Insight Article Desktop Banner
 
 
Global Equity Observer
  •  
March 31, 2021

Why big brands thrive in a digital age

Insight Video Mobile Banner
 
March 31, 2021

Why big brands thrive in a digital age


Global Equity Observer

Why big brands thrive in a digital age

Share Icon

March 31, 2021

 
 

A mass-market brand aims to sell to all the buyers of the category. In fact, the typical buyer of a brand is a light buyer. Take a certain globally known soft drinks manufacturer: According to data from Kantar (a market research firm in the U.K.), the average consumer of its namesake beverage buys a can almost 12 times a year. However, this average is misleading.

 
 

The average buyer is not typical. At one end of the spectrum, there are people who consume 1,000 cans a year. This means that, in fact, the typical consumer purchases just one or two cans a year. This buying frequency is witnessed across all brands, small or large. Another way of showing this is to calculate what percentage of volumes is accounted for by the heaviest 20% of buyers. The empirical evidence shows it is a long way from the 80/20 rule; instead the heaviest 20% of buyers account for closer to just 50% of purchases.1

That means that in order to grow, brands need to target the other 80% as well—the millions of people who occasionally buy a can of this well-known fizzy drink, i.e., those who scarcely think about or buy it. These consumers could easily forget about it and not make their semi-annual or annual purchase. Advertising is needed to retain and prompt these buyers. If the advertisement works, it changes the probability of buying tomorrow from almost nothing (say, one chance in 300 days) to slightly more (two chances in 300 days). The change is so slight we’d hardly notice, but if every person exposed to the advertising increased purchases from once every 300 days to twice, sales of this carbonated beverage to its largest buying group would double.

So how do brands grow? They need to expand their mental and physical availability.

 
 
"
Our life experiences create our memories; our memories are based on our own encounters with brands”
 
 
 

First let’s break down “mental availability.” One human brain operates largely in the same way as another—neurosurgeons don’t need to know which country you are from to perform brain surgery. However, our life experiences create our memories, which means we all hold different ideas in our brains. Said another way, how a brand is encoded and stored in and retrieved from a buyer’s memory is similar across buyers, but what our memories contain varies based on our own encounters with categories and brands.

Associative network theories are a commonly accepted group of theories of memory that share common foundations. One of these foundations is that memories consist of nodes, which when encountered together can form links (become associated). For example, if you see an advert featuring David Beckham and a certain sportswear brand, the two may become linked in your memory—such that the next time you see Beckham, there is a chance you may think of that sportswear brand.

 
 
"
Large brands have greater mental availability”
 
 
 

In order to identify something to buy, we seek out a reason to buy something. This is referred to as a retrieval cue. What we (easily) think of largely determines what we buy. So, what determines what we (easily) think of in a particular instance? Let’s take an example: If you feel tired (a cue), you might then look for a pick-me-up, and so options (soft drinks, coffee, caffeinated carbonated beverages) will pop into your brain. These common thoughts buyers use to locate options to buy are called “useful category entry points” (CEPs). And guess what? Large brands are linked to a broader range of CEPs than smaller brands. In other words, large brands have greater mental availability. For example, there are numerous CEPs for the reasons you’d want a soft drink—such as it’s a warm day, the kids would enjoy it, to treat myself, it goes well with meals, etc.

Now let’s turn to “physical availability.” The key to physical availability is making the brand easy to find and buy. Without physical availability, investment in mental availability will be largely wasted, and vice versa.

Grocery buying is part of most people’s day-to-day lives, with staple products in constant need of replenishment. And the penetration and importance of each channel varies across countries and between rural and urban areas. As more shopping options become available, people add them to their repertoire, rather than totally substituting one for another. Multiple-channel shopping is normal regardless of the country. Accordingly, brands need to cover multiple retailers and channels as shoppers rarely only shop at one outlet. In a store, brands are surrounded by plenty of clutter. Mental availability and distinctive assets (logos, packaging), along with physical availability (premium shelf space), help a buyer find the brand. These factors help fortify the strength of large brands.

