Niche brands are less common than we think (or hope)
We humans seem to have an unconscious liking for a good underdog story. We cheer the idea of David vs. Goliath, the Tortoise and the Hare, Senna vs. Prost, Leicester City vs the Premier League, Ben & Jerrys vs Haagen Dazs; and of course, wines produced on cliff faces or in deserts, against all odds.
Our attraction to a feel-good story has crept into Brand Management. Nowadays it’s not cool to manage a mainstream brand because it has “lost its true followers” (for which we might interpret: “no one who the brand manager would like to hang out with”), while a niche brand with a small-ish group of enthusiastic social media users is far more attractive (possibly because it includes people who the brand manager would like to hang out with).
Niche branding is what Chris Anderson talked about in his seminal 2004 book The Long Tail. These brands are not funded by some giant corporation, but instead are empowered by the wisdom of online crowds to become success stories within a defined space – funky gumboots for festivals, hairbrushes for frizzy hair, jams made with certain eco-friendly ingredients. A mainstream brand is, well, Heinz soup, or Adidas sportswear.
In the wine world, some would argue that almost all brands in a complex and diverse category are, by definition, niche. While it’s true that a long tail clearly exists in the wine category (we once estimated that ProWein plays host to around 300,000 distinctive products every year), just as in any other consumer product category, there are mainstream brands as well. As it turns out, there are quite a lot of the mainstream brands, and surprisingly few successful niche brands.
At Wine Intelligence we regularly measure the popularity of brands in over 30 of the most important world wine markets. In each market we measure over 50 brands and ask a representative sample of wine consumers which brands they are aware of and which brands they actually buy. The interesting thing is that we can measure the relative performance of different brands regardless of size. We call that measure “conversion to purchase”, that is, the proportion of consumers who are aware of a given brand who say they have purchased it in the past 3 months. We can identify small brands that are bought by a large proportion of those who know them, i.e. a “niche brand” with high conversion into purchase. Alternatively, we can see if there are big brands that have become too well known and now fail to convert those who know them into buyers (that would be a mainstream brand with low conversion into purchase).
To answer the question about how many “niche wine brands” there are in a given market, we averaged the conversion rate from awareness into purchase of the top 5 brands per market (the mainstream brands) and then we compared that figure to the rest of the smaller brands (typically the next 40-50 per market). Thus we can see quite quickly how many brands outside the top 5 which have as good or better conversion rates as those in the top 5. This gives us a proxy measure for how many niche brands there are in a given market.
When we did this exercise on our most recent dataset (Vinitrac® Global, October 2016) we found far fewer niche brands than one might think. Just 3% of brands showed higher loyalty (as measured by awareness-to-usage conversion %) than the top 5 brands across the markets studied. In the USA, Mexico or Brazil “niche” brands seem more common, but still account for 9% or less of the 50 or so brands we track.
The UK market is pretty unforgiving for small brands: just 1 brand (McGuigan) matched the top five brands in terms of conversion to purchase. In emerging markets the situation is even worse, as there are none (0%) brands outside the top 5 that are more loyal than market leaders such as Alpaca in Japan, Great Wall in China or 1865 and Montes in South Korea. Asian markets are a real “winner takes all” playing field.
What are the learnings? We should recognise that niche strategies are in many ways harder to maintain than mainstream strategies. Mainstream brands tend to have better distribution, and therefore benefit from an availability bias (you can only buy what is on shelf), appropriate pricing and highly memorable brand names, logos and colours. Being easy to buy and easy to find seem to be the key. Focusing on a small set of consumers and expect them to be loyal to you seems like a very risky strategy after all.
Author: Juan Park