Are big brands really doomed?

In a two-part series, The Brandgym's David Taylor discusses the rise of insurgent brands.

Dollar Shave Club: fast-growing start-up now owned by Unilever
Dollar Shave Club: fast-growing start-up now owned by Unilever

The headlines today are full of stories about big brands losing out to smaller, fast-growing "insurgent brands", such as Halo Top ice-cream, SkinnyPop popcorn and Dollar Shave Club. The dominant narrative is that millennials are deserting big brands in favour of start-ups.

While smaller insurgents do pose a serious or very serious threat to big brands according to 88% of marketing directors in our research, we think the hype and headlines have an overly narrow view that fails to tell the full story. Most analysis to date has been limited to consumer goods in North America and, to a lesser extent, the UK. And the forecast future for big brands is, we suggest, overly pessimistic.

In the first of this two-part piece, we share insights from our research into the threat of insurgents across different categories and geographies, and the most important reasons behind the growth of small brands. In the follow-up column, we will propose how big brands are successfully fighting back.

Are big brands really doomed?

Our new research shows that the threat level from smaller insurgent brands varies by category. The highest threat level is indeed in FMCG products such as food and drink and household care, where purchases are relatively low-price/low-risk. However, even here, some big brands are winning: half of the big brands in a five-year US study by the Ehrenberg-Bass Institute for Marketing Science actually grew sales and 15 of the UK’s biggest 25 grocery brands also grew in 2017, adding £250m of sales.

The threat level is lower in more complex categories where trust is key, such as over-the-counter medicine and financial services. Higher-priced, higher-status categories such as sports gear and cosmetics fall in-between.

Insurgent threat also varies by region. French consumers are less willing to try small food brands, reflecting a more developed food culture. UK consumers are more interested in small cosmetics brands, with a high interest in those backed by online influencers such as Kylie Jenner. In contrast, concern around skin safety is reflected in much lower trust for small cosmetics brands in India.

We recommend that companies ignore the blanket negative news coverage about the demise of big brands and properly assess the insurgent threat in the specific categories and countries in which they operate.

Why are small brands growing?

Our research with UK consumers shows that the key drivers of small brand growth are product quality (34%) and naturalness (21%). A distinctive, cooler brand personality is often quoted as critical for small brand growth, but our study suggests that this is much less important (9%). Product "sausage" matters more than emotional "sizzle", it seems.

Fever-Tree is an excellent example of an insurgent brand built on a distinctive product, with annual revenue growth of 60% and a 20-fold increase in share price. Simple, effective ads emphasise its superior quality, with specially sourced ingredients and no artificial sweeteners, preservatives or flavourings, and endorsement from leading chefs.

In terms of operating model, two key drivers stand out when talking to marketing directors. First, smaller brands are more agile (64%), with simpler structures allowing faster response to emerging trends. Second, smart use of social media (56%) helps these brands at launch, although many later move into traditional media to increase reach. For example, fast-growing cosmetics brand Glossier was built on the back of founder and chief executive Emily Weiss’ popular blog, Into the Gloss.

Secondary success factors include easier access to outsourced production and retail channels, online sales (direct to consumer or via online retailers) and existing, physical stores looking for new, premium, distinctive brands. There are also many more sources of business funding today, such as venture capital, crowdfunding, accelerator programmes and private investors. 

We recommend big brands run a "niche attack" session in their specific category and country in order to proactively analyse the overall consumer experience and highlight new, emerging needs with which insurgents could attack. Particular attention should be paid to small but fast-growing demand spaces that may appear "niche" but can provide a foothold that allows an insurgent to get established, such as gluten-free and organic food.

About the research

The research was carried by The Brandgym in May-June 2018 via a global quantitative survey of more than 100 senior marketing professionals and in-depth interviews with 20-plus marketing directors. In addition, consumer research was carried out in France, the UK, India and the US.

David Taylor is group managing partner at The Brandgym