The Digital World

A brand’s growth depends on deepening penetration and recruiting a greater proportion of light-category buyers. Therefore, all marketing activities need to have reach. “Reach” refers to the size of the audience exposed to a brand’s marketing activity in a specific time period. Social media and digital advertising simply usher in more ways of reaching buyers. And critically, the more data a brand has on its consumers, the more targeted and effective the advertising becomes. Big brands have more consumers and more data, resulting in a return on advertising spend online that is two times higher than offline.2

 
 
"
A brand’s growth depends on deepening penetration … therefore, all marketing activities need to have reach”
 
 
 

Online (and mobile) shopping extends physical availability. Unsurprisingly, the internet is the fastest-growing distribution channel, where some argue there is a level playing field for brands large and small. The argument goes that within an e-retailer’s shopping environment, physical availability evens out across brands, as bigger brands do not command the same shelf-space advantage that they typically do in-store, and a small brand has similar real estate to a large brand on the “infinite shelf.” The reality does not back this up, however. Online shopping offers saveable shopping lists, with frequently bought brands popping up first on the list. Remember, we all want to spend less time shopping for essentials. On average, more than half of purchases are made in 13 seconds.

COVID-19 accelerated these digital trends and underpinned the relevance to consumers of big brands. For example, in 2020, the world’s largest cosmetics company’s e-commerce sales grew 62% and now account for 27% of sales, helping the group almost offset the hit to sales from the closure of department stores and travel retail channels, and resulting in full-year sales falling just 4%. An American multinational consumer goods company’s e-commerce sales (14% of total sales) grew 50%, helping drive group sales growth of 8%. A British multinational consumer goods company’s e-commerce sales (12% of total sales) grew 56%, with group sales growing 12%. As a result, we remain confident these 100-year-old (or more) corporations are adapting to the digital age and can continue to compound sales and profit whilst sustaining high returns in the coming years.

 
 

1 Source: “How Brands Grow,” by Byron Sharp.
2 Source: https://www.conagrabrands.com/files/cagny-2021


 
 

Risk Considerations

There is no assurance that a portfolio will achieve its investment objective. Portfolios are subject to market risk, which is the possibility that the market value of securities owned by the portfolio will decline. Market values can change daily due to economic and other events (e.g. natural disasters, health crises, terrorism, conflicts and social unrest) that affect markets, countries, companies or governments. It is difficult to predict the timing, duration, and potential adverse effects (e.g. portfolio liquidity) of events. Accordingly, you can lose money investing in this strategy. Please be aware that this strategy may be subject to certain additional risks. Changes in the worldwide economy, consumer spending, competition, demographics and consumer preferences, government regulation and economic conditions may adversely affect global franchise companies and may negatively impact the strategy to a greater extent than if the strategy’s assets were invested in a wider variety of companies. In general, equity securities’ values also fluctuate in response to activities specific to a company. Investments in foreign markets entail special risks such as currency, political, economic, and market risks. Stocks of small-capitalisation companies carry special risks, such as limited product lines, markets and financial resources, and greater market volatility than securities of larger, more established companies. The risks of investing in emerging market countries are greater than risks associated with investments in foreign developed markets. Non-diversified portfolios often invest in a more limited number of issuers. As such, changes in the financial condition or market value of a single issuer may cause greater volatility.

 

Select Author(s) For Icon

Right Click Edit

Select Product(s)

Right Click Edit

 
 
 

DISTRIBUTION

This communication is only intended for and will only be distributed to persons resident in jurisdictions where such distribution or availability would not be contrary to local laws or regulations.

