Successful Niche Marketing Driven by Technology

Kellogg’s corn flakes, Kraft macaroni and cheese, Gerber baby food, Heinz ketchup, and McDonald’s hamburgers—these are a few of the venerable brands that perennially maintain a dominant market share in their respective categories. Look behind the sales figures, however, and each brand faces competition like it’s never seen before.

Despite their long history and market strength, these powerful brands are faced with challenges stemming from the fact that consumers today are highly diverse, as are their buying habits. Holding onto a mass market is an increasingly difficult task. The reasons for this diversity are well documented. Rising affluence means that choices are more affordable; powerful media ranging from the Internet to limitless satellite television channels can instantly provide exposure for new products aimed at targeted audiences; and the American melting pot is constantly introducing new cross-cultural cuisine.

According to Jagdish Sheth, Professor of Marketing at Emory University, these trends create “time poverty, and a decline of homogeneous markets,” characterized by stronger regional differences, stressful lifestyles, and more of what he terms “the cocooning phenomenon.”

Behind the demographics is a technology explosion on all fronts that makes it easier to create, process, and market new products. “The new marketing paradigm,” Sheth says, “is characterized by the move from traditional push–pull mass marketing to emerging interactive marketing.” Mass market brands don’t worry as much about the threat of large-scale competitors as much as niche marketers nibbling away at the corners. Ketchup, for instance, is a $2.2-billion global category. This year, Heinz will sell 650 million bottles of ketchup, consumed in 140 countries. Yet the exploding popularity of salsa in the U.S.—in many markets selling in greater volume than ketchup—prompted Heinz to diversify its line, which now includes Light Harvest and hot varieties.

“Success in increasing our financial strength will flow from our ability to generate brand and category growth,” stated Heinz chairman William R. Johnson in a recent speech to shareholders. “We will do this by staying in step with three dominant growth trends in the 21st century—technology, globalization, and innovation. Improved technology—particularly the Internet—will enhance our supply chain and permit us to build better, more intimate relationships with customers and consumers.” In other words, Heinz will strive to market closer to the individual consumer.

According to the Food Marketing Institute’s report, “Food Retailing in the 21st Century—Riding a Consumer Revolution,” released last April:
• The simple and singular force driving the revolution is the consumer. The consumer’s market power is growing strong and ingrained. Scanning data drive product assortment with the help of business practices such as category management.

• Competition has never been more vigorous, with more than a dozen types of retailers vying for market share. Food retailers today include conventional supermarkets, superstores, supercenters, membership clubs, combination (food and drug) stores, natural and organic outlets, limited-assortment stores, convenience stores, dot-coms, and gasoline stations. Consumers have never had more choice in variety, value, nutrition, and quality.

• The competition includes restaurants, especially fast food, which are near the milestone of controlling half the $800-billion market for food sales. Dual-income couples and generations X and Y are fueling steady sales growth in “food away from home.” In effect, the diverse consumer market is being matched by increasingly diverse channels of distribution. Behind it all, the Internet has had the most profound impact on these trends. In the backwash of the rise and fall of the so-called “New Economy,” Internet technology has established itself as a front-line marketing tool on two levels—business-to-business and direct-to-consumer. According to a recent Ernst & Young report, the Internet has produced “new technologies that are lowering transaction costs while enabling companies to make rapid, accurate decisions based on the changing demands of the market and inventory visibility.”

On the consumer side, the Internet is far more than a home shopping experience. More than half of U.S. consumers regularly use the Internet today, and nearly all of them use it daily, according to Dave Jenkins, Vice President of Food and Beverage Services for NPD Group, a New York-based research firm. Shopping, however, represents a small fraction of consumer time and usage. While 46% of Internet usage is to gather or access information, only 13% was spent at shopping sites, according to data collected early last year by NPD. And most online purchases are books and music, not food. Nevertheless, online grocery sales should exceed $1 billion this year, with the four largest online grocery e-tailers controlling 30% of the total market. The balance will go to online sales by traditional supermarkets and specialty niche players offering limited selection. “In the end,” Jenkins says, “the Internet provides an opportunity to strengthen your relationship with your customer and make grocery shopping, both online and onsite, easier and enjoyable.”

These new marketing dynamics provide myriad new routes to consumers for smaller entrepreneurial companies seeking to gain a foothold. In the words of technology pioneer Michael Dell, founder and CEO of Dell Computers, “The Internet is a huge vacuum sucking all the friction out of the economy. Companies that use this to their advantage will be the ones that survive and thrive.”

by PIERCE HOLLINGSWORTH
Contributing Editor