Downloaded Music, Is Sell- Ing More Electrical Equipment to Watch and Play On

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CHOPPING BLOCK JEREMY BULLMORE

In praise of antinomies

HERE ARE SOME subjects that don’t with its entertaining introduction by Rory get talked about because they’re not Sutherland, there’ll be an agreeable sense of the worth talking about. And there are some familiar. We’re back to that centuries-old debate T subjects that don’t get talked about about logic, induction and intuition; right brain because they have no commonly shared and left brain. vocabulary – often no familiar name. Antinomies Let me start by trying to rescue an extremely belong squarely to this category. dirty word. One of the most devastating accusa- The best definition of antinomy I know comes tions you can make of account planners is to from the wonderful and sadly neglected EF accuse them of a despicable act of intellectual Schumacher. Thirty-five years ago he published dishonesty called post-rationalisation. The a book called Small is Beautiful. That’s not really underlying inference is this: they’ve been shown what it’s about – the title was suggested by his some really weird idea, apparently plucked out publisher and it served him well – but the book of nowhere by two under-educated people in is full of wisdom, almost all of it still relevant to black T-shirts; and all the planner has done, business, to invention, to making things happen: with Jesuitical levels of low cunning, is to and therefore to the future of planning. Let me represent its origins – as if this weird idea had quote: been arrived at through some linear, evidence- Top management … inevitably occupies a very dif- based and respectably scientific step-by-step ficult position. It carries responsibility for everything process of deduction. that happens, or fails to happen, throughout the Non-scientists tend to be more respectful of organisation, although it is far removed from the the scientific method than the better scientists actual scene of events. It can deal with many well- are. Or, to be rather more accurate: non-scien- established functions by means of directives, rules and tists like to believe that the scientific method regulations. But what about new developments, new employed in the act of discovery eliminates luck, creative ideas? What about progress, the entrepre- guesswork, the wild generation of hypotheses, neurial activity par excellence? human prejudice and – naturally – post-rational- ‘We come back to our starting point: all real isation. In believing all this, of course, non- human problems arise from the antinomy of order scientists are not to blame. Those responsible and freedom. Antinomy means a contradiction are the scientists themselves who, for a couple of between two laws; a conflict of authority; opposition centuries, led us to believe that all properly between laws or principles that appear to be founded scientific discoveries were arrived at by a process equally in reason. of forensic thought in which every step was Excellent! This is real life, full of antinomies and wholly dependent on the demonstrable validity bigger than logic. Without order, planning, pre- of its predecessor. And we believed that to be dictability, central control, accountancy, instructions true because every scientific paper published in to the underlings, obedience, discipline – without every learned journal told us in peer-reviewed these nothing fruitful can happen, because everything detail that that was indeed the way it was done. disintegrates. And yet – without the magnanimity of It was one of the greater scientists – the Nobel disorder, the happy abandon, the entrepreneurship prize-winner Sir Peter Medawar – who first venturing into the unknown and incalculable, with- blew the gaff, at least for me. This is what he out the risk and the gamble, the creative imagination wrote in a racy little number called Induction and rushing in where bureaucratic angels fear to tread – Intuition in Scientific Thought: without this, life is a mockery and a disgrace. Scientific papers in the form in which they are communicated to learned journals are notorious for All this from an economist, born in Germany, misrepresenting the processes of thought that led to writing in 1970 and working at the time for the whatever discoveries they describe. National Coal Board. It’s magnificent stuff. Never has antinomy been more evocatively In other words, by a wonderful and circular defined. irony, those marketing case histories, which we For those who’ve read the ‘Art and Science’ all suspect have indulged in shameless post- chapter in Stephen King’s brand planning book, rationalisation, have done so in the sublime

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ardice. Penicillin may have been discovered in part by happy accident – but a lot of retrospective digging had to be done before it was released on a trusting public. Nobody said, ‘Here, take these tablets. I invented them yester- day. Trust me, I’m a scientist.’ Post-rationalisation is not only respectable; it’s essential. But it’s also essential that those who practise it don’t cheat. Tom Peters advanced the cause some years ago by describing the process not as post-rationalisation but as ‘retrospective sense-making’. Edward de Bono said that you sometimes have to get to the top of the moun- tain to discover the shortest way up. All these things are true, and nobody gains by pretending they aren’t. Stephen King famously plotted account planners on a scale from Grand Strategists at one end to Ad Tweakers at the other. It’s easy to see these two figures as representing the two wholly contradictory pressures that form our particular antinomy: order versus freedom; discipline and relentless logic versus risk and unanchored intuition. At the one end, the Grand Strategist, with a belief that this makes them almost as scientific 72-slide PowerPoint deck, coshing his audience as those scientific papers that have indulged in into exhausted submission; and, at the other, the precisely the same deceit. Ad Tweaker, performing elegant little creative (It’s possible that the only honest case-study in pirouettes with never a the history of marketing is the BarclayCard case single validated fact to spoil the party. written by Paul Feldwick, once of BMP; it But to Stephen King, these were just extremes describes in hilarious detail just how luck, agency on a scale, not alternatives. We seem to be obduracy and a collision of events entirely bemused by alternatives. We’ve all caught binary fortuitously led to an award-winning campaign fever. Everything has to be zero or one, black or of great commercial effectiveness.) white, Britain or Brussels, quant or qual, Grand Marketing case histories and scientific papers Strategist or Ad Tweaker. If you’re not totally in don’t put much store by antinomy – or at least favour of one while being totally opposed to the in one half. They quite like the bit about order other, you’re a wimp. and central control and discipline, but they’re Let me return to the great EF Schumacher: not so keen on ‘the unknown and incalculable, Whenever one encounters such opposites, each of the risk and the gamble, the creative imagina- them with persuasive arguments in its favour, it is tion rushing in where bureaucratic angels fear to worth looking into the depth of the problem for tread’ – without which, says Schumacher the something more than compromise, more than a economist, ‘life is a mockery and a disgrace’. half-and-half solution. Maybe what we really need But this is where real life yet again intrudes. is not either-or but the-one-and-the-other-at-the- However beguiling the risk and the gamble, same-time. however fruitful the unknown and the incalculable, at some point a real-life client has to be And, as Schumacher points out, in every persuaded that they should spend £35 million of aspect of our lives – our home lives and our their company’s money on – as it were – an working lives, on a daily basis – we’re having to animated vampire duck. For all I know, there face, and manage, the simultaneous and contra- may be exceptions, but I’ve yet to meet a client dictory requirements for both order and free- who’s perfectly happy to sign off £35 million of dom. And somehow we do. Good parents do it their company’s money on an advertising cam- instinctively, 24 hours a day. paign featuring an animated vampire duck on The real danger in Schumacher’s antinomy is the sole basis that somebody in a black T-shirt this. To people in creative organisations, one of tells them that it’s pushing the creative envelope. his compelling laws or principles is so much more One half of this particular antinomy may favour attractive, so much sexier, than the other. If you the ‘trust me, I’m an art director’ school of cam- were interviewing a potential creative director, paign planning and presentation, but the other what would you think if he claimed blind and half certainly doesn’t. Nor is the reluctance of blinkered allegiance to ‘order, planning, clients to accept work on this basis, as is some- predictability, central control, accountancy, times suggested, clear evidence of their cow- giving instruction to underlings, obedience

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and discipline’? (Come to think of it, there are Those that can deliver both – the one-and-the- probably some agency CEOs who’d say, ‘Just the other-at-the-same-time – will inherit the earth.❦ person we’ve been looking for.’) To creative companies, ‘the magnanimity of disorder, the happy 15 July 2008 marked the 40th birthday of account abandon, the risk and the gamble, the creative planning as practised by advertising agencies. JWT, imagination rushing in where bureaucratic angels which together with Boase Massimi Pollitt pioneered fear to tread’ – these are infinitely more alluring the discipline, celebrated the occasion by staging an and more flattering. And therein lies their danger. event for clients and planners at its Knightsbridge If, over the next 40 years, account planners are offices. It was called Planning Begins at Forty and to deliver as much worth to their agencies and invited speakers and audience to define the qualities their clients as they have over last 40, they cannot required of planners and planning over the next 40 choose between the competing halves of years. This column, with the kind agreement of JWT, Schumacher’s antinomy. They will have to is based on Jeremy Bullmore’s contribution to that embrace both – and put them both to good use. evening. To celebrate the magnanimity of disorder and risk liberates no one from the responsibility for maintaining discipline and order and painstaking References accuracy. They'll need the-one-and-the-other-at- Lannon, J. and Baskin, M. (2007) A Master the-same-time. Class in Brand Planning: The Timeless Works Those that can deliver the first without the sec- of Stephen King. John Wiley & Sons. ond will be valued data analysts, responsible Medawar, P. (1984) Pluto’s Republic. Oxford administrators and deadly boring drinking University Press. companions. Those that can deliver the second Schumacher, EF. (1993) Small is Beautiful: A without the first will be valued as the occasional Study of Economics as if People Mattered. alchemist but seen as fundamentally flaky. Vintage.

