17 October 2017
The Market Structure Chessboard
Sandeep Das and James Walker
P&G's quarrelsome September of shareholder activism brings to the fore the often asked question of how many brands do you need? Does having too many brands mean cannibalisation of sales and inefficient advertising spend? Creating a comprehensive market structure is the starting point of any effective brand portfolio strategy.
Long before an organisation creates a roadmap for innovation and conducts segmentation to understand its consumers, it needs to have a market structure in place. Market structure is often misunderstood both in terms of its definition and application.
A market structure is an opportunity map. It's a chessboard for how to play your prices.
It identifies different need states in a category or subcategory and their makeup. By navigating it, an organisation can identify the need states that dominate a category, need states that are the best fit for different brands in the portfolio, the demographic groups that make up these need states, and the greatest short and long-term opportunities and the role of a ‘brand’ in navigating these need states.
Typically, a market structure map is a grid where columns represent consumer segments (e.g.: Pragmatic Singles, Old & Glamorous, High Fashionistas) and rows represent purchase or consumption occasions, i.e.: needs (eg: Holidays, Relaxed Evening Wear, Power Dressing).
This grid, or let's call it a chessboard, can tell you the size of each square, and how many brands you need to give coverage (without duplication) across the grid. One brand per big square is a simple but elegant way of thinking about an efficient brand portfolio response to a market structure.
But how is a comprehensive and coherent market structure created? There are multiple ways of doing it, and the end result is influenced by the inputs being used. Different forms of data and different kinds of analytics methodologies can be used. Some of these data sources could be:
• Historical sales trends
• Consumer data (from surveys or any other form of quantitative research)
• Qualitative judgment (in rare instances when data is not available)
• Joining-the-dots (by combining internal and external data sources)
We can use this market structure grid to map the portfolio of brands (and those of competitors) to the customer segments. These customer segments are primarily needs driven, but can be sharpened by using demographic data, usage and attitudes, behaviours and psychographic profiles. The actionability of a market structure does not stop only at brands – if defined sharply, a business can map brand variants, line extensions, range extensions to the framework. The more detailed and deep is the portfolio mapping, the more actionable it is for the business in terms of brand portfolio optimisation.
Looking at this grid
• Where is there white space?
• Which cell is most valuable in tools of profit pool?
• Where is there congestion, and multiple brands fighting over the same square of the chessboard?
Mapping the brand portfolio to a market structure is an exercise. The strategic outcome is the identification of opportunities. Brand portfolio mapping informs portfolio strategy from two dimensions:
• Identifying the extent of market structure coverage by existing portfolio brands
• Size of white space opportunities and strategies to tap into them
The portfolio mapping exercise also helps in identifying and weaning out inefficiencies, which have crept in because of past actions or narrow thinking around brand positioning. Portfolio inefficiencies can take multiple forms, some of which can be:
• Two portfolio brands operating in the same need segment, which is shrinking in size due to changing category dynamics
• Only one brand (with static equity) operating in a segment that is growing in size (and thereby missing out on significant growth opportunities)
• No brand(s) sit near any of the white space opportunity areas, indicating the need for a new brand launch or repositioning of one of the portfolio brands
At OC&C, we do not view the creation of market structure as a rudimentary fact checking exercise. Market structure creation is a critical stage in any brand portfolio optimisation and long-term brand strategy creation and implementation engagement. It acts as a strategic compass as we move from opportunity identification to refining brand architecture to identifying strategic allocation of marketing spend and finally to marketing effectiveness planning.
For example, creating a market structure was a critical first step for a growth opportunity and action planning engagement we did for a retail client. To understand where our client wants to play, we mapped the market to a structure. The clearly defined market structure gave us the following key insights:
• The sizes of the different category segments at the intersection of different consumer needs and different consumer typologies
• Segment values by applying existing revenues and profits to the ones where our client currently played (valuation can be done using a combination of customer data, industry sources and fresh survey research)
• Identification of segments with the highest revenue and / or highest profit opportunities where our client currently had no or limited presence
After the market structure was created and opportunities identified, it was important to draw a boundary around a coherent set of segments to map where our client ‘wanted to win’. The defining characteristics of these segments allowed us to conduct the next critical stage of the engagement, which is finding out the optimum combination of existing capabilities with the viable stretch of our client’s brands. Post that, we identified how these opportunities can be tapped into using a combination of strategic and tactical initiatives (e.g. activation, cross-sales, bundling, tiered loyalty programmes, accelerated rewards etc.).
Going by the above real client engagement, a market structure is the backbone of any form of brand growth strategy. It provides clarity, focus and prioritisation to strategic growth initiatives. Creating a comprehensive market structure requires a combination of analytical prowess and purposeful judgment. The speed at which category dynamics evolve has grown significantly, which makes it crucial for organisations to have a continuous understanding of the structure of the categories they play in.
Sandeep Das is an independent branding, marketing, and research consultant
James Walker is a Partner at OC&C Strategy Consultants, and Global Head of Analytics