There is no denying the swift transformation of the consumer packaged goods industry over the past decade so here Mark Harries takes a close look at the relationship between a brand's reputation and its value
Two decades ago, it was hard to imagine a time where people would be buying anything other than their favourite brand of minty fresh toothpaste - and buying it directly from the store.
Scale was on the incumbent's side and potential innovators were often deterred by their inability to compete for supermarket shelf space. From an investment perspective, this made such companies a fairly safe bet - think dominant players, repeat customers and high barriers to entry.
Jump forward to the present day, however, and while a number of brilliant consumer staples companies remain, there is no doubt modern technology has helped to erode a large part of the competitive advantage that used to exist. In that regard, it is no longer sufficient to invest in any old consumer packaged goods company, brands must be selected carefully if an investor is expecting to make a sustainable return.
Traditionally, companies valued consistency as the most important principle of branding. Today, though, brands must find a way continually to reinvent themselves while maintaining their identity in order to keep in touch with the ever-changing consumer trends.
In short, we have a come a long way from the linear marketing models of the past. We are now in the era of social media influencers, YouTube sensations, devoted online followings and personalised targeted advertising.
Through these channels, brands are no longer restricted to conventional advertising and now have the ability to approach customers as individuals and use the two-way conversation social media allows to build meaningful relationships with their customers.
The consumer journey, which was traditionally viewed as having a beginning, a middle and an end, has been disrupted. Social media has created a perpetual engagement machine which allows for multiple brand touch points.
In addition to this, the existence of these platforms has greatly reduced the cost of acquiring consumers - the ultimate goal of advertising. A strong online presence that connects with consumers or a viral video can change a brand's fortunes overnight and a brand that has spent years offline building a strong reputable brand can quickly be eclipsed by a hungry start-up.
Occasionally companies with enviable reputations will be faced with their worst nightmare: an army of irritated social media users - think Pepsi's Kendall Jenner blunder or Nivea and its ‘White is Purity' marketing mess. The power is now to a large extent in the hands of the social media-savvy consumers/influences, so a brand's ability to convert them to advocates is vital if these companies are going to continue to dominate in the 21st Century.
Remaining relevant is a big challenge. While established consumer packaged goods brands excel at providing trusted, quality products, they fail on most other measures of relevance. In order to stay pertinent, brands must not be static - they must actively engage with the consumer and intertwine themselves seamlessly with their lives.
If we look at some of the most iconic brands today, it is almost as if they have stood still over time - effortlessly using their status as power brands to rest on their laurels. Unfortunately for them, to be truly iconic they must be innovative - and to be innovative they must be flexible and forever improving.
To be a successful power brand in 2018 means balancing brand identity and agility which, let's be clear, is no easy feat. A great example of this is Coca-Cola, which has consistently kept up with changing consumer demands without losing its authenticity.
Coca-Cola's brand has withstood wars, recessions and a multitude of trends in the beverage industry - most recently, the rise of the millennial consumer. That is not to say there have not been challenging times - or that there will not be in future - but management's track record of navigating turbulent times has, so far, been pretty good.
So how can investors harness the power of iconic brands to bolster returns? One particular area of interest to us is the emerging market consumer and their interaction with brands.
We invest in an emerging market consumer fund managed by Arisaig, which places great emphasis on monitoring how brands in emerging markets are dealing with these digital changes. By recording consumer data trends and engaging with the management of their underlying companies, they can see which brands are succeeding.
Great brands are fearlessly marching into new eras and markets - and they view these changes as opportunities not threats. They can see the current marketing environment gives them a chance to emerge as innovators and leaders in consumer experience.
Back in 2003, Philip Kotler, the father of marketing, said: "The best advertising is done by satisfied customers" - and here we are, 15 years later, and the quote could not be more relevant. Companies who are willing to use the channels available to them in effective, engaging ways to build a customer base of vocal brand advocates are ultimately the ones who will succeed - and the companies you should be seeking to own in your portfolios.
Mark Harries is head of investment management UK at Ravenscroft, which manages the UK-based IFSL Ravenscroft Huntress Balanced and IFSL Ravenscroft Huntress Global Blue Chip funds
'Prepare for market correction'
Proceeds being returned to investors
Experts' experiences and lessons learned
Partner Insight: How have companies like Amazon contributed to the megatrend tech revolution?
Chief executive Jamie Dimon issues stern warning on UK's exit from EU