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VIEWPOINT DEREK WILLIAMS

Sub-prime marketing is over

E ARE AT the beginning of the Nilum spendum – at all times throughout age of spectacular discontinuity, the organisation where the past is no longer a safe The false Latin is mine but the law is Peter guide to the future. As companies Drucker’s: ‘What is the minimum I need to rapidlyW prepare for defence or survival, all tests are spend to avoid serious malfunction?’ now ‘suitable for purpose’ ones. For most marketers, this will be a test of sur- Hold your nerve marketing vival management as the organisation takes stock The good times are over and we are likely to of itself and prepares for a new future. It will be a have too many products, prices and packages. period of rapid and constant adaptation. We never And much of our activity is sub-prime: high risk, Derek Williams, get back to where we were on the old escalator. high spend with low or no margin, and sub- Consumers are already using their savings to sidised by the core products and packs. former cope with the costs of standing still, and when it Concentrate on your best performers and sup- gets beyond that they will begin rationing them- port them. But keep your price and avoid price Managing selves. Consumers will change their needs and wars. This is the blood stream of the company, Director of behaviours rapidly because the pleasure principle particularly when the costs of staying in business of recent times will not be with us for some time are rising unpredictably. Cadbury to come. For business, this can be an incredibly Schweppes, and exciting time. Here are my tips for survival. Appoint a pricing manager Find a very good, cold-hearted operator, who veteran of Criteria of adaptiveness will ride hard on pricing. He will be the gold Once your organisation is strong on adaptation, prospector. He will find gold in pricing that’s not recessions past, you will find that the rate of learning and the being implemented and then can really make takes a look at behaviour change in the organisation becomes savings. This senior manager is a source of joy faster than the rate of change outside, and internal and salvation, and will be seen often in the office the current flexibility will be greater than external turbulence. of the MD. The human race has survived turbulence only scene and through adaptation; the same goes for organisa- Fewer and better offers some tions. Some of the changes required to come out There will be headcount casualties: not just the other side are shown below (see Table 1). redundant jobs but redundant skills in people tough advice. that are no longer relevant. The rule is you Operating plan vs budget cannot cut too far – but you won’t anyway. It is You may need to have a budget, but have an oper- crucial: headcount attracts activity, which attracts ating plan as well. The operating plan can be less cost. Always feel free to look for new money for optimistic on performance and can set out proposals. Much as you might want this to resources and costs at lower levels. If there is an happen, you cannot give more resources if the upside it will be small, and productivity will have operations plan doesn’t allow it. But you can to take care of it. have all managers examine what is in their The operating plan gives departments money budgets: how long ago was that cost acquired? Is for resources but that amount is also expressed as it still better spent that way than on the new a percentage of the assumed revenue. Budget proposal? holders have to assume revenue may be lower so as a contingency they have to have savings ahead of the game. Conclusions Forecasting darkly always sounds melodramatic, Adaptive Non-adaptive writing lists always seems simplistic and general- ising over the whole industrial spectrum Non-linear Straight line can be naïve. But to survive you have to have an Manoeuvrability Fixed adaptive organisation that will work out its own Ad-hocracy Bureaucracy philosophies and programmes. Invent Copy I have always found that management learns Adjust swiftly Too little too late Radical Incremental brilliantly on the run – momentum is precious Table 1 and brings its own insights and wisdoms.❦

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MODERN MARKETING JAMES MURDOCH

Your compass in a changingquote world

By JAMES MURDOCH

In this edited version of The ARKETING TO TODAY’S things about what works at News Marketing Society’s Annual consumer is a hard business. Corporation and at Sky – and perhaps MAudiences are fragmented. what might work for you. There are a Lecture 2008, James Murdoch People have no time to listen. They’re number of ideas we wrestle with and argues that in an increasingly cynical, media-savvy and more clued problems we encounter. We are trying fragmented media world, up than ever. Long gone are the days to understand some of the really marketers who are in tune with of Thomas Jefferson, who once fundamental – indeed revolutionary – observed that advertising was the only changes in global society that are their customers’ values and their bit of a newspaper you could trust. happening now, and how they relate to own can create an internal There is some basis to all of the our business, and, possibly, yours. compass to steer their companies pessimistic talk we hear about market- Societies are more connected than ing and advertising. I’ve made more ever before, which means that market- to rich rewards. than my share of terrible decisions in ing and brand communications are marketing, and I’ve been talked into, more challenging. But my belief is or talked myself into, some truly that if you grapple with the big awful work. changes until you really get them and But amidst the accumulated flotsam if you develop an internal compass to of any large company’s marketing his- steer your marketing and communica- tory, I do hope we’ve learned some tions, you will be working in a discipline that is more exciting, more intel- James Murdoch is Executive Chairman and lectually rich, more delightfully com- Chief Executive of News Corporation, Europe & plex and ultimately more rewarding Asia and Non-Executive Chairman of BSkyB. than it has ever been.

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The power shift sent from their mobiles and hand-held I think we all realise We all realise that marketing to video cameras, to our newsroom, and today’s consumer is less transactional then back again to homes, computer that marketing to than it was even just a decade ago. It’s screens and mobiles. This is connec- today’s consumer is less more based on understanding shared tivity in action. values. It’s about working with a truly These people are not customers of transactional than it empowered interlocutor. Sky News in the conventional sense. We are in the middle of a transfor- As well as an audience, they are part- was even just a decade mational shift in power. And when ners in the fundamental act of creating ago. It’s more based on everything around us looks different, our product. Sometimes they supply it we are going to need our compasses to to us or to others, sometimes they post understanding shared steer a true path. it on YouTube. In fact, many probably This shift in power has many do both. But if we decline to transmit values. It’s about dimensions. Some are obvious. Some their material, it will still gain expo- working with a are less so. There is a shift from elites sure somewhere. to individuals and communities. A We are constantly confronted with truly empowered shift from content controlled by a few an explosion in the plurality of infor- to that created, adapted or distributed mation. Conventional news pro- interlocutor by a multitude. A shift from passive grammes can debate an issue like the consumers – the hapless victims of ethics of water-boarding as an interro- some Madison Avenue three-card gation technique, but they would the talk of protecting consumers is just trick – to connected, informed and never dare to show the reality. Now a a fig leaf: what they are really saying is proactive counterparties who are, by journalist like Kaj Larsen is willing to that competition and innovation may and large, well aware of what you are undergo it and post it on Current result in an outcome different from trying to do. We know why these TV for everyone to watch it on the the carefully constructed, central plan- changes have occurred – and we know web, and on air, and make up their ner’s fantasy about how a market they are irreversible, and accelerating. own minds. might work. Plurality taken to this degree, In reality, our customers are both brought about by intense competition, sophisticated and demanding, and they Connectivity in action is uncomfortable for those who have a understand the media. And they are Connectivity is becoming ubiquitous. vested interest in the status quo of the not the exception to the rule. They are The march towards it is self-evident. 20th-century information economy. the rule. People aren’t stupid, even if It is already empowering consumers in It’s frightening to them; it prompts regulation obliges us to treat them as if a way that would have been unthink- calls for endless intrusion by regula- they are. able to our predecessors. This kind of tors and governments. Here’s an example drawn from the connectivity means fundamentally As an example, a sentence or two rules on sponsorship and advertising in that the individual becomes the agent from the annual plan of Ofcom, our licensed broadcasts, enforced partly by of everything. Moving from one com- UK media regulator, caught my eye Ofcom, partly by the European Union. munity to another; consuming, freely, recently. It’s something we should all Star Plus – a Hindi language enter- from a wide universe of sources; pub- pay attention to. Discussing conver- tainment channel – has been banned lishing, from each individual to any gence, Ofcom said: from showing in the UK the Indian number and any size of audience – this ‘Convergence, alongside more intense version of Are You Smarter than a 10 is the consumer of the age we live in. competition, can lead to complexity and Year Old? because the logo of an Indian This is not just challenging for mar- varying degrees of confusion and anxiety mobile phone company, which does keters. Look at broadcast journalism – … there will continue to be a role for not even operate in this country, for so long the preserve of the state or Ofcom to intervene decisively to protect appears on the set. The regulations the wealthy. It is now an option open people from actual or potential harm that prohibit this seem to operate on to anyone with technology costing less whenever this proves necessary.’ the basis that viewers are not only not than £50. When the attempted car- smarter than ten-year-olds but would bomber was tackled at Glasgow Let’s be clear. The confusion and struggle to compete in a nursery. Airport last year, coverage on Sky anxiety referred to is in the minds only Is there some grave harm to our News was better and faster than its of elites who are terrified by people society if our Hindi-speaking cus- rivals because of our immediate access taking power from them. Is it the job tomers are exposed to the fact that a to material provided by eye-witnesses of a regulator to invent sources of mobile phone company not only exists at the scene – almost instantaneously potential harm and forestall them? All in India, but sponsors a game show?

