One of the delights of my job is the occasional serendipitous meeting with a marvellous executive who makes you think afresh. And so it was a few days ago when I was in India visiting our technology partner. At lunch I was seated next to a US-based senior director for strategy at a massive global CPG company. It was a delightful conversation, and over pepper chicken with mango raita the talk turned to the question of if it's true that SKUs can never be brands in their own right?

I spent a few years as a Senior Partner at Prophet Brand Strategy, and we literally wrote the book on such "brand" questions. We often ruminated on the Brand vs SKU question, and fell down on the side of SKUs could not be brands in themselves. But now I'm not so sure.

There are certainly some arguments for and against...

Single-serve Coke Light? Serves very different customer segments, need states, and consumption modes, and is very different to a family sharing PET? Noting moves towards Functional, Healthy, and Premium SKUs, whether its small yoghurt pots, chocolate or snacks, smaller and premium packets of potato chips and so on.

I remember working on a waters project, where the clear conclusion was to have one different SKU (bottle size, single serve vs multipack, with/without nozzle) focus per channel (convenience, supermarket, mega discounter big box) to create clarity of the proposition for the consumer. "Differentiated consumer proposition" surely means it is a brand?

Are SKUs increasingly becoming brands? Let’s hear both sides of the story;

I was a board Director at J. Walter Thompson and worked in advertising for more than a decade and we often mulled over "what is a brand?" As a former Senior Partner at Prophet Brand Strategy, I am no stranger to this question of SKUs as brands wrestling with this topic for giant global CPGs. It was quite the conversation topic of the Soho bars of the late 90s, fleetingly popular like Britpop and Tony Blair.

Marketing has started focusing a lot on the ‘micro’ aspects of brand building. Programmatic targeting, hyper-personalisation and tactical advertising are a few of the tools, which are used for ‘micro-marketing’. Influencer marketing with a pack shot on insta? Consequently, it is not strange that organisations have started focusing on SKUs as drivers of growth, instead of a complete overhaul of a masterbrand or a sub-brand, and certainly investing in SKUs as though they are brands.

To cut through the noise, it is important to establish some foundation principles first. Any new brand launch with a single SKU is effectively a SKU becoming a brand. But there are interesting examples of how SKUs have been used as part of broader brand strategy. In 2015, Coca Cola announced in the US that mini-cans (7.5 ounce) of Classic Coke were the drivers of growth, in light of a steep decline in soda consumption in the US. Different needs and consumption modes, addressed by a different "brand"...

A more recent example of positioning a SKU as a brand is seen as a component of Godiva’s attempts to become a $2 billion global brand.

The Godiva growth path is being charted by entering mainstream retail, and more specifically selling in Sainsbury’s in the UK with a specific SKU strategy that they have turned into a brand. Godiva Masterpieces is a brand specifically launched for the supermarket trade and comes in two SKUs – 83g (tablets in three flavours) and 93g (individual chocolates in three flavours). In short, we have a new brand created by combining existing flavours into two new SKUs. But is the SKU really the brand? It is debatable over the long run, but in the short run, yes it definitely is.

In 2016, Alpro launched Go On, a single-serve soya yoghurt range that was only available in a single SKU of 150g. The launch was a continuation of Alpro’s strategy to expand into other categories, which it had started by entering the yoghurt big pot segment earlier in the year. A smaller SKU (150g) became a new brand for the company and was positioned for the ‘on-the-go’ healthy eating segment.

SKUs are also not launched or positioned as brands, when the masterbrand itself has the ability to stretch into different consumption occasions and needs. In such instances the need is for a range or line extension supported by an appropriate SKU line-up. Take the example of Innocent Drinks. Starting from juices, the company now has an expanded portfolio that includes smoothies, juice & water blends, a kid’s range and coconut water. The ‘Innocent’ masterbrand drives all expansion strategies, with SKUs filling in occasion or age-specific requirements.

If we plot SKUs as chess pieces on a market structure grid, their strategic importance becomes clearer. A market structure is an opportunity map (customer segments plotted against needs or consumption occasions) and is the underpinning of a successful brand portfolio strategy. Instead of plotting the whole brand portfolio on the market structure, we can plot the individual SKUs of a single brand. Taking a market structure approach it seems to me that many SKUs will qualify as brands.

If the need-defined segments are relatively homogenous (and differentiated by a few parameters), a SKU-driven new brand strategy has more merit. If the segments are highly differentiated, SKUs will have relatively zero power in meeting sets of heterogeneous needs and a new brand / range / line extension strategy is required.

In many instances, SKUs are not brands at all. In classical marketing thinking, having an effective SKU strategy is critical for leveraging current and future avenues of growth. An expanding SKU range of a brand exemplifies two thinking traits – the portfolio needs diversification because category dynamics are changing or portfolio expansion is necessary because everyone else is doing it. Regardless of whether one is proactive and the other is reactive, portfolio expansion in both such instances does not lead to SKUs becoming brands.

The debate around whether SKUs are brands or not should pivot towards whether they are meeting brand level objectives. SKUs don’t need new brand names to succeed, but do need laser-sharp positioning. If a CPG brand launches a new SKU that successfully caters to the ‘on-the-go’ or travel segment, then it is a brand in itself because it allows the masterbrand to expand into new categories. Similarly, if a new SKU allows a brand to fill a gap and straddle a whole price range, then in reality it is a brand (or a sub-brand). The debate will continue, but the objectives of launching a new SKU should always remain strategic, which is where brands play.

This matters a lot to CPGs' brand architectures and how they leverage brands (and master brands) for maximum advertising ROI.

James Walker is a Partner at OC&C Strategy Consultants, and Global Head of Analytics