Many well-known branded products and services have the properties of a commodity. “A commodity is a class of goods for which there is demand, but which is supplied without qualitative differentiation across a market.” These commodities have stiff competition, little or no pricing power and, as a result, they have low margins and profits. A number of my clients had such products and asked whether the brand could be leveraged into a high-margin value-added product. Dole, Clorox and Buitoni are examples.
Since most brands start off as a single product, it is not unusual for these to become more commoditized over time as competitors enter including store brands or other non-advertised brands. Costco has an entire line of products branded Kirkland. These proprietary store brands generally sell at a significant discount to the branded goods they copy. Like generic drugs copying branded versions, some consumers pay the premium to receive the branded item. However, in many cases they do not, especially when household finances become strained. Commercial buyers can be even more cost conscious and lean toward the lower priced comparable item.
To better illustrate how extending commodity brands can payoff, Nestle – the world’s largest food company – commissioned me to study the dry pasta and sauce items the company sold. Originally branded Contadina when owned by Carnation, Nestle’ changed the branding to Buitoni, their international brand. But in the United States, there are many brands of dry packaged pasta including price brands lining supermarket shelves. The best-selling brand in the U.S. is Barilla, with store brands in second place. Buitoni had a modest share. A brand extension study revealed an opportunity to launch Buitoni pasta and sauce in refrigerated form. When originally launched, there was no competition and this product increased sales, margins and profits dramatically. Pasta and sauce are normally used together so it makes sense to launch both. They are companion products sold side-by-side in the refrigerated section. This is also an example of leveraging the brand by changing its form, previously unseen nationally in supermarkets.
Arm & Hammer
There are many brands today attached to commodity products that could be extended to a line of high-margin items. Probably one of the most successful is the extension of Arm & Hammer by Church & Dwight. As reviewed in the chapter on the 10 types of brand extensions, the lowly backing soda brand was languishing because there was so little demand for that ingredient. The company attempted to expand the usage of the ingredient by recommending that the product be used in the refrigerator to remove (absorb) odor.
Where else do people want to remove odor? This question led to many successful brand extensions. By leveraging a benefit of the parent product, the company was able to expand the brand into many categories. Without that brand, entering these crowded categories would have been prohibitively expensive if not impossible. Few would have thought that an old baking soda brand could be turned into a multi- product business with a strong competitive advantage against well-established players in each category.
Ocean Spray is a cooperative of 700 member growers. Cranberries are eaten largely at Thanksgiving as cranberry sauce. The company launched a brand extension - Cranberry Juice Cocktail. After its success, cranberry blends were introduced similar to the strategy employed by Dole. Women began reporting and it was clinically proven that cranberries had the benefit of helping maintain urinary tract health. As a result, the company began selling a supplement product to produce the same urinary tract benefit without requiring that people drink a large volume of the juice. When one brand extension is introduced, others are likely to follow as new uses or benefits are discovered.
Every product or service has a benefit to offer its buyers. Even simple items like evaporated milk, bananas, gelatin, brass cleaner, paint, storage bags, crayons, aspirin, butter, cranberries, paper towels, insect killer and salt can be extended after a careful study to understand consumer perceptions and the benefits delivered.