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Published: June 6, 2011

 
 

Consumer Packaged Goods: Escaping the Consolidation Mentality

Consider, for example, how Ketel One became one of the best-selling premium vodka brands in the U.S. by capitalizing on its customers’ desire for status and sophistication. Vodka is inherently tasteless — not many people, handed a cosmopolitan at a bar, would be able to identify the brand of vodka from taste alone. Yet many bar-goers request expensive brands when they order drinks; it’s a way of demonstrating their discernment and appreciation for the good things in life.

When Ketel One expanded to the U.S. in the 1990s, the Dutch family that owned the brand dispatched one of its sons to spend years in the U.S., talking up the unique qualities of the vodka to bartenders in New York, Los Angeles, Chicago, and Miami. He held seminars for them, bringing samples and describing Ketel One’s distillation process (using the same type of copper pot stills that were used in 1691) and the picturesque site in the Netherlands where it is made. In effect, the bartenders became point-of-sale influencers in the trendsetting “liquor capitals” of the United States. As Ketel One added sales staff with the same method, the brand became an interesting story the bartenders could tell to customers. Ketel One’s key capability was conducting one-on-one marketing in a way that led customers to associate it with taste — not its literal sensory meaning but its other, more abstract meaning: taste as refinement, as evidence of superior judgment.

Some consumers paid more than twice as much for this evanescent quality as they paid for many other brands of vodka. It was worth a lot to the company as well. By 2006, Ketel One had become the number three superpremium vodka brand in the U.S.; two years later, liquor giant Diageo paid $900 million for a 50 percent ownership stake.

• If you are in a consolidated category, you might be able to take over the market by changing the category’s dominant value proposition to something that you do uniquely well. In the 1990s, Starbucks turned the hot beverage category into a highly engaging coffeehouse experience, taking over the category as a result. In the process, Starbucks redefined even its competitors’ approach to scale; it became less important to lead in market share on the grocery shelf and more important to lead in retail outlets.

Not long after it began to grow, Starbucks came to the attention of Folgers, the ubiquitous coffee brand then owned by Procter & Gamble. The Folgers brand managers were sufficiently alarmed by the buzz around Starbucks that they decided to conduct independent taste tests. The tests were reassuring — most people preferred Folgers to the more bitter Starbucks — and the Folgers managers breathed a sigh of relief and essentially said, “This too shall pass.” Of course, history has shown their complacency to have been misguided; between 1993 and 2008, revenues at Starbucks grew from less than $200 million to $8 billion, a 40-fold increase.

• If you want to influence the emerging shape of a changing market, you may need to add new capabilities to your existing ones. This is what Apple, a master at human interface design, found when it launched the online media service iTunes. The new service could not have succeeded had Apple not added significant new capabilities in digital delivery and the ability to work with major music labels. Whereas the recorded music industry came at the opportunity more narrowly, viewing Internet distribution as merely a new type of channel, Apple created an experience that would work for consumers. The result was an original and vastly profitable franchise that has left virtually all its competitors in the dust.

 
 
 
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