Knowledge Bank Blog, Finding New Ideas, Range & Portfolio

Seeing the Bigger Picture

Do you really know what is happening?

You know the story about the frog in a boiling pot, right?

If you suddenly put a frog into a pot of boiling water, it will jump straight out.  But, if you put a frog in a pot of tepid water, then slowly bring the water to the boil, the frog will not sense the danger and will be slowly cooked to death.

Plenty of scientists have debated whether this is actually true.  Some 19th century experiments suggested it was true as long as the heating is sufficiently gradual.  Modern biologists say it is false – a frog that is gradually heated will jump out.

Does it matter?  Not really.

The point of the story is that small, incremental changes are often unnoticeable (the frog stays in the pot).   However, these small changes can lead to big impacts over time (it is cooked to death).  The story can be applied to many things in life, like the effects of global warming, the lead up to the 2007 financial crisis, how to treat drug addiction – gradual withdrawal rather than cold turkey.

Why are we talking about this?  Well, we often see this story playing out in our industry.  You look at things regularly – weekly sales, monthly share reports, quarterly brand trackers.  These things show you small movements – the equivalent of a gradual increase in the temperature of the water.  But, when you keep looking at the small changes you can often miss some of the big things that are really taking place – the water is now boiling.

For instance, over the last few years each monthly increase in discounter market share was small.  Step back and it becomes big.  Monthly declines in fruit juice sales were small.  Step back and it is a significant drop.  When promotional intensity was increasing, each extra price promotion was small.  Step back and some brands were selling most of their volume on deal.

The big problem is that by the time you realise it’s 20° warmer it can be too late to turn the temperature down.

So, how can you stay aware of, and act on, the changes that matter?

Know the consumption and usage trends.  For example, are more or less people eating breakfast now?  What things are they eating more or less of for breakfast?  Are more people snacking?  When are they snacking?  What are they snacking on?  This often means looking at things over a longer time period – the monthly movements in potato vs rice and pasta consumption are small.  Chart this over 20 years and the movements are huge.

This often means looking outside your category.  You might know the consumption of your category has been falling, but that consumption is likely to be going elsewhere.  Where and why?  It also means properly understanding trends in your category.  This isn’t as obvious as it sounds.  We’ve seen categories and brands that think the figures are healthy because value has been going up, without realising that volume was in significant decline.

Follow (& Lead) the Trends.  Too often companies try to protect their current business.  We talked about this last week.  You operate in a particular category.  You are set up to produce certain products.  So, you make what you can make.  This is why many brands have taken so long to adapt to the health trend.  They fight it for a while – some clever NPD, more promotions.  But, eventually they have to respond.  The problem can be that everyone responds at the same time – think ‘Thins’ in the Biscuits category at the moment.

It is much better to swim with the tide.  If consumers are changing what they eat, how do you adapt what you make?  And how do you ensure you get first mover advantage.  Belvita did it in breakfast biscuits.  Graze are doing this in healthy snacking.   You help establish the sub category and you win disproportionately as a result.

Decide.  Then Hold your Nerve.  It can be seen as less risky to sit back and see how things develop.  However, it is often more risky.  If you wait it can either be too late or a competitor has already stolen a march on you.  Take Discounters – many manufacturers took a long time to decide on whether to play there.  The longer you wait, the more sales you miss and the more chance a competitor gets in there before you.  Not a big problem when Discounters have a 5% share.  A much bigger one when they have 10%+ share.

It is also crucial to hold your nerve. You might see a loss early on – e.g. investment in factory capability for a new product.  Or you might not see an immediate return – e.g. investing in eCommerce.  However, you are often investing now in order to build an advantage in the future.  If you are following the right trends, have confidence it will pay back.  A small advantage now could become a big advantage over time.

To act on the right things, you need to properly understand what is happening.  To do this you often have to take a step back.

To understand how warm the water is and whether it is getting warmer.

Feel free to forward.  Have a great weekend and speak to you next week.