Taken from Forbes, click here to see the full article on forbes.com
I recently attended an MMA (mobile marketing association) meeting and found myself in an intense discussion with Dave Morgan, CEO/founder of Simulmedia and former founder of Tacoda, Inc., which he sold to AOL for $275 million. As a successful entrepreneur, he launched an attack on executives who climbed the ranks in blue-chip marketing companies (think Unilever, Kellogg’s, General Mills, Procter & Gamble, etc.). While I have a different take on blue-chip marketing experience (read here for a different view), I’m fascinated to hear different perspectives. Consequently, I followed up with Morgan to learn more about the deficiencies in today’s blue-chip marketing companies. As you will see below, Morgan holds a very strong belief that the traditional stalwarts aren’t keeping pace with younger, perhaps scrappier competitors, despite what their reputation suggests.
Kimberly Whitler: Can you describe why you believe that the blue-chip marketers aren’t actually good marketers?
Dave Morgan: First of all, the big companies that have been perceived as great marketers aren’t actually B2C firms, they are really B2B firms. The Unilever’s and Procter & Gamble’s of the world have been operating in a single-channel, constrained distribution model which gave them tremendous power because of their size. Their programs were designed to keep their customers—the channel partners—happy. In the new world, we have actually witnessed the creation of a lot of direct to consumer brand companies. It started with services firms like Zillow and now we are seeing a number of DTC product-based companies created (i.e., Casper, Peloton, Hubble Contacts, Dollar Shave Club, Blue Apron, Mack Weldon Underwear). These are companies that are selling tangible goods. And these new brands are eroding the share of the companies that focus on the retailer to the detriment of the consumer.
Let me give you an example. Think about DTC razors. Dollar Shave Club, Harry’s, and 18 other brands control about 14% of the men’s razor market up from 0% 5 years ago. All of that share growth came out of Gillette (a P&G brand). The Direct Brand Economy is the most important issue in marketing, and the big companies, who had the advantage because of limited access through retailers to consumers now don’t know how to compete in this new world. And we are seeing significant market share erosion from these so-called great marketing companies as they are getting nibbled to death.
So these blue-chips are actually B2B companies trying to figure out how to operate in a B2C world. I was talking with a McKinsey employee and I asked him the following question: If I give you $1 billion would you invest it in P&G or in the 50 brands that are nipping at P&G? He said something different. He said that he would invest $500 million in the 50 small brands and would short P&G with the other $500 million.
If the razor category can be so quickly eroded by a new brand, what do you think will happen to the big blue-chips over the next 5-10 years? The consumer brand companies are not prepared for the disruption. As another example, I watched the creation of Bare Naked Granola in a kitchen by a 22-year old. Five years later she and her partner sold it for $122 million. How can a 22-year old do this and Kellogg’s or General Mills can’t? If they understand the consumer so well and have such strong R&D groups, why can’t they create a granola brand that consumers will love?
I contend that they are so focused on innovating for a channel – which by the way isn’t working anymore – that they can’t actually think about creating solutions for consumers. The whole supply chain is now open to everybody. Fifteen years ago, I wouldn’t have had access to packaging, the raw materials, and production in small batches. Now you can. I recently shared a dinner table with the founder of Hubble Contacts. And he already has 1% of the DTC daily wear contract lens business. This is the fundamental issue—know your customer. People in Cincinnati and Battle Creek and Minneapolis don’t know their consumers. Ford makes cars for the dealers – not for the consumers.
So what does this all mean? I would argue that most people who carry a marketing title are marketing inside their institutions and are not marketers. A lot of people don’t realize that they rose to the top because they had monopoly distribution and channel power… they lost touch with their product and they are optimizers of the channels.