Translucent Soap 1807

He needed a set of impact sockets. Picking up his smartphone he asked 'Google' for the best deal on impact sockets. What happened next amazed him. The first three entries were brands unknown to him but all  sold by Amazon.

Craftsman, a brand he trusted for lifetime warranty was near the bottom of the page. The rabbit hole got deeper as he was transferred from site to site. Eventually he read that Sears had sold Craftsman to Stanley Black and Decker early in 2017. He would need to find a retailer if he wanted to discover the price and acquire a Craftsman set.

Back to Amazon, he was able to order a full set of TekTon impact sockets with carrying case for C$88.00 with free delivery to his rural setting. Sure enough, two days later he picked up an Amazon box at Canada Post Office. The packaging was similar, the price was lower, the sockets worked fine and the convenience was surprising. This is an actual experience of InfoStream staff near Madden, Alberta.

This kind of episode is changing the retail game and moving buyers away from the well known brands and retailers to discover the best price and convenience they can find.

A brand or trademark has been highly valued by those who analyse and invest in businesses. This intangible asset is often recorded as 'goodwill' on the balance sheet. Here are the world's most valuable brands in 2017 as ranked by Forbes.

There are a number of reasons why the value of a brand has historically been very important: Brand reputation supported loyalty; Brand recognition influenced prospective buyers; and, Brand imaging differentiated competitors in a marketplace. However, it seems brand significance has changed for the empowered consumer. They are demonstrating they care more about discoverability, assistance, convenience and price.

Furthermore, name brands have far less influence than YouTube and other social media channels offering authentic story and DIY advice from the users of lesser known products and services. The impact of brand on the price and value complex has also diminished as Dollar Shave Club and Harry's have proven in the past 18 months. Gillette's pricing succumbed to stiff competition from these startups despite the 'recognized' value of the Procter and Gamble brand.

Another large impact is the rising cohort of buyers that do not seem brand conscious. Millennials have a different approach to jobs, education, money and buying. They are more likely to be skeptical of brand promises and more likely to buy without giving brand a second thought.

Just before Christmas, Bloomberg featured an article by Matthew Boyle, entitled 'The Retail Apocalypse Is Fueled by No-Name Clothes'. One of the revelations in the story was how the retailer is developing clothes for Amazon’s surging apparel business. 

Amazon representatives met with fashion designer Jackie Wilson. They wanted her to make a knit top for women that would be sold on Amazon. They wanted the fabric to feel heavy and high-quality just like name-brand attire.

“They are not concerned at all about how many units they sell, and they’re not focused on margins,” says Wilson, whose company in Syracuse, N.Y., makes clothing for Kohl’s, American Eagle Outfitters, and J.C. Penney Co. “They’re concerned about customer satisfaction. They want five-star reviews.”

The Google research we published earlier shows that customer assistance and satisfaction are the primary elements of the new battleground for retailers. Customer satisfaction seems to be the driving force at Amazon. And why not. They have the lead in discoverability, logistics, customer assistance, price and convenience. So why not go for customer satisfaction and have the whole enchilada.

ACQUIRE - CVS buys Aetna for US$69B

Aggregation by a pharmacy benefit manager (PBM) may deliver a shorter path, better care and lower costs.

According to Bruce Japsen in Forbes the CVS deal, values Aetna at $207 a share, and creates a company with combined annual revenues of $240 billion, which rivals United Health Group ($225 billion forecast in fiscal 2018). Japsen notes that Aetna aborted its effort to buy rival health insurer Humana last year in the face of antitrust scrutiny and didn’t have the resources to build doctor and outpatient care centres like United’s Optum unit has been doing.

“This combination brings together the expertise of two great companies to remake the consumer health care experience,” said CVS President and Chief Executive Officer Larry Merlo. “With the analytics of Aetna and CVS Health’s human touch, we will create a health care platform built around individuals.”

The Washington Post quoted Michael Rea, Chief Executive of Rx Savings Solutions, “This is kind of uncharted territory — a pharmacy benefit manager (PBM) buying a major national health plan. I think it’s a sign of the times, PBMs represented a little-known entity no one knew about not that long ago, and now they’re the controlling piece of the deal to take over a national insurer.”

No one should be surprised. The margin between pharmaceutical manufacturer and consumer is open to attack and consumer satisfaction is low. In once sense, it's no different than the aggregation that is happening in other markets such as grooming products. An InfoStream story earlier this week showed Gillette's ability to drive the price of a razor into the stratosphere opened the door for innovators to rethink the market and gather in quite a bit (11%) of Gillette's market share.

