The Rocket Science of Soup
By Dave Holloman
April 7, 2010
In late February, Campbell Soup announced a dramatic redesign to its iconic soup labels. This announcement was accompanied by additional changes in how these products will be presented on the consumer shelf with the objective of simplifying product choices. With sales starting to ebb in its core product lines, the company made these changes in the hopes that these bold moves would be noticed by shareholders and the market. Yet the changes themselves were somewhat eclipsed by the process the company took in arriving at these decisions.
According to media reports, first in the Wall Street Journal, and then virally expanded, Campbell’s wired up test consumers with brain measuring devices. Comparing heart rates and eye movements while consumers scanned shelves, Campbell’s was able to determine those aspects of the shopping experience which motivated decision, and those which created distraction. With the data collected, it became clear to the marketers at Campbell’s that the consumer was confused. So, therefore, color codes will be introduced at the shelf and the label will be redesigned. The key objective of these steps is an easier, more guided, route through product choice to purchase decision that minimizes decision paralysis and increases sales.
A growing body of evidence suggests consumers are indeed mentally stuck by the complexity of choice. In 2004, Barry Schwartz published an article in the Scientific American titled “The Tyranny of Choice.” That widely circulated article outlined Mr. Schwartz’s academic research asserting that increasing options often lead to sub-optimal and value decreasing choices. After a certain point, diminishing returns take over and consumers meet more choices with increased anxiety, confusion, and decision paralysis. This dynamic appears to be present in all walks of life where people are confronted with choice complexity. Retirement planning is another relevant example. Research by the Wharton School demonstrates that individual participation in 401-k retirement plans decreases as plan options increase. The more plans offered, the less people participate. As the academic research has piled up, it has been given the inevitable academic label – the “choice overload hypothesis.”
With all due respect to the rigor of academic research, there is no better illustration of the choice complexity consumers face today than Stephen Colbert’s description of potato chips. In a recent episode of the nightly Colbert Nation (click here), the ever-present host unveiled all the ways you can make a Pringles potato chip. Who knew there were so many kinds of Pringles available to be bought? The choices are mind-blowing, which is, of course, the point.
The fact that this amount of product complexity still exists is a testament to the durability of bad incentives at the expense of consumer satisfaction. In the consumer goods industry, shelf space after all is king. Even more so today. In the United States, learning from their European counterparts, the push is on the increase private label share. Market share of retailer private label product in the US has always lagged its share in Europe. With the current recession, retailers have sensed opportunity to increase share of their private label product. Branded products are, literally, being pushed aside of the primary real estate of the shelf, to put private label in the command consumer position. As a response to stem this tide, manufacturers respond with more products to defend this space, mainly with line extensions. The net effect of all of this is more products fitted into the same shelf space….and more choices consumers are forced to navigate.
The costs of choice complexity have been long-known in the supply chain. Greater inventory levels required for more products tie up cash. Greater demand variability involved across multiple, similar products impacts production efficiency of hard assets, higher distribution costs, and requires more labor to respond to often chaotic breakdowns.
The growing body of evidence, first developed in academic circles but now being applied in the real world, suggests choice complexity is a real cost borne by consumers. That cost is shared by both retailers and manufacturers in the form of lost sales and lower consumer satisfaction. Perhaps the Campbell’s decision will represent an effective strategic alternative to the proliferation of choice.
Two quick points
1) Have you checked the recent drop in volume for Campbells Soup this latest quarter – something like 8% – which is a lot for a branded consumer product. You know you’re in a recession when consumers question the value (and health) of canned soup. Also General Mills Progresso has been doing better than Campbells the market leader
2) US Private Label sales for grocery are around 20% and growing. More retailers including Safeway, Kroger and most recently Wal-Mart with Great Value have re-invented their Private Label brands to match the quality of the leading national brand but with a 15 to 20% price advantage. In fact quality tests have shown that in several cases private labels were actually judged by consumers as being superior to the national brand – not just in ingredients and packaging – but also in blind taste tests.
…The lesson is simple – Private label brands are not just eliminating the third and fourth brand in the category – but stealing share from the category leader and the number two brand. Categories that lack innovation and are commodity like e.g. canned tomatoes or soup – will lose volume and market share.
Dave:
Awesome article. Well written. I’m going to link to it and Twit you a bit. I always knew you were smart. Lets yak.
It will be quite interesting to see the sales trend compared with Progresso over the next 6 months. Thought provoking article. Well done.