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That’s not the way some critics argue. They believe that the increase in the bandwidth and connectivity that enables huge choice for individuals is a process that does indeed transfer power. But they see this transfer as from elected politicians to various – they would say nefarious – media and communications firms, which have become the new powers in the light- speed tumult of our contemporary information economy. This is their argument against consolidation and for greater regulation – largely of traditional media – in a hyper-competitive environment. I think we can challenge this and show that it is not only wrong on the facts, but dangerous in its implications. I think we can probably cope with through control of access to spectrum, First, it ignores the absolute power this wholly imaginary threat to our that had never been possible with of competition. What makes a media way of life. newspapers. They created a state sys- company successful is how it copes tem that both stifled innovation, but with competitive markets in which crucially institutionalized a collective people have a choice. Competition Aiming Sky high groupthink in broadcast communica- today is at a more intense level than it But the heart of this is not petty rules tions. So we had for many years a has ever before been because the bar- about advertising. Those rules are sim- vibrant and diverse newspaper sector, riers to providing information in the ply a consequence of the establish- but a stagnant television oligopoly that virtual world are so low and the choice ment’s much deeper discontent with a was bland, uncontroversial and defer- of provider nearly infinite. free media. ential, if not to politicians, then cer- Incumbent interests – private or And that is really just an old tune tainly to the bureaucratic zeitgeist of state-sponsored – may not like it, but played by new musicians. The delight the day. people remain thirsty for choice. New that British newspapers have taken in So the response from the establish- providers are constantly breaking upsetting the governing elite has ran- ment when Sky launched was partly through. But also because it ignores kled with the powerful for decades. fear of what might happen now that the bigger picture. Without a free, From the 19th-century Times, thun- more choice was available, and deri- unmolested media there can be no dering against the mismanagement of sion because no-one could possibly genuine free society. A democracy can the Crimean War, to today’s Sun, want anything other than four chan- only be effective and judicious if its exposing the failures of bureaucrats to nels – three state-owned – all saying decisions are clear to the general pub- deliver safe streets and clean hospitals, much the same thing. lic, debated, challenged and scruti- the willingness of British newspapers As we know, the reality turned out to nised. As the Romans established, the to take on the authorities has been as be rather different. And although oth- fundamental question to understand characteristic as the elitist outrage it ers must judge, I would argue that a when examining any decision is ‘Who has always evoked. wholly commercial television compa- gains?’ A free media allows that ques- It remains the proper job of the ny, entirely reliant on the choices made tion to be put. media, as a campaigning journalist every day by its customers had to be This is the context in which I think once observed, ‘to comfort the afflict- much more innovative and in tune it’s best to look at News Corporation. ed and afflict the comfortable’. That’s with the values of the nation from It was born from a struggle to make a wise, and it’s right, and it’s part of the very beginning. It was, and is, success of a single newspaper in our compass. answerable to its customers in a far Adelaide in the face of an established, The elites of course do learn from more direct sense than provided richer and aggressive incumbent. We their mistakes. The advent of radio through a hypothecated tax, a board of grew through a mixture of risk, invest- and television allowed them the trustees or some other abrogation ment, and dedication that revived opportunity to exert the kind of grip, of accountability. some once-great but ailing newspapers

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– like The Times or the Sun, for exam- Of course, the idea of values-based At first we saw ple – and gave them a future. marketing and dialogue with the cus- We recognised the complacency that tomer is not new. But we’re all guilty technology as an infected broadcasting in the US, UK of talking about it, and then still opportunity for brands and other markets, and we shook falling into the familiar routines: the them up. 30-second spot, the great poster, the to talk to more people PR stunt – the conventional tools of commercial sloganeering. in the same old way. Connecting with customers There are a handful of campaigns But that was wrong. The basis of our growth has never been that are driven by real values – one the creation of a monolithic view of the example is Dove’s campaign for ‘Real Connectivity doesn’t world. Our compass has been about Beauty’. They are famous because respect, empowerment and choice. We they are so unusual. Anyone who has just mean you get a lot are restless, we are questioning and we seen the execution of ‘Onslaught’, the more chances to are individualistic. film that focuses on the pressures that Our values spurred us to pitch a young girl faces from the beauty deliver messages about Homer Simpson, against Bill Cosby, on industry, can see that values-based, Fox Broadcasting in primetime. To challenging marketing is extraordinar- customer service and launch TG24 against RAI and Mediaset ily powerful. pricing plans. It enables in Italy. To make the New York Post what And the fact that this ad was made it is today, and The Wall Street Journal by Dove, a leading participant in the people to talk back what it will be tomorrow. same industry, is not a weakness – it At every step of the way we’ve gets people talking and thinking. That learned a little more about our cus- level of engagement is great for any every reader. Four and a half million tomers and what they want – and now, brand, because it creates the opportu- light bulbs were distributed. And the increasingly, what they believe in. nity to learn things about how people paper sold over 400,000 extra copies We’ve learned through experience think and about how people feel. And that day. Readers recognise we are what difference the new empowered it creates trust with its customers. engaging with them on issues that world means for our relationship with matter deeply. customers. This is not a question of The future belongs to brands that scale. It is a different way of existing. Conclusions do more than pay lip-service to real At first we perhaps saw technology as Part of trust comes from good old-fash- dialogue and recognise that their a great opportunity for brands to talk to ioned values like customer service, customers want them to believe in more people in the same old way. But transparent pricing and treating cus- something. that was wrong. Connectivity doesn’t tomers fairly. These are fundamental. It’s tough out there at the moment. just mean you get a lot more chances to But people rightly expect more of com- But choppy waters are usually those deliver messages about customer serv- panies these days, and we should be times when innovation makes a dif- ice and pricing plans. This isn’t one- ready to respond. If we can consistently ference and outstanding marketing sided. It enables people to talk back. show how our values and our compass has a real impact. And the way in Etiquette queen Miss Manners once guide our businesses then we will stand which society is changing means that suggested that if we stopped communi- out from the superficial corporate good marketing people are going to cating to each other we might be able makeover or the cynical marketing have a seat at the top table – they are to have a conversation. In fact, we can slight of hand. the people that companies will need have an almost infinite series of conver- Customers may be concerned about to succeed. People who respect and sations. This changes our whole idea of education, or health, or the environ- listen to their customers. People who marketing. ment. So are we. They may worry see that they can create value by That’s why complaints about the about crime. So do we. And they expect understanding values. People who attention deficit of modern consumers their chosen brands to be aware of these get freedom and celebrate it as an are in reality admissions of something concerns and respond to them. We opportunity for genuine dialogue. gone badly wrong: a listening deficit on should all want to work in places that People who have a compass and steer the part of brands. Trouble cutting hear that and do something about it. by it, in good weather – and in bad. through might have more to do When we take direct action we get a These are the people who with the fact that one’s brand values powerful customer response. On a understand that there has been no aren’t in tune with those of the Saturday in January, the Sun offered a better time simply to do their busi- modern consumer. free energy-efficient light bulb to ness better.❦

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MARKETING IN A DOWNTURN PETER FIELD

Marketing in a downturn: lessons from the past

N AN ARTICLE produced by the Financial Times in June 2008, both Procter I& Gamble and Unilever revealed their intentions to maintain marketing spend into the downturn. And although more recently investment analysts have questioned Unilever’s commitment, these companies’ belief, clearly, is that this is an opportunity to gain market share at the expense of weaker businesses that choose, or are forced, to cut marketing expenditure. This intention was echoed by an analyst at Investec, at a recent International Advertising Association conference, who reported that there was no evidence that any of the major fmcg companies that he scrutinised were planning to cut marketing expenditure. But we know from IPA Bellwether data (see Figure 1), as well as anecdotally, that budgets are being cut. So the suggestion is that it is chiefly the lesser players that are cutting budgets, while major players maintain theirs. The wisdom, or otherwise, behind these strategies was reviewed earlier this year at a conference convened by the IPA. Here, I summarise the Four presentations that were made. The presentations addressed the likely impact on brands - and their profitability - of reducing marketing communications expenditure during a downturn. Clearly, if all brands in a category were to cut expenditure equally, then apart from some minor effects By PETER FIELD on the category as a whole (the most important of which might be an increase in price sensitivity) there would be little impact on As we approach what is increasingly looking like a recession in brands individually. But experience of previ- the UK, it is timely to review the state of knowledge of how ous downturns reveals that this is not the businesses should most profitably approach marketing in a general response: some brands maintain or even increase their expenditure, while others downturn. Peter Field looks at the lessons from previous cut theirs. And the Bellwether data corrobo- downturns coming to the conclusion that some large companies rate this variability in spending intentions. have wisely learned to maintain their marketing budgets and So the question under examination in reality are thus in a powerful position to squeeze smaller competitors who have not learned this lesson. Peter Field has been a marketing consultant for the last ten years and set up the IPA dataBANK in 1996.

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MARKETING IN A DOWNTURN PETER FIELD

boils down to: what is the impact on those categories where the reverse is true (such as who cut their expenditure vs those who luxury cars, financial services and fragrances) maintain or raise theirs? tend to be more resilient. The average proportion of consumers across all categories who are exclusively motivated by price is Impacts on brand health around 10% and so even if this increased Setting the scene for later presentations that considerably during a downturn, the propor- examined the impacts on profitability, the tion would remain small; there is therefore first presentation, from Millward Brown, good reason to continue to build brand pref- explored the effects of budget cutting on erence during a downturn. those consumer research metrics that are Millward Brown sounded a final caution- widely regarded as leading indicators of ary note concerning the speed with which business performance. As a leading UK ‘buzz’ (online and offline word-of-mouth) provider of consumer research-based brand now spreads consumer views of brands. A metrics, Millward Brown has an extensive brand judged to be on the way down, database to examine the impacts of budget because it has fallen silent, will very rapidly cutting. Its data show a strong correlation see this manifested in word-of-mouth, which between market share and the level of 'bond- will accelerate the perception of failure. ing’ – an aggregate measure of multiple Figure 1 brand–consumer relationship metrics. The clear implication being that if budget cutting BELLWETHER VS GDP Q1 2008 results in a decline in ‘bonding’, then market 20 8 share can be expected to decline. Revisions to total marketing budgets (left axis) Crucially, further data demonstrates that GDP (right axis) 7 two key constituent brand relationship met- 10 GDP (yr-on-yr %, current prices) rics – brand usage and brand image – suf- fered considerably (13% and 6% declines 6

respectively) when brands ‘went dark’ (i.e. 0

ceased to spend on communications) for a 5 period of six months or more. More broadly, 60% of brands ‘going dark’ see decline in at Budget revisions (% balance) –10 4 least one key relationship metric after just six months. –20 3 Moreover, the risk of failure increases quarters 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2

when communications expenditure resumes 20002001 2002 2003 2004 2005 20062007 2008 after the end of the downturn. There is a strong relationship between the level of risk of loss of share and the key expenditure ADVERTISING INVESTMENT REDUCES metric: share of voice – share of market RISK (SOV–SOM), where share of voice is 100 2 defined as share of total category communi- R = 0.74 cations expenditure (see Figure 2). Thus brands that cut their budget relative to competitors are at greater risk of 50 share loss. The level of risk is greater in some % losing share categories than others. Brands in categories 0 that are more price-driven and where brands -30 0 30 carry less importance to consumer choice Media pressure (%) (such as motor fuel, mineral water and (Share of voice–share of market) apparel) are more susceptible to share loss (354 brands grouped on the basis of relative adspend) Figure 2 when cutting budgets. Conversely, brands in