While the CVS Aetna transaction may be uncharted territory, the sector will likely see more activity. According to a story by Lauren Hirsch of CNBC on Monday, the CVS acquisition is aimed at driving Aetna healthcare subscribers to CVS stores. She suggests a 'market watch' on Walgreens, Rite Aid, Kroger and Walmart to look for similar mergers or acquisitions. Everyone sees the need for these players to shore up market share, acquire innovation and eliminate threats.

According to an article in Fortune, Wall Street is skeptical. The success of CVS Health Corporation's acquisition of health insurer Aetna Inc. is a bet on a complex and untested strategy. Some analysts are questioning whether the companies can pull it off.

CVS plans to build mini health centres in some of its 9,700 stores, turning them into key locations where Aetna members — and customers of rival insurers — get low-level care for ailments and chronic diseases. Already, CVS has 1,100 'MinuteClinics' in its pharmacies, and is testing out hearing and vision offerings in a handful of CVS locations.

Investors also seem to be showing skepticism. Aetna stock was trading at $180.11 as of 9:34 a.m. in New York on Tuesday. That’s 13 percent below CVS’s $207-a-share cash-and-stock offer. Investors may be pricing in the fact that CVS Health will no longer be a dividend growth company following this transaction.

CVS competitor UnitedHealth Group has a menu of health insurance products under its umbrella including Medicare, Medicaid and OptumRx as its' pharmacy benefit manager (PBM) as well as 30,000 healthcare professionals and hundreds of practices, outpatient surgery centres and urgent care facilities spreading across the country.


WHY THIS IS IMPORTANT:
Rethinking the market to create a broader ecosystem has just begun. Technology is driving the ability to bring new bedfellows together, but innovative thinking to find large pools of subscribers that can be cemented into an existing ecosystem is the game. This aggregation has already begun in the dental and cosmetic business and is also beginning in healthcare for companion animals. 

Watch the companion animal market for moves to cement a national animal health insurer together with retail locations, veterinary hospitals, diagnostics, technology and nutrition. Companies like Fairfax, Mars, National, Nestle, Petco and PetSmart will likely look at this deal very closely. 

While some call this kind of transaction a 'market consolidation', at Paradigm we look at it from the client perspective. It is really about aggregating the client demand while improving the client experience and convenience.

BRAND - Gillette responds to Harry's and Dollar Shave Club

Gillette is rapidly moving to a more cost effective shave

In a "very different approach", Gillette said it will introduce lower-cost razors and beef up its disposable shaver collection.

Gillette will start selling new three-blade and five-blade razors in January that will cost less than $10. It will also start selling disposable razors that will feature the Gillette cooling technology.

This new approach appears to be Gillette's latest response to subscription competitors who have been very disruptive. Until now, Gillette had focused most attention on its expensive Fusion razors, marketing itself as a top-tier brand. That strategy and the rushed to market copycat, Gillette Shave Club, hasn't paid off.

Gillette's pricey razors opened the space for innovation in men's grooming

When Procter and Gamble purchased Gillette for $57 billion in 2005, then the largest acquisition in the company's history, Warren Buffett called it "a dream deal." However, a pack of innovative subscription services including Dollar Shave Club, Harry's and ShaveLogic, have chipped away Gillette's market position. "Gillette was poorly positioned to defend (market) share as consumers shifted to cheaper razors," said Joe Agnese, CFRA Research analyst to CNN.

According to Macquarie Research, Gillette now controls about 56% of the market meaning Gillette's share of the U.S. razor market has dropped 11% in the past two years. Sales at Procter and Gamble's grooming unit, which includes Gillette, slumped 6% in the most recent quarter. Yet Procter and Gamble had not launched a new razor line in 12 years. Their strategy seemed to be upgrading the Fusion series while betting on brand power to lure consumers to its higher-priced blades and slogan 'the best a man can be'.


WHY THIS IS IMPORTANT:
Unilever's purchase of Dollar Shave Club for a billion dollars and Target's partnership with Harry's is easier to understand in the light of the Gillette experience. It now seems evident that brand power is expensive and may not be successful for maintaining brand position in the face of innovation. Clearly there is a paradigm shift occurring that doesn't favour legacy brands of the large and powerful consumer directed organizations and retailers.