From Products To Services For Growth

It’s interesting that recently P&G has started moving some of it’s most venerable product brands into new service categories. First with Mr. Clean branded car washes, and now with Tide branded Dry Cleaning services. Last year, we also saw Mercedes Benz create their Driving Academy focused on improving the current 90% of all car accidents that are caused by preventable driver error.

On one level this shift into services makes perfect sense. Many service categories are fragmented and suffer from both variable quality problems and inconsistent pricing. A branded champion under these circumstances has the potential to create real disruption. It also makes sense from a consumer standpoint. We’ve seen a phenomenon over the past few years that where loyalty has tended to decline over time (primarily due to the Internet and how easy it is to check out alternatives), consideration has tended to increase (again, due to how easy it is to check out whether something is good or not). Basically we’re in a world where you have to earn your loyalty, but if you do then people are more likely than they have ever been to consider you for other things.

In this case, Mr Clean, Tide and Mercedes are all brands which bring a lot of trust and capability to the table.

The business rationale also makes sense. Clearly these are all brands whose Western markets are facing flat to declining growth. At this point, the logical question becomes one of getting the most out of existing assets (in these cases, the brands) in order to drive growth. Services make sense not only due to their fragmentation, variable quality and lack of brand presence, but also because of their business models. They don’t require large scale plant and machinery and franchising options create the potential to scale rapidly.

With all this being the case then, the question should really be why more product based brands aren’t leveraging themselves into service categories for growth?

I think there may be two related factors at play preventing this.

The first is simply that a service business model is too far from the core operational strength of most product focused corporations. While it may make sense for a consumer, an organization built around the discipline of the things that they produce finds it hard to deal with a services business focused on services that are consumed at the same time as they are produced. Also, while these corporations may understand the nature of things, they don’t necessarily understand the nature of people. And finally on this point, these firms rarely have any direct connection to the consumer. Their businesses tend to work through intermediaries such as retailers (in the case of Mr Clean and Tide) or dealers (in the case of Mercedes).

The second factor, closely allied to the first, is that by the time a brand has achieved maximum strength, it is also likely to be managed in it’s most conservative fashion. Put simply, the discipline of tightly managing a large brand in a mature market tends to attract very different managers than brands which are driving the growth of markets. Brands which have over time shifted from being entrepreneurially driven to being administratively driven tend to find it very hard to get back to an entrepreneurial mode.

However, I do believe that with major well known firms such as P&G and Mercedes creating new services businesses that we’ll see much more services based brand leverage as a growth strategy in 2011 and 2012.

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