Ireland: MSIM Fund Management (Ireland) Limited. Registered Office: The Observatory, 7-11 Sir John Rogerson's Quay, Dublin 2, D02 VC42, Ireland. Registered in Ireland as a private company limited by shares under company number 616661. MSIM Fund Management (Ireland) Limited is regulated by the Central Bank of Ireland. United Kingdom: Morgan Stanley Investment Management Limited is authorised and regulated by the Financial Conduct Authority. Registered in England. Registered No. 1981121. Registered Office: 25 Cabot Square, Canary Wharf, London E14 4QA, authorised and regulated by the Financial Conduct Authority. Dubai: Morgan Stanley Investment Management Limited (Representative Office, Unit Precinct 3-7th Floor-Unit 701 and 702, Level 7, Gate Precinct Building 3, Dubai  International Financial Centre, Dubai, 506501, United Arab Emirates. Telephone: +97 (0)14 709 7158). Germany: MSIM Fund Management (Ireland) Limited Niederlassung Deutschland, Grosse Gallusstrasse 18, 60312 Frankfurt am Main, Germany (Gattung: Zweigniederlassung (FDI) gem. § 53b KWG). Italy: MSIM Fund Management (Ireland)Limited, Milan Branch (Sede Secondaria di Milano) is a branch of MSIM Fund Management (Ireland) Limited, a company registered in Ireland, regulated by the Central Bank of Ireland and whose registered office is at The Observatory, 7-11 Sir John Rogerson's Quay, Dublin 2, D02 VC42, Ireland. MSIM Fund Management (Ireland) Limited Milan Branch (Sede Secondaria di Milano) with seat in Palazzo Serbelloni Corso Venezia, 16 20121 Milano, Italy, is registered in Italy with company number and VAT number 11488280964. The Netherlands: MSIM Fund Management (Ireland) Limited, Rembrandt Tower, 11th Floor Amstelplein 1 1096HA, Netherlands. Telephone: 31 2-0462-1300. Morgan Stanley Investment Management is a branch office of MSIM Fund Management (Ireland) Limited. MSIM Fund Management (Ireland) Limited is regulated by the Central Bank of Ireland. France: MSIM Fund Management (Ireland) Limited, Paris Branch is a branch of MSIM Fund Management (Ireland) Limited, a company registered in Ireland, regulated by the Central Bank of Ireland and whose registered office is at The Observatory, 7-11 Sir John Rogerson's Quay, Dublin 2, D02 VC42, Ireland. MSIM Fund Management (Ireland) Limited Paris Branch with seat at 61 rue de Monceau 75008 Paris, France, is registered in France with company number 890 071 863 RCS. Spain: MSIM Fund Management (Ireland) Limited, Sucursal en España is a branch of MSIM Fund Management (Ireland) Limited, a company registered in Ireland, regulated by the Central Bank of Ireland and whose registered office is at The Observatory, 7-11 Sir John Rogerson's Quay, Dublin 2, D02 VC42, Ireland. MSIM Fund Management (Ireland) Limited, Sucursal en España with seat in Calle Serrano 55, 28006, Madrid, Spain, is registered in Spain with tax identification number W0058820B.  Switzerland: Morgan Stanley & Co. International plc, London, Zurich Branch Authorised and regulated by the Eidgenössische  Finanzmarktaufsicht (“FINMA”). Registered with the Register of Commerce Zurich CHE-115.415.770. Registered Office: Beethovenstrasse 33, 8002 Zurich, Switzerland, Telephone +41 (0) 44 588 1000. Facsimile Fax: +41(0) 44 588 1074.

U.S.

A separately managed account may not be appropriate for all investors. Separate accounts managed according to the Strategy include a number of securities and will not necessarily track the performance of any index. Please consider the investment objectives, risks and fees of the Strategy carefully before investing. A minimum asset level is required. For important information about the investment manager, please refer to Form ADV Part 2.

Please consider the investment objectives, risks, charges and expenses of the funds carefully before investing. The prospectuses contain this and other information about the funds. To obtain a prospectus please download one at morganstanley.com/im or call 1-800-548-7786. Please read the prospectus carefully before investing.

Morgan Stanley Distribution, Inc. serves as the distributor for Morgan Stanley funds.

NOT FDIC INSURED |OFFER NO BANK GUARANTEE | MAY LOSE VALUE |NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY | NOT A DEPOSIT

Hong Kong: This document has been issued by Morgan Stanley Asia Limited for use in Hong Kong and shall only be made available to “professional investors” as defined under the Securities and Futures Ordinance of Hong Kong (Cap 571). The contents of this document have not been reviewed nor approved by any regulatory authority including the Securities and Futures Commission in Hong Kong. Accordingly, save where an exemption is available under the relevant law, this document shall not be issued, circulated, distributed, directed at, or made available to, the public in Hong Kong. Singapore: This document should not be considered to be the subject of an invitation for subscription or purchase, whether directly or indirectly, to the public or any member of the public in Singapore other than (i) to an institutional investor under section 304 of the Securities and Futures Act, Chapter 289 of Singapore (“SFA”); (ii) to a “relevant person” (which includes an accredited investor) pursuant to section 305 of the SFA, and such distribution is in accordance with the conditions specified in section 305 of the SFA; or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA. This publication has not been reviewed by the Monetary Authority of Singapore. Australia: This publication is disseminated in Australia by Morgan Stanley Investment Management (Australia) Pty Limited ACN: 122040037, AFSL No. 314182, which accept responsibility for its contents. This publication, and any access to it, is intended only for “wholesale clients” within the meaning of the Australian Corporations Act.

