Cannabis brands: winners don’t take all
"Winner Winner, Chicken Dinner? I don't think so. Winner Winner Sheen Dinner." – Charlie Sheen
The tech, CPG and entertainment sectors often exhibit ‘winner take all’ outcomes i.e. a few brands achieve outsized, dominant market shares. The fragmented cannabis market, however, is quite different.
It is hard to create and maintain high volume cannabis brands because of fickle consumer tastes, channel issues and the plethora of available ‘me-too’ products. Furthermore, 3 other issues will challenge product managers, beginning with a phenomenon called the Pareto principle.
In simple terms, the rule says that 80% of a brand’s volume is purchased by 20% of the consumers. These heavy consumers drive the cannabis market and should be in the crosshairs of any medium to large size producer. However, big consumers are often not brand loyal nor are they attracted with simplistic marketing. These aficionados regularly seek out what’s new or what they haven’t purchased in the past.
Secondly, there are time-limited market opportunities for ‘long tail’ or underperforming brands i.e. low volume, niche products. Retailers and wholesalers will cull slow moving SKUs - and sometimes not pay for them. Moreover, flower-based products degrade over time. A new product can quickly turn into a cost sponge and balance sheet overhang.
Finally, being a high-volume seller really matters for the bottom line. It can reduce production and inventory costs while enabling you to remain competitive in a declining price environment.
Savvy firms will refine their brand management system to reflect these market realities as well as the internal trade-offs around investment, focus and resourcing. You should:
> Define target categories & segments and look to dominate them. Spray and pray product introductions do not work. Placing fewer but larger bets can paradoxically reduce product risk since you are not spreading scarce capital and resources across too many SKUs and categories.
> Stay very close to your target’s needs and buying behaviors as well as the channels and retailers that service them. There are many ways to segment this heavy consuming but diverse cohort.
> Launch new products against your target’s need states and buying habits. For example, in northern climates sativa strains and pre rolls do better in the summer.
> Execute with excellence. Best to market beats first to market every time.
> Develop a robust innovation capability that is closely attuned to industry trends and seeks to leverage the broader cannabis ecosystem.
> Actively undertake product line management. Regularly prune underperforming SKUs to free up capital, shelf space and management attention to uncover new and improved products.
#productdevelopment #brands #SKUrationalization #retail #brandmanagement #channels