Habits are hard to break, but not impossible. Some sort of transformation happens after every market disruption. But when transitions happen, how many embrace the change, and whether the change is small, large, or extensive depends upon the nature of the consumer experience. The asymmetrical system is the way to sort this out. It is easier to get consumers to try something new rather than getting them to stick with it. It is even harder when consumers are compelled to do something distinctive without being incentivised for it. Consumers will go back to their old habits unless the effort required in changing is rewarded with a better experience. This is the basis of asymmetry.
The fundamental design of asymmetry is valid in every category, but the idea originates from research into the performance of private label FMCG brands during economic downturns. Researches have long documented a pattern of asymmetric gains. That is to state, that the gains experienced by private labels are not sustained once a downturn is over. When consumers are no longer required to buy just on price, they return to the well-known brands. But private labels don’t give up all of the gains earned during downturns. They retain some of these gains, so is the idea of asymmetry.
Private labels and slowdown
One of the most extensive studies of private labels during slowdowns was conducted by an award-winning researcher Lien Lamey at the Catholic University, Leuven, Belgium. While working with a transactional database for Belgium (1983-2004), the UK (1980-2003), the US (1971-2003), and Germany (1975-2002), Lamey observed that over both the short-term and the long-term, the incremental growth that private labels gain during an economic downturn is more than four times the decline in growth that happens during the expansion that follows. In other words, when gains and losses are netted out, there is an asymmetry that works to the advantage of private labels.
Although these gains and losses are meagre, the net impact is an enduring shift in the relative market position of private labels that increases over time and builds upon itself across successive downturns.
Lamey also conducted a follow-up study, in which she analysed grocery product categories between 1985 to 2005. The objective of this research was to ascertain the best way for branded products to alleviate gains made by private labels during a downturn. She found that the most reliable way for name brands to win the fight against private labels is to add significant, unique innovations that are factually distinctive and notably better.
Price Vs quality
There are two facets to the value equation. The most familiar aspect is the price vs. value. The other aspect is the quality vs. value. Name brands can deliver augmented value in one or both of these approaches. The trick most name brands fall into during downturns is to concentrate only on price v. value. The assumptive theory is that this is the only side of the value equation that matters the most during a downturn, i.e. it is more about price than quality.
Lamey’s research showed otherwise. She found that quality-heightening innovations will have customers defect from name brands. By augmenting the quality of the experience, the value equation is driven in a way that a lower price cannot match or nullify. Consumers will look to save money somewhere else to stay loyal to brands that elevate quality. The key takeaway is the prevailing importance of quality in the value equation. Although price matters, quality matters quite as much and more.
Why brands compete and win over quality
Private labels are unable to draw customers who think that their quality is not just as good as that of name brands. These customers shift because of the value equation that works in favour of private labels. Name brands pick the wrong fight when they try to compete on price. Instead, they must compete on quality because it’s based on quality, that private labels benefit in achieving continual gains.
When downturns and disruptions take hold, large swathes of consumers are rammed into a mass experiment with something different. Consumers who are compelled to do something new would have never done so unless, or at least not as soon. Some consumers will take it up because they like it better this way. Others will go back as fast as they can. This variation in the long-term preferences of consumers is the asymmetry seen in the marketplace. For conditions in which all things are similar in terms of social resonance, it is quality that prognosticates whether that asymmetry will be small, large, or widespread.