Japan: For professional investors, this document is circulated or distributed for informational purposes only. For those who are not professional investors, this document is provided in relation to Morgan Stanley Investment Management (Japan) Co., Ltd. (“MSIMJ”)’s business with respect to discretionary investment management agreements (“IMA”) and investment advisory agreements (“IAA”). This is not for the purpose of a recommendation or solicitation of transactions or offers any particular financial instruments. Under an IMA, with respect to management of assets of a client, the client prescribes basic management policies in advance and commissions MSIMJ to make all investment decisions based on an analysis of the value, etc. of the securities, and MSIMJ accepts such commission. The client shall delegate to MSIMJ the authorities necessary for making investment. MSIMJ exercises the delegated authorities based on investment decisions of MSIMJ, and the client shall not make individual instructions. All investment profits and losses belong to the clients; principal is not guaranteed. Please consider the investment objectives and nature of risks before investing. As an investment advisory fee for an IAA or an IMA, the amount of assets subject to the contract multiplied by a certain rate (the upper limit is 2.20% per annum (including tax)) shall be incurred in proportion to the contract period. For some strategies, a contingency fee may be incurred in addition to the fee mentioned above. Indirect charges also may be incurred, such as brokerage commissions for incorporated securities. Since these charges and expenses are different depending on a contract and other factors, MSIMJ cannot present the rates, upper limits, etc. in advance. All clients should read the Documents Provided Prior to the Conclusion of a Contract carefully before executing an agreement. This document is disseminated in Japan by MSIMJ, Registered No. 410 (Director of Kanto Local Finance Bureau (Financial Instruments Firms)), Membership: the Japan Securities Dealers Association, The Investment Trusts Association, Japan, the Japan Investment Advisers Association and the Type II Financial Instruments Firms Association.

IMPORTANT INFORMATION

EMEA: This marketing communication has been issued by MSIM Fund Management (Ireland) Limited. MSIM Fund Management (Ireland) Limited is regulated by the Central Bank of Ireland. MSIM Fund Management (Ireland) Limited is incorporated in Ireland as a private company limited by shares with company registration number 616661 and has its registered address at The Observatory, 7-11 Sir John Rogerson's Quay, Dublin 2, D02 VC42,  Ireland.

There is no guarantee that any investment strategy will work under all market conditions, and each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. Prior to investing, investors should carefully review the strategy’s/product’s relevant offering document. There are important differences in how the strategy is carried out in each of the investment vehicles.

A separately managed account may not be appropriate for all investors. Separate accounts managed according to the Strategy include a number of securities and will not necessarily track the performance of any index. Please consider the investment objectives, risks and fees of the Strategy carefully before investing.

This material is a general communication, which is not impartial and has been prepared solely for informational and educational purposes and does not constitute an offer or a recommendation to buy or sell any particular security or to adopt any specific investment strategy. The information herein has not been based on a consideration of any individual investor circumstances and is not investment advice, nor should it be construed in any way as tax, accounting, legal or regulatory advice. To that end, investors should seek independent legal and financial advice, including advice as to tax consequences, before making any investment decision.

Except as otherwise indicated herein, the views and opinions expressed herein are those of the portfolio management team, are based on matters as they exist as of the date of preparation and not as of any future date, and will not be updated or otherwise revised to reflect information that subsequently becomes available or circumstances existing, or changes occurring, after the date hereof.

Forecasts and/or estimates provided herein are subject to change and may not actually come to pass. Information regarding expected market returns and market outlooks is based on the research, analysis and opinions of the authors. These conclusions are speculative in nature, may not come to pass and are not intended to predict the future performance of any specific Morgan Stanley Investment Management product.

MSIM has not authorised financial intermediaries to use and to distribute this document, unless such use and distribution is made in accordance with applicable law and regulation.

Additionally, financial intermediaries are required to satisfy themselves that the information in this document is appropriate for any person to whom they provide this document in view of that person’s circumstances and purpose. MSIM shall not be liable for, and accepts no liability for, the use or misuse of this document by any such financial intermediary.

The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without MSIM’s express written consent.

All information contained herein is proprietary and is protected under copyright law.