Knock-Out; the final of the game-theory story.

Milk A, B, C, D, E, F, and G were in a dire position. The regulations on importing dairy were tougher, their profits were almost nonexistent, and even more milk brands had joined in, all fighting to get a piece of the market.

On the surface and to the end consumers, prices remained the same across brands but the backend was a pricing shitfest. The brands kept finding innovative ways to drop the cost of their goods to the retailers; display-and-win promotions, buy-and-win promotions, special discounts, Sallah promotions, Easter promotions... all because of the intense industry rivalry.

At the time of this story, Milk B was making a loss of -10 kobo per carton. Yes, for every carton of Milk B sold, the company was losing money. Strange, isn’t it?

Why not just increase the selling price and make more profit? Not too long ago, all the brands had watched Brand C’s market share drop from 10% to about 1% because they had increased prices and customers promptly switched to other cheaper brands. It was reinforcement of what all the players already knew; brand loyalty was fickle. Hence, discussion around prices increase wasn't encouraged. All the brands sold at the least possible prices, most of them still making a loss.

Why don’t they stop producing if they are making a loss? Well, because there are costs that won’t just disappear such as machinery, warehousing, land and the salaries required to keep talent. I spent time thinking about how only the financially robust companies would survive, unknown to me that the worst was yet to happen.

The next week, Milk G threw its first jab; reduced price so that retailers were able to sell cheaper than other brands. They rolled out immediately, sending hundreds of trucks to their distributors across Nigeria. Wholesalers and retailers went crazy, shifting focus from other brands to Milk G, some buying up three times their average weekly purchase, at the expense of other brands.

I wondered how Milk G who was already making a loss, decided to make even more? What was the game plan? How would other brands respond? I was soon to learn the ace Milk G had up its sleeve.

Milk A responded by throwing in a new brand of milk that had been in the works; Milk H. It sold for same price as others but offered a significantly higher profit margin to wholesalers and retailers. It gained some traction, quickly amassing about 6% share of the market, further increasing the market rivalry.

Milk B and C responded by reducing prices, matching Milk G. In order to survive the position, B and C planned to fire some staff, reduce their spend for brand building, and outsource some functions to cheaper companies. Nigerians had never been more price sensitive and Milk B and C had committed to not lose the pricing battle.

Milk D had a unique approach. It allowed itself to lose the battle, it focused on winning the war. The managers maintained the price, and focused on reinforcing that Milk D was low cholesterol, hence targeting health conscious people who wouldn’t mind paying slightly more for healthier milk. This meant that the 10% market share they had maintained over years would drop to less than 4% due to the now niched target market but at least, they would still be in the game.

Milk E’s plan was to maintain prices at N20 and allow the other brands to burn out. Their analyst estimated a maximum of 6 months for this to happen. In these six months, they would invest in research and development to ensure that their milk tastes richer.

Milk F engaged a consultant who had experience managing such situations. He was a notorious war-time advisor, never called to help grow a company rather he was mostly useful in saving a company or brand from crashing. Within days, he discovered that the reduced price of Milk G was only a precursor to the killer move. He proposed that Milk F maintain price but quickly diversify its portfolio.

Milk G didn't wait long before taking its next moves. First, taking advantage of the massive demand, insisted on payment before delivery. This didn’t deter wholesalers who took monies meant for other brands and products and sent it to Milk G. In fact, some were waited two weeks after making payment before being supplied.

I was in the market talking to a mega wholesaler, trying to explain what low-cholesterol meant when three Milk G trucks drove into the market. Within minutes, there was a crowd around the trucks. In 3 hours, the trucks were empty; over 6,000 cases of Milk G all sold out. As market loaders hurried past me, carrying cartons of Milk, I should have noticed that the inscription on the lower left corner of the Milk G cartons, weren’t the same as those that came into the market previously but I didn't and neither did any of the wholesalers.

It was three days after, a sales rep brought it to my attention. Milk G had reduced its size from 15 grams to 12 grams. Sales and marketing people from other milk brands did everything to tell the public that Milk G now contained less in it, but the people didn’t notice or care. The new grammage was written in small fonts at an inconspicuous corner!

Milk G not only gained significant market share, it was able to make a profit seeing as the reduction in size was higher in ratio to the reduction in price they used to win the market.

How did this move from Milk G affect other brands?

Milk A lost a few points off their market share but gained even more with the introduction of the low priced Milk H.

Milk B & C now knew their decision to copy Milk G in reducing price would be them suffering in vain. It was humiliating. They maintained the low pricing for about 3 months and 5 months respectively before burning out, unable to make further losses.

They started plans to release their 12g and 8g. It took them about seven months (buying and installing packaging lines, NAFDAC etc.) for the product to hit the market at which point they had lost Market equity. All the seven months of waiting to get their 12g out, Milk G gained both in market share and profitability.

Milk D’s tactic of niching on low-cholesterol seemed great on paper, especially as it aligned with global trends of healthy eating, but it just didn’t work. The masses didn’t care for cholesterol. They lost share and soon owned barely 2%.

Milk E who was waiting for others to burn out had to accept that their previous plan was terrible; Milk G has played them. Strangely enough, they stuck to their plan, maintained their price, and watched their market share fall below 1%. Perhaps, they didn’t have much of a choice. (4 years later, a bigger firm looking to enter the Nigerian dairy space acquired them)

Milk F suffered for eight months, making significant losses but when their ice-cream and yoghurt hit the market, it was an instant success. Consumers soon forgot that they ever had a milk brand.

I think there are ways small businesses can learn from what bigger brands are doing; their successes, mistakes, and blunders. This is part of why I share these stories.

Next, I will discuss route-to-market. Why most multinational consumer goods companies stopped selling directly to wholesalers, and moved to the Distributorship model. Talk about the criteria for choosing a distributor, and how small businesses can explore this option.

-- Aito Osemegbe Joseph