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Impacts on business performance is on price elasticity. Analysis of a brand’s The remaining three presentations, exam- pricing data across a campaign shows that it ined the effects on the profitability of brands reduced the price elasticity of the brand (i.e. of reducing communications budgets during the percentage change in volume for a 1% a downturn. change in price) from -2.2 to -1.5. Such improvements often account for the majori- Data2Decisions ty of the profit impact of a successful cam- The first of these, from econometric model- paign. By extension, the abandonment of ling consultancy Data2Decisions, identified communications is likely to result in the a key factor in determining the business gradual increase in price elasticity and the effects of budget cutting: the time lag effect. growing need to reduce pricing to maintain Although most estimates of short-term pay- volume. This may have a very damaging back from advertising (i.e. over small num- effect on profitability, but again one that is bers of purchase cycles) is around 50%, the deceptively time-lagged. payback over the longer term (one to four Finally, the Data2Decisions presentation years) is usually considerably greater raised an unfortunate side effect of markets than this. in downturn: greater unpredictability and A typical brand case study shows that the hence risk. In particular, increased volatility long-term element of payback can be over in the response curve to marketing results in four times greater than the short term. The radically different optimum levels of expen- importance of this is considerable. diture for maximum profitability. This risk Following a budget cut, a brand will contin- can deter expenditure, but the solution is to ue to benefit from the marketing investment use modelling to determine the optimum made over the previous few years. This will expenditure and to maintain brand support. mitigate any short-term business effects, and will result in a dangerously misleading Malik PIMS increase in short-term profitability. The The second business effects paper is by longer-term business harm will be more Malik PIMS (Profit Impact of Market considerable, but will not be noticed at first. Strategy). PIMS has analysed data collected To illustrate this, the long-term effects of from around 1,000 business units in devel- two different budget-cutting scenarios are oped economies during periods of market modelled for the brand. In the first scenario downturn and subsequent market recovery. the budget is cut to zero for just one year and The data are extremely robust and highly then returns to usual levels. In the second respected, and enable a comparison of scenario the budget is halved for one year downturns pre-2000 with more recent ones. and then returns to usual levels. Sales Three performance metrics are examined: recovery to pre-cut levels takes five and inflation-corrected ROCE during down- three years respectively, with cumulative turn, inflation corrected ROCE during the negative impacts on the bottom line of first two years of market recovery, and mar- £1.7m and £0.8m. ket share change during the first two years of However, there are other dangers of com- recovery. mon downturn behaviours. The diversion of A previous (2001) analysis of the winning communications expenditure into price pro- business strategies deployed during earlier motions is a common response to downturn. downturns demonstrated the importance of The experience of widespread use of price increased commitment to marketing during promotions in the US automotive category a downturn. illustrates how consumers quickly come to That analysis showed that while maintain- expect ‘incentives’. They therefore lose their ing or reducing fixed costs was desirable, the efficiency as a generator of incremental sales opposite was true of marketing costs. and end up as a loss of profitability. Communications, R&D and new product Another widely overlooked impact of development were all areas where increased reduced brand communications expenditure expenditure was associated with business

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success during downturns. Improving cus- caused by increased R&D spend. Cutting tomer preference while enabling maintained R&D expenditure appears on balance the relative price were the means by which least successful approach. increased marketing expenditure drove And turning lastly to the effects of success. increased new product development activity More recent data bring the analysis of the (expressed as percentage of sales derived effect of increased spend on marketing and from new products) during the downturn, R&D, and more active NPD, up to date. the recent data again reveal that patterns Looking first at marketing spend, the have evolved slightly from the earlier analy- recent data show that ROCE and market sis, but the central conclusion remains the share after a downturn are considerably same: NPD has a strongly beneficial effect enhanced by increased marketing expendi- on ROCE during the downturn, but rather ture during the downturn. ROCE during the less so post-downturn. This is explained by downturn is perhaps mildly adversely affect- the observation that increased NPD brings ed by increased marketing spend, but not less lasting effect on market share post- significantly, and the longer-term upside downturn. Competitor response to NPD has greatly exceeds any short-term downside. By become swifter since the earlier analysis, contrast, cutting marketing expenditure resulting largely in only short-term benefits results in less ROCE recovery and reduced to the first mover. market share post-downturn. This pattern of So the Malik PIMS analysis provides clear more recent findings is therefore broadly the evidence that increasing marketing commu- same as was found with the earlier data. nications expenditure in a downturn is a Turning next to the effects of increased profitable strategy for recovery because R&D expenditure during the downturn, the media costs and competitor activity tend recent data reveal that some developments in to fall. Essentially downturns provide a the pattern have occurred since the earlier window for cheaper market share gain to analysis. While the effect on market share brands that increase investment. Increased post-downturn of increased R&D spend expenditure on R&D brings similar benefits, during it remains very positive, the effect on while increased NPD is the best strategy ROCE recovery post-downturn is now more for enhancing short-term ROCE during muted. There is little or no observed adverse the downturn, but brings little effect on ROCE during the downturn benefit thereafter.

Figure 3 THE CONCEPT OF EQUILIBRIUM SOV

120

100

80 This brand is overspending; expect share to rise This brand is underspending; share should fall 60 This brand is in equilibrium SOV (%)

0 06020 4080 100 120 Market share (%)

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Figure 4 HOW SOV DRIVES GROWTH Market share growth vs ‘excess’ share of voice

100

60 Statistically significant 40 correlation – 99%

0 –60 –40 –20 0 20 40 60 80 100 –20 Market share gain (% points) –40

–60

Share of voice–share of market (%) Source: IPA dataBANK (127 cases)

IPA DataMINE exceeds SOM a brand can expect to gain one The final presentation was based on an analy- point of market share per annum. The corol- sis of 880 IPA case studies submitted to the lary of this is that a brand can expect to lose IPA Effectiveness Awards since 1980. one point of market share for every ten points Share of voice (SOV) and share of market it allows its SOV to fall below its SOM. This (SOM) data from the case studies have been is an average finding across all categories and collected and used to examine the relation- ideally the relationship for any given category ship between SOV and SOM and by exten- should be derived from econometric model- sion the effect of cutting SOV. ling. Nevertheless this rule of thumb can be The theoretical relationship between equi- used as a forecasting tool for the effects of dif- librium SOV and SOM, is shown in Figure 3. ferent marketing communications expendi- Brands spending above equilibrium SOV will ture strategies during a downturn. An impor- grow, whereas those spending below equilib- tant facet of this relationship is that there is an rium will shrink. inherent time-lag between relative marketing The dataBANK data validate this theoreti- expenditure (SOV–SOM) and market share cal relationship closely. growth. Table 1 shows the share resulting (in Brands lying above the curve tend the following year) from expenditure in the to grow market share in proportion to their previous. It is this lag that causes deceptive distance from it, while brands below tend to short-term profitability effects during periods lose market share commensurately. Thus of sudden marketing expenditure change. ‘excess share of voice’ (SOV–SOM) Table 1 applies the forecasting rule of is the most critical factor in explaining thumb to a hypothetical brand in a fairly subsequent SOM changes. This relationship common scenario. The brand operates in a holds during buoyant times and downturns. previously buoyant category, and prior to the The actual relationship between market downturn mildly under-spent its SOM. share growth (or decline) and the level of A ‘panic’ scenario is modelled in which budg- excess share of voice (SOV–SOM) recorded et was cut to zero for two years (while com- in the case studies is shown in Figure 4. It is petitors maintained real spend). The forecast statistically very reliable and closely mirrors market share in the third year falls to 5.7% findings from other databases. from 7.1%. The rule-of-thumb finding from this analy- The likely impact of this decline on the sis is that for every ten points that SOV profitability of the brand is modelled in Table

