Wal-Mart, which sold more than $316 billion of low-priced goods last year, is not merely the world's largest retailer; it is also the foremost repository of information on consumer brands—and the marketing of those brands. Wal-Mart's shelves are jam-packed with the latest innovations in consumer goods packaging, design, promotion, and technology... from Gillette's patented razor blades to the myriad formulations of Crest's latest toothpastes.
But here's the paradox: Wal-Mart's brand value increases when those products stay the same—when consumer goods companies run out of ideas.
To understand why is to understand the nature of marketplace choice in today's hourglass economy: "Almost every category of consumer goods is in the process of forming into pools at both ends of the market," writes author Michael J. Silverstein in his new book, Treasure Hunt: Inside the Mind of the New Consumer. "In category after category, premium entries are growing, bargain brands are stealing share, and the middle is shrinking. "
Or to place his observation into marketing context: brands that innovate are growing, and brands that don't innovate are transferring their equity—and subsequent long-term income growth—to low-cost manufacturers and discount retailers.
In fact, Wal-Mart built one of the world's most valuable brands off of the backs of the world's most well-known brands. By pressuring manufacturers to reduce prices year after year on products that, in essence, don't change, Wal-Mart created a consumer expectation of one-stop shopping for trusted, bargain brands. Hence, the trusted—and growing—Wal-Mart brand: "Everyday low prices" on stuff that's perceived as "good enough."
But that's just half of the hourglass. The top half is growing as well, with distinctive products that offer tangible and emotional value for which people are willing to pay a premium. The one place a company doesn't want to find itself is stuck in the shrinking middle.
This shrinking middle is where many of America's most well-known and well-respected brands find themselves today—from iconic fashion brands like Levi Strauss, to Sara Lee's tired food and apparel brands, to Kraft Foods' household cheese brands.
And their self-imposed positions were fairly simple to foretell; all you had to do was watch their marketing efforts. When I discovered a $20 pair of Levi's jeans at Wal-Mart, the company's destiny was clear. I also watched Sara Lee's brands suffer from a paucity of innovation and gratuitous price reductions. And it appears from behemoth Kraft's recent predatory pricing practices on various supermarket cheese brands that it too has run out of ideas and is on the brink of handing over its well-deserved equity.
Take the first step (it's free).
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