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Table 1 2, assuming a fairly typical cost structure for a SHARE FORECAST FOR ‘PANIC’ packaged goods brand. Other assumptions SCENARIO made are that category growth ceased for two Panic scenario: zero budget years and resumed 5% growth in the third Year 2007 2008 2009 2010 year; that marketing communications expenditure for the brand is restored in the third Brand X spend £7.9m £0m £0m Competitor spend £117m £120m £123m year; and that fixed costs for the brand rise Market spend £125m £120m £123m with RPI across the downturn. The result: a Share of voice 6.3% 0% 0% short-term improvement in profitability is Excess SOV –0.7% –7.0% –6.3% Share growth –0.07% –0.7% –0.6% rapidly overtaken by a severe decline, becom- Share 7.1% 7.0% 6.3% 5.7% ing acute in the third year when the marketing budget is restored. It is important to note the deceptive short- Table 2 term profit improvement due to the lagged effects of marketing on sales (recent authori- PROFIT FORECAST FOR ‘PANIC’ SCENARIO Panic scenario: zero budget tative PricewaterhouseCoopers research suggests that 45% of the return on TV expendi- Year 2007 2008 2009 2010 ture comes through more than one year Brand X sales £317m £314m £282m £269m later). This short-term improvement provides Fixed costings (excluding marketing) £68m £70m £72m £74m the stimulus for budget cutting and briefly Variable costs (excluding marketing) £202m £200m £180m £171m Marketing spend £7.9m 0 0 £7.9m masks the considerable damage inflicted on Total costs £278m £270m £251m £253m longer-term profitability. Operating profit £39m £44m £31m £16m Applying this modelling to a less severe but more common budget cut of 20% for two years (with other assumptions remaining the PROFIT FORECASTS FOR MILD CUT VS. same) reveals a similar but less severe pattern. SOV=SOM However, the brand still emerges from the Comparison with SOV-based approach downturn in a considerably weaker profitabil- Operating profit: ity position, as shown in the top row of Table 3. Table 3 compares this scenario with the 2007 2008 2009 2010 forecast profit pattern for the minimum rec- Mild cut £39m £38m £33m £32m SOV=SOM £38m £36m £34m £38m ommended expenditure level (where SOV Table 3 equals SOM). This comparison reveals the wisdom of maintaining marketing budgets during a downturn: cumulative profits gener- improvement in profitability is likely to ated in the SOV=SOM scenario over the greatly outweigh the short-term reduction. three-year period greatly exceed the mild cut If other brands are cutting budgets the scenario, despite a disadvantage in the first longer-term benefit of maintaining year. Though it should be noted that no DCF expenditure will be even greater. analysis has been applied, which would tend to lessen the overall advantage. So it appears that the major players are the wise ones - they have learned to take advantage of downturns to grow. Perhaps they are Conclusions encouraged by the investment community, The key conclusions from the four presenta- which has also clearly learned the lessons of tions can be summarised as follows: previous downturns: on the day analysts ques- Cutting budget in a downturn will help tioned Unilever’s commitment to maintaining defend profits only in the very short term. marketing expenditure, the company’s share Ultimately the brand will emerge from the price fell 8%, despite better than expected downturn weaker and much less profitable. short term results. Budget-cutters take note. ❦ It is better to maintain SOV at or above SOM during a downturn: the longer-term [email protected]

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Supermarket retailing in troubled times

By ANDREW SETH AND GEOFFREY RANDALL

UPERMARKET retailing has been much in the news – for obvious rea- Ssons. In difficult times, it is the weekly shopping expedition that the crunch hits first and, for many people, hardest. This article looks at the supermarket scene in the UK and US to see who the winners and losers are in this important category. In addition we look at longer term trends already taking shape.

Who is winning?

Wal-Mart If you accept its statements and recent revenue figures, it’s once again in rude health as US customers, on whom it is largely dependent, reacquaint themselves with Wal-Mart’s ‘low price – always’ message and its omnipresent one-stop-shopping model. Wal-Mart has six mammoth shopping centres on a 20-mile All downturns produce winners as well as losers and the super- stretch from Phoenix to Scottsdale. Simultaneously they’re all flourishing. market sector is no exception. Looking mainly at the UK and However, Wal-Mart’s success outside the US, Seth and Randall see the predictable pattern of US is confined for the moment to NAFTA polarisation with Wal-Mart and Tesco as having the capacity to (Canada and Mexico) and British Asda. cope with troubled times. Winners are also the discounters with Germany was disastrous and Japan looks little better, although its efforts persist. question marks over just how well the premium brands M&S and Waitrose will cope. Losers are mainly the independents Tesco with further question marks over the big brands (Sainsbury’s Powerful at home, now justifiably viewed as and Morrisons) in the middle. Looking further ahead, the the West’s most innovative retailer. Far from slowing its expansion as hard times bite, Tesco authors speculate on trends that will shape the post recession has been putting the foot down. No question, period: more personal service, smaller high street stores, Leahy’s team see tough times as more of a help sustainability, continued internet shopping and the ever-present than a hindrance. Taking an international attacks by a range of lobbying groups. view, Tesco is now best in class: strong in Eastern Europe, a good and growing presence

Andrew Seth worked for Unilever for 30 years and Geoffrey Randall is an independent consultant.

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in Asia Pacific (see page 36). But it is its going notably Aldi in Europe and its Trader Joe’s west that has caused most fluttering in US subsidiary. Next Lidl, which is a force the dovecots. right across Europe. Its stripped-down stores, By its own high standards, the Tesco move scrimpy ranges and bargain-basement prices into California is brave and innovative. By gain share virtually everywhere. anyone’s standards it shows revolutionary elements, starting with the brand name (Fresh&Easy). Unlike anywhere else, it adopt- Who loses? ed a small-store format (10,000 sq ft) perhaps The short answer is the independent trade – anticipating emergent trends, (of which more smaller than ever, but destined to become later), and rapidly opened 60 stores before smaller still, given its lack of competitiveness. controversially announcing an understandable Secondly, middle-ground retailers, proba- pause in proceedings. bly including Sainsbury’s, recovering from its Its food distinctiveness is built around a traumas but acutely pincered by Tesco and locally owned ‘kitchen’ supplying much of the Asda on the left and Waitrose and M&S on fresh food, and features personal counsel on the right. Sainsbury’s remains unable to deliv- recipes and food matters in-store, while er decent trading margins. Morrisons, having unmanned checkouts are mechanised. absorbed Safeway, retired its doyen founder Differentiation is based on high-quality, fresh and relaunched under new leadership, looks food, visible store service and deliberately low better placed. pricing. The ambition is there for all to see. The rest will surely find life difficult. Is it working? Commentaries are mixed, but Circumstances similar to the UK will apply in the company remains confident and essential- Western Europe and the US. Discounters ly it will be months or years before anyone with limited product range, good space utili- knows. However one sure sign of salience is sation and rock-bottom prices attract more that both Wal-Mart (Marketside) and Safeway consumers and grow. The best self-service (Vons) responded by opening their own com- operators – Wegman, Whole Foods, Publix, parable outlets, apparently concluding this was H.E. Butt in the US – may remain unhurt. a trend they could not ignore. Less obvious is But the undifferentiated, less clearly posi- the latter’s high-price strategy, no doubt aimed tioned supermarket brands will certainly suf- at keeping its new brands as ‘niche’ entrants, fer share decline. and minimising cannibalisation of existing business – an anxiety that Tesco does not have. Our view, obtained on the spot in California How will the top end fare? this year, suggests that Tesco may have got a Will the top-end of the market collapse? lot right. The combination of fresh food qual- Perhaps not. In Britain Waitrose does well ity, unique in-store consumer service, and and confidently announces smaller stores. competitive pricing looks formidable. Tesco Waitrose delivers consistent quality as does has put its best talent into the US, and its ten- M&S, although we have yet to see how much year track record has been outstanding. With further damage will be done to M&S’s share Wal-Mart defending itself vigorously, others price and how the new foods director will imitating, and a strong Aldi brand (Trader work out. But providing it keeps quality per- Joe’s) alive and well in the US west, ceptions, consumer concern with nutritional Fresh&Easy will be thoroughly examined. If it values and health will stand these brands in works, the company will have an interesting good stead, and will not disappear. brand available elsewhere – probably including the UK, where a small-store high-street and suburban presence can be exploited. Longer-term trends at work Recessions do not last for ever, however, and Discounters we should look beyond the current depressed There are other winners. As you would expect climate to ascertain whether there are more in a recession, discounters are in fine form, lasting forces at work that will change the

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retailing. Here are some signs that we see The end of cheap food? emerging.

In addition to the current economic downturn there are more fundamental issues. Indeed, some critics have concluded our Demands for personally relevant whole retail model is unsustainable. If you’re feeling strong, try the goods and services melodramatic opinions in Hungry City: how food shapes our lives At its root is the arrival of more demanding (Carolyn Steel 2008) or The End of Food: the coming crisis in the and discriminating shoppers. This is no new world food industry (Paul Roberts 2008) for a genuinely phenomenon – people have said this for frightening world vision. years. However, the providers have These authors argue that the quantity and quality of food we remained firmly in control hitherto, and have come to take for granted in the West can’t last much longer. delivered what they saw as the appropriate The paradisal dream of plenty realised daily on supermarket response as and when they were ready, and shelves piled high with cheap, colourful, convenient and reliable invariably at no cost to themselves. produce turns out in fact to be more of a nightmare. It not only The importance of food and nutrition, denies the nature of food itself (‘seasonal, squashable, bruisable, concerns for health and physical well-being, irregular, unpredictable, in Steel’s words), it is unsustainable as well obesity worries, genuine attention and as dangerously destructive in the long run. It rests on coercive, delight in food preparation, and an overall conformist and monopolistic policies openly dedicated to the awareness of ‘what I want and need’ drives suppression of individuality, autonomy and free choice. this change. It manifests itself in a desire for We expect to see more of this kind of polemic. information of value and personal counsel – consider the plethora of recipe books, Adapted from Hilary Spurling, The Observer, 8 June 2008. omnipresent food pundits and unavoidable food programmes on prime-time TV. Food stores will need to respond – Whole Foods, consumer’s outlook on food shopping. We Waitrose, Marks & Spencer, Trader Joe’s, think there are, and though some may be Fresh&Easy all know they have to do so. embryonic, they are noticeable and different Personally relevant information becomes from past trends. We suggest that these the relevant discriminator, delivered as and trends may be strong enough to when it’s wanted, and wherever possible, face become permanent. to face by individuals, i.e. not by machine At its most fundamental we see an emerg- and not to the world at large. That this will ing relationship between provider (the cost the providers is self-evident. That it will store) and customers, which will differ from therefore frequently be resisted long and what we have been used to for most of the hard follows – remember human service past half-century. This sounds a bold claim costs in developed societies are those that and we need to offer evidence. rise fastest. But, at the end of the day, con- The prevailing model of out-of-town sumers rule, and when they decide on superstore/hypermarket/supermarket shop- change, it will happen. That time may well ping that has dominated food retailing in the be with us now. West – and, increasingly, elsewhere – for almost half a century may be in for a change. Internet shopping Trends are not for ever; they are by definition Of course interactivity between provider and cyclical, even though cycles may be consumer can take place in many ways. The very long. internet has been a radical new force in If consumers see important advantages developing information provision to shop- in some new offer, they will change their pers and in some cases it has taken over behaviour and what were originally seen entire transactions. We can expect this to as maverick providers gradually gain continue. We can also expect higher stan- momentum. dards of demand to become pervasive as Our contention is that we may be at the consumers seek more precise, personal, reli- earliest stages of such a change in food able and accommodating responses to their

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requirements. Ocado, the well-regarded but and indeed all significant aspects of the still after eight years unprofitable internet shopping transaction. specialist, is poised interestingly as recession bites. Whether it can grow and, a fortiori, The return of the high street? deliver profits is uncertain Shopping by car (still the invariable norm), Our contention is that the era of the store parking, traffic congestion, poor public impersonal transaction-managed food shop- transport provision and the high price of oil ping is already beginning to disappear, and are all major and linked issues. Given the through time the need for informed and per- constellation of store availability in the UK, sonal guidance will grow – if it works for, say but even more in the US, there is today little an expensive fillet-steak meal, why can’t it alternative to shopping by car. One-stop also work just as well in home hygiene, shopping is an appreciated consumer health and beauty, bread varieties, benefit. However, this may not last in its even water? present form. Ironically we may be witnessing a return to Alternative models exist. French towns old corner-store patterns of behaviour, retain vibrant high streets, and well-patron- where the retailer’s first move was to greet ised food shops invariably populate them. Of shoppers, whom they usually knew well, – course, time-starved families rarely have invariably by name. A resultant shared com- time to shop for fresh bread twice a day but munal relationship existed between them, some adjustment towards this alternative which was often very hard to break. model, among others, may be imminent. Could this be one reason Fresh&Easy Climate change and sustainability opened (many) local stores – small in size – Environmental concerns have been signifi- in the US? Does Waitrose have similar cant new forces affecting consumers and notions in the south of England? May this providers. While the recession may have even be a part of the Co-op’s future arsenal – driven this down the priorities list for the possessors as it is of many little-regarded moment, it has not gone away. For many high-street stores? Tesco began its modest people, and for a high percentage of rejuvenation of the high street with the ‘thought leaders’ these issues remain para- Metro operation ten years ago so it – and mount. Research shows 25% of UK con- Sainsbury’s, who quickly followed – knows sumers list this as an enduring high priority. that it can work. Their deeply held and rational concerns will However, it is the notion of ‘consumer not be resolved by frenzied action from engagement’ and of an emergent ‘communi- retailers or an expedient government on ty’ that may give this movement its big kick matters such as plastic bags. The issues are forward. This is a bold assertion and would, more enduring and comprehensive. were it to happen, represent a major change It is heartening after decades of endemic for free-market Western society. It is cer- decline to talk about the Co-op’s capacity to tainly not established among a major cus- differentiate and grow using ethical and environmental values, the Co-op is now better placed to succeed. We may be witnessing a return to old Packaging is certainly a major element in corner-store patterns of behaviour, where its resolution and it’s interesting to note that it is ‘over-packaging’ of fresh food that the retailer’s first move was to greet shop- apparently worries Fresh&Easy’s leadership most. Our view is that as this issue retains its pers, whom they usually knew well – prominence and grows in significance it will invariably by name. A resultant shared affect many more aspects of food provision and buying, and in a more radical way than it communal relationship existed between has done so far, affecting ingredients, food them, which was often very hard to break composition, distribution, communications

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Asia in the cockpit

Now we have Asia, responsible for seismic change in the world market. No question this is the cockpit, a place where anyone who wants to figure in global retailing simply has to be. For a period it has been China dominating thinking, and every major player beats its way in and jockeys for early advantage. Carrefour was first and it has fine stores in big Chinese cities, but Wal- Mart, possibly negotiating cleverly with the Chinese authorities, could accelerate its expansion, while Tesco, with its Hymall partnership, and Metro’s cash and carry format are all present. It will be years before the real winners emerge. If China was an entry challenge, dynamic India shows signs of being much more difficult. With the largest young population in the world - 900 million people under 45 - India is staggeringly attractive. The ‘modern’ retail segment grows at 40% p.a. compared to the overall growth rate of 10%. Recently India has witnessed rapid store transformation by encouraging a whole set of scalable and profitable retail models. Increasing penetration of hypermarkets, supermarkets and even one thousand or more mega speciality stores are expected quickly. There are several well-funded Indian retailers (Reliance, Godrej, ITC, Birla), and aspiring international competitors will have to strike partner relationships with local Indian companies - as Wal-Mart achieved and Tesco desperately covets. Their urgency is understandable. While the West reels under recession and collapsing spending, supply exceeds demand. India confronts inflation and industry, and retailers can’t provide what consumers want. This change is as significant as the arrival of the post- war European supermarkets and it should have comparable societal effects. However it’s worth noting that, true to form, the Indian government sets out to make it inherently difficult for foreign investors to enter - the process won’t be easy.

tomer segment today and has a long way to panies: they are big and strong enough to go before Anglo Saxon food culture gets state their case, which they do firmly and anywhere close to, say, its Mediterranean occasionally with venom. But pressures grow. equivalents. All we are saying is that some They are better informed and effective, and early signals of this kind of change in the since they often attract tacit or even overt US/UK can now be detected. political support, they have become major factors preoccupying company leadership. In the UK, supermarkets have been investigated Big retailers under attack from three times in a decade by government agen- pressure groups cies and a fourth investigation seems now to From what has preceded you might conclude be underway. Is this sensible use of resources? that competition is alive and well around the retail world. In fact divergent trends can be seen. Alongside increased willingness in A different (and better?) future some places to ‘let markets decide’ and The conclusion seems to be that food retail- assume the consumer will benefit at the end ing has never been more excitingly poised of the day, there are countervailing trends. between a group of developing consumer Immense pressures exist on major retail play- demands and a set of highly competitive ers from consumer movements. The biggest companies. The market has over ten years companies experience the most determined become, once and for all, truly global, which and frequently hostile, pressure. Wal-Mart makes these movements more visible and rel- tries with difficulty to control a big-scale evant, wherever you live. Some of the results America-wide protest movement, where may represent the beginnings of a genuinely articulate forces collaborate to arrest its better world, as indeed were the first self- apparently unstoppable expansion. service stores 50 years ago. What seems clear The same thing happens at British Tesco, is that the most determinedly innovative with assorted groups of animal-rights deserve to win fastest – be they consumers activists, high-value chicken farmers and or retailers.❦ overseas shop-floor representatives uniting to seek to destabilise the company’s AGM. Of [email protected] course we need not feel sorry for these com- [email protected]

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MARKETING IN A DOWNTURN RICHARD JENKINGS

The future of big box electrical brands

By RICHARD JENKINGS ith the credit crunch entering the Oxford Dictionary for the first time The downturn is the catalyst for a number of different trends in W we are all aware of the way that electrical goods retailing; Richard Jenkings summarises the key consumers’ spending power is being squeezed between rises in fuel, food and challenges for the leading electrical goods brands. The internet housing costs. What then does this mean for increases its appeal as a place not only to check prices but also the companies that sell electrical goods? to shop, with competition from Amazon turning the screw. On The past world of electrical retailers in the the high street, supermarkets increasingly stock electrical goods UK is littered with companies that are gone, although in some cases still remembered. at keen prices, new outlets such as HMV are emerging and Powerhouse and Miller Brothers went into Carphone Warehouse’s link with US retailer Best Buy will bring administration in 2006 and before them a greater professionalism and customer service to the market- Tempo, Radio Rentals, Rumbelows and oth- place. These activities together with pressures on manufacturer ers passed into history. At the moment the industry is dominated brands, constant price pressure, green issues and convergence by a small number of major multiples, most of technology promise much change in electrical retailing. notably Comet and the Dixons group with a wide range of specialists from John Lewis to Richer Sounds. The supermarkets have also seen a significant rise, with Tesco having a larger market share than John Lewis after

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Increasingly people are using the internet should be safe if perceived as being upmarket enough and, at the other end, we can expect not only to compare the price and features better sales of discounted televisions from of electrical goods, but also to buy. Most supermarkets. Perhaps the biggest threat is that consumers may decide not to update of the bricks-and-mortar electrical retailers their equipment and wait until the econom- sell on the net, and the move of Amazon ic uncertainty is resolved. into this area has certainly hotted up 2. Internet – clicks and bricks Increasingly, people are using the internet the competition not only to compare the price and features of electrical goods, but also to buy. Most of 2006 and Asda adding electrical space. the bricks-and-mortar electrical retailers (Verdict). Meanwhile online sales from sell on the net and the move of Amazon Amazon and others have grown to be a sig- into this area has certainly hotted up the nificant part of the market. competition. Figures show the growing vol- Verdict considered that the Comet and ume of people using the sites to browse and Dixons group had nearly reached full market buy electrical goods. With an increasingly saturation by late 2006 and were in-filling value-conscious consumer the second-hand the remaining gaps. Since then Dixons has market can also be expected to grow with had a programme of 75 closures (for mainly eBay and others adding to the pressure. Currys Digital in-town stores) to concentrate on out of town in larger stores and on- 3. Supermarkets – buy a TV while you’re line. Most recently Carphone Warehouse here and US retailer Best Buy have announced a It seems that most big supermarkets are tie-up, potentially bringing the Best Buy trying to sell you TVs, DVD players and all reputation for scale, low costs and staff manner of electrical goods. Indeed a recent knowledge to the UK. For the electrical survey stated that these items are necessities retailer, 2008 is becoming an interesting in a household’s budget and not luxuries. year. Certainly many of the largest Asda Wal- All the current electrical retailers now face Mart and Tesco Extra stores begin to look a wide range of challenges that are likely to like department stores with their own elec- shake up the present market structure. Let’s trical departments. Their strengths are now look at each of these and what they may keen pricing, space and the captive audi- mean for the current players. ence that is already there to buy food. The drawback is that it is rare to find staff that 1. The wider economy weakening – credit really know about the goods they are sell- crunch starts to bite ing. Large electrical goods and big TVs in particular are purchases often triggered by 4. Best Buy/Carphone Warehouse link-up house moves. So fewer people moving, and The recently announced joint venture wider economic uncertainty and loss of con- between Carphone Warehouse and the US fidence makes it harder to sell big-ticket giant retailer Best Buy has been much electrical items, although these goods are trumpeted in the UK press. The ability for often going down in price. Most economists Carphone Warehouse to sell a wide range seem to think that we are looking at a year or of smaller electronic goods will add to the more of depressed demand. competition already hotting up, with moves Historically it has often been the super-lux- by HMV, M&S and all other major super- ury brands and the discounters that have markets increasingly moving into this area. fared best in hard times. So Bang & Olufsen The reputation of Carphone Warehouse for customer care, coupled with existing Richard Jenkings is a Retail Consultant at Experian Ltd. relationship with Apple as suppliers of the

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iPhone will make it a formidable competitor. Best Buy will bring its US model of large out-of-town electrical sheds, majoring on both keen prices and staff knowledge about its technical products. Starting in 2009 it plans 200 big blue boxes (big out-of-town stores) in the UK. The Best Buy technical support, the ‘Geek squad’, has already been imitated by the ‘Comet on Call’ service.

5. Other retailers entering the market (e.g. HMV, M&S and others) The already crowded marketplace has got even busier as retailers on the margins of the market start to enter it. HMV, finding music sales pressured by downloaded music, is selling more electrical equipment to watch and play on. As time goes by iPods, DVD players and much more will be available in outlets that HMV is selling more never used to sell them. It is hard to believe pizza delivery and supermarket multi-pack electrical equipment to that everybody can sell electrical goods and I beer. Recent events such as the Olympics in watch and play on. am forced to think that we may be seeing a re- China will have helped spur demand run of the earlier days of pay- as-you go although even the recent price cutting on mobile phones when you could buy them large TVs has still been held back by a lack from everywhere including my barbers. There of confidence in the wider economy. will not be room for everyone and, in time, those offering the best combination of range, 8. Technological change and innovation price-service and knowledge will survive. Over the years, technological innovation has driven electrical markets. Many white goods 6. Price pressure – ever cheaper deals sales are replacements but many sales of In an era when inflation is starting to raise its entertainment products are based on new- ugly head once more, many electrical goods ness, innovation and fashion. Records fol- have been falling in price, in both relative and lowed by eight track, followed by cassette real terms. I now have a DVD player that cost players have given way to CDs and then hard me less than some of the discs I am playing on disk MP3 players and iPods. VHSVideo has it. The consumer may be seeing serious infla- given way to DVDs and then down loaded tion in many items of expenditure but electri- films. The big trends are iPods, SatNavs and cal goods have certainly got cheaper. The the combination of HD TVs linked to HD major existing retailers have until recent times service boxes and Blue Ray players. Being up concentrated their advertising on price, and to date in timing the phasing in of new tech- many small electrical items such as digital nologies and phasing out of old technologies cameras have become commoditised. In this is crucial to success. market margins can be small and only large volume can make the process stack up. 9. Behaviour changes A pub and restaurant operator has described 7. Events how the recent Saturday night when the In the early days of television the first TV finals of Britain’s Got Talent and the choice of sales coincided with the coronation. Ever a ‘Nancy’ for Oliver resulted in a quiet night since, major events have had an effect on for restaurants. This can be seen as part of a sales. Sadly the failure of England to qualify wider trend, with more people staying at for Euro 2008 will have held back sales in home. The combination of ‘better’ this sector, as well as being bad news for Saturday- night variety TV and ready meals

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People still think more about But leaving issues of fashion and brand loyalty aside, customers often like to see a range of the cost of purchase rather offers such as those from Phones4U and than the cost of running an Carphone Warehouse. item over time. The price of 12. Convergence of technology a washing machine matters We are moving towards a world where all you need is a single device that does more to people than how everything: mobile phone, email, satnav, computer, a portable TV all in one. much power and water it For electrical retailers that are strong in one uses to run it area, such as Halfords for SatNav or Jessops for cameras it can be a threat as technologies converge. When you can buy a offers such as those from M&S suggesting a digital camera very cheaply online or get a chilled meal and wine for a fixed price of satnav fitted as standard in your car or on £10, may help electrical retailers sales. your mobile phone then this changes the market. In both these cases Halfords and 10. Rising costs of energy, and green issues Jessops have pushed the importance of service We can already see that the energy efficiency and the knowledge of their staff. It is clear of electrical goods is a factor in people’s that the public want to be helped and those choice of products. This is strong in white companies offering product knowledge will goods, with the energy rating of ABC being do best, providing they can still offer a tagged to washing machines, fridges and dish good deal. washers. With rising costs of energy and growing environmental concern, this trend can be expected to spread to most electrical Some conclusions: goods. However, people still think more Unless you are a specialist, you will need to about the cost of purchase rather than the combine the vast scale that gives you the abil- costs of running an item over time. Printers ity to offer the best value with staff that know are cheap but toner is expensive. The price of about your products. You need to follow fash- a washing machine matters more to people ions and key demand-triggering events. than how much power and water it uses to run Despite the increasing costs of fuel we it. It is likely, however, that the large amounts expect the trend towards fewer, bigger of advertising and press inches dedicated to electrical shops to continue and, with the the size of carbon footprints will influence exception of a few specialists, to be at the edge people’s choice of products, and that the lifes- or out of town. pan, running costs and carbon rating of goods What then can we conclude about the will become more important. Those retailers future of big box electrical retailing in the with a green image will benefit. UK? For many electrical goods, there is an element of play, the fascination of a new 11. Manufacturers’ brands gadget is irresistible. The Future The strength of the retailer over the manu- Foundation’s Nvision survey shows that peo- facturer still dominates, but there are a few ple still want to touch and play with their toys notable exceptions, such as Apple and to a before they buy them. I see no reason why lesser extent Sony with their own stores as this should not continue. ❦ well as sales through other people’s shops. Such stores as Nike and Apple act as brand This piece is based on Jenkings’ exclusive article, show-cases, places of retail theatre, and help first published on www.warc.com, June 2008. advertise the products. Historically many mobile phone shops have been strongly tied to their supplier – O2, Vodafone and Orange. [email protected]

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MARKETING IN A DOWNTURN MATTHEW LYNN

Starbucks: the decline of the empire

By MATTHEW LYNN

Coffee is the pure n Christopher Guest’s witty canine If so, it will be as good a symbol as any of brew of capitalism, mockumentary Best in Show, there is a the closing of an era of capitalist exuberance. line of dialogue that tells you everything You could have an interesting debate about says Matthew I you need to know about the world’s biggest which was the most iconic business of the Lynn. As the credit coffee chain. ‘We met at Starbucks,’ says a last couple of decades. Microsoft was the crunch bites, no woman character of her current romance. richest, and Apple probably the coolest. But, wonder the ‘Not the same Starbucks, but we saw each for an exercise in pure marketing, for the world’s most other at different Starbucks across the street chutzpah involved in turning frothy milk and from each other.’ hot air into one of the most powerful brands ubiquitous coffee- Not many companies are so instantly in the world, it would be hard to house chain is recognisable that their brand names can be beat Starbucks. heading for dropped straight into a movie without intro- Economic historians have occasionally trouble. duction. Nor are there many whose ubiquity noted the connections between coffee and could be the punchline for a gag. Indeed, capitalism. Stock markets were, of course, there is probably only one: Starbucks. originally coffee houses. One of the first But, quite possibly, not any more. For the futures markets, started in New York in first time since it was founded in Seattle in 1882, traded coffee contracts. As industriali- 1971, the company that introduced the sation spread, so did coffee drinking. world to the double mint mocha decaf skin- ‘Caffeine underpinned the dramatic rise of ny latte is on the retreat. Its stock price has capitalism and its most successful offspring, been hammered. Its key founder has been globalisation,’ notes the historian Anthony hauled back to restore the old magic. It is Wild in Coffee: A Dark History. Indeed, with experimenting with new products to revive its ingredients of commodity trading, indus- flagging sales. And, most significantly, it has trial process and global branding, it is the announced that 600 of its American shops capitalist drink par excellence. So it probably are to close, the first major cull since it was shouldn’t come as any great surprise that the founded. For the first time, people are rampant quarter-century bull market from starting to ask if the caffeine empire is about 1982 to 2007 should have a coffee company to fall.

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as one of its most emblematic successes. way) and rebranded its chain with the soon- Starbucks certainly seems to have been to-be-familiar green and white colours. Over aware of that. The original company was the next decade, Starbucks mushroomed to founded way back in 1971, its name more than 16,000 shops around the world. It borrowed from Moby Dick (Starbuck was even opened in France – though purists will Captain Ahab’s first mate). But it remained be pleased to note that it struggled there, no more than a popular local coffee shop in and shied away from Italy altogether. Seattle until the entrepreneur Howard There was no great mystery about the Schultz climbed on board in 1982 armed model. Starbucks, whatever it liked to claim, with a big idea. never really had the best coffee in the world. But, like most chains, it offered something else instead: reliability. You could drop into a The big idea Starbucks anywhere in the world and you Coming back from Italy, he figured would know what you were getting. It intro- Americans might like a Mediterranean-style duced the sort of café where you could sit coffee house. Just as McDonald’s had taken a around drinking coffee and reading the traditional German food item – the ham- papers to countries where such places had burger – and repackaged it for the US before never really existed before. In Britain, it was selling it back to the rest of the world, so a big step up from Joe’s greasy spoon with Schultz would take European-style café cul- Nescafé in a chipped mug. Likewise, to most ture, reinvent it for the American market, Americans it was a step up from an old- then roll the format out worldwide. It fashioned diner. worked a treat. A fairly simple idea was wrapped up in the kind of messianic hyperbole in which A cultural icon American business specialises. ‘I wanted to Along the way, Starbucks turned itself into a blend coffee with romance, to dare to cultural icon, inspiring admiration and con- achieve what others said was impossible, to tempt in equal measure. There is a whole defy the odds with innovative ideas, and to shelf of books about Starbucks: ten at the last do all this with elegance and style,’ wrote count, including How Starbucks Saved My Schultz in his own book about the company, Life, the story of a JWT executive who goes Pour Your Heart Into It: How Starbucks Built a to work at the coffee chain after getting Company One Cup at a Time. downsized (and soon to be made into a film The formula certainly worked. By the time starring Tom Hanks). During the dotcom Starbucks listed in 1992, it had 165 shops. It bubble, it became a cliché that every new opened its first foreign store in Tokyo in business was started in Starbucks: like most 1996, and in 1998 it arrived in Britain when clichés, there was some truth in it, and the it bought the Seattle Coffee Company (a chino-clad, Starbucks-cup-clutching entre- business largely cloned from Starbucks any- preneur became an archetype of the era. For every devotee, however, there is an equally passionate detractor. During the For every devotee, there is an equally anti-globalisation riots in Seattle, Starbucks was one of the main targets – smashed up for passionate detractor. During the symbolising the bland, corporate homogenisation of what used to be small local anti-globalisation riots in Seattle, Starbucks businesses. was one of the main targets – smashed up The chain was singled out by Naomi Klein, high priestess of the for symbolising the bland, corporate anti-globalisation movement, in her book No homogenisation of what used to be small Logo: ‘Starbucks seemed to understand brand names at a level even deeper than Madison local businesses Avenue, incorporating marketing into every

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fibre of its corporate concept – from the What both fans and enemies failed to spot chain’s strategic association with books, blues and jazz to its Euro-latte lingo,’ she wrote. was that, like many companies before it, Yet what both fans and enemies failed to Starbucks was simply growing too big for its spot was that, like many companies before it, Starbucks was simply growing too big for its own good. In reality, very few companies own good. In reality, very few companies get get to take over the universe, and to take over the universe, and Starbucks has proved no exception to that rule. In the last Starbucks has proved no exception to that year, it has found business turning as cold as a frappuccino. In 2000, Schultz had stepped aside from ed out, Starbucks was guilty of too much day-to-day management of the chain. But expansion. ‘To grow, Starbucks increasingly in January this year, he was reappointed appealed to grab-and-go customers for whom chief executive after customer traffic in service meant speed of order delivery rather established Starbucks outlets was reported than recognition by and conversation with a to have fallen for the first time ever and the barista,’ it argued. Indeed, in another leaked stock price dived. In America, Starbucks’ memo last year, Schultz himself acknowledged profits were in retreat, in part because of the problem: ‘Stores no longer have the soul competition from McDonald’s and Dunkin’ of the past and reflect a chain of stores versus Donuts, which both started selling the warm feeling of a neighbourhood store.’ respectable coffee at lower prices. In Rather like McDonald’s, a company it memos to staff, Schultz fretted about the increasingly resembles, Starbucks has been ‘commoditisation of our brand’, and wor- revamping its menu. It has just introduced ried that automated espresso machines and fruit smoothies in the US and will roll them pre-bagged coffee beans had made stores out around the world. Earlier this year it more efficient but removed the ‘romance closed its entire American chain for part of a and theatre’. Now 600 cafés across the US day to retrain staff in the craft of coffee are being shut down, while analysts esti- making. It is trying to get back to the idea of a mate that as many as half of the stores personally created coffee, delivered with a shot opened since 2003 don’t make any money. of friendly conversation. The trouble is, once The first 50 will have been shut by the end you become a giant corporation, that’s very of this month. hard to do. Most mega-corporations sell on Even allowing for the credit crunch, the price, convenience or innovation: they don’t stock has been hammered. From a peak of try to sell on service for the simple reason that $40 in 2006, it has dropped all the way back they know they are not much good at it. The to $14. Nobody is expecting a swift recov- coffee house was meant to be small, local and ery. Nicole Miller Regan, an analyst at the intimate. Trying to take it global may well US securities firm Piper Jaffray, concedes have been an absurdly over-ambitious idea in that Starbucks’ management is now tack- the first place. As it became bigger, it became ling the decline, but says, ‘we do not expect soulless. And that was always going to be its those strategies to have a meaningful downfall in the end. impact in the short term’. For Starbucks, there may be a darker possi- bility as well. If coffee is a bull-market drink, then it may well deflate along with the The big bang financial markets. The credit crunch has, quite So what went wrong? One problem is that the simply, blown the cappuccino froth off a chain simply became too hyper (maybe it was global brand that perfectly encapsulated the all the caffeine). In Manhattan, for example, easy-money, easy-living era.❦ there are 185 stores, eight per square mile. Even New Yorkers find that a bit excessive. As This article has been printed with kind permission an analysis by Harvard Business School point- of Spectator.co.uk, July 2008.

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ICI transforms performance by marketing excellence

By KAREN JEFFERY AND NEVINE EL-WARRAKY

Winners of the Grand Prix and CI PAINTS (now AkzoNobel) has having achieved a sales revenue com- the Marketing Capabilities award traditionally been a product-driven pound annual growth rate (CAGR) in paints manufacturing company, excess of 5% between 2004 and 2007, in the Marketing Society Awards I and has grown organically through a compared to an average 3% CAGR for Excellence 2008, this case strong brand presence in a limited over the previous three years (see history (jointly submitted by ICI number of markets and through vari- Figure 1). Brand share also grew in and Brand Learning) is an ous local acquisitions. many key markets. In 2003, the business was slowing How did we achieve this? Central to impressive illustration of the down with the share of our leading our success has been a global market- planning and implementation of a paints brand, Dulux, declining in sev- ing capability initiative that was re-engineered marketing eral key markets. At this stage, it was supported and endorsed by a commit- function. The international scope not clear where future growth could ted marketing leadership team. The come from. initiative started with the set-up of the and business results are In 2004, a newly appointed CEO, ‘Advance Marketing Academy’ to testimony to the value of a major David Hamill, outlined an ambitious develop and execute the capability investment in people and growth agenda for the company to transformational programme, and has grow sales revenue by at least 4% per led to several work streams that processes to professionalise a annum over the next three years, with addressed some key strategic chal- company’s marketing expertise. an incrementally higher rate of profit lenges, such as developing a focused than rate of sales. This was a stretching portfolio strategy and identifying mas- goal and required reorientating the ter brand positionings. company to become a more brand-led, This article outlines how building customer-centric organisation. marketing capabilities across the By December 2007, ICI was the organisation with the support of Brand global leader in decorative paints, Learning has helped transform the

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The strategic ambition DIY PAINT MARKET SHARE – UK marketing governance body for key With the arrival of a new CEO, David strategic decisions as well as the mar- 50 Hamill, in 2004 came the recognition keting capability initiative that was to 40 that Marketing needed to step up and follow. They aimed to ensure that best 30 play a more strategic role in trans- practice would be co-developed, forming the business into a brand-led, deployed and refreshed across the 20 customer-centric organisation that organisation. 10 could achieve sales revenue growth of Thereafter the ‘Advance Marketing Share by value RSP 0 at least 4% per annum. Academy’ was established to plan, 2000 2002 2004 2007 A new marketing vision was articu- develop and execute the marketing Figure 1 lated, to ‘lead the business in deliver- capability transformation programme. ing sustainable, profitable top-line Working in conjunction with the mar- business and achieve our stretching growth through developing world- keting leadership team to ensure commercial goals, while simultaneous- class marketing capabilities and per- alignment of key stakeholders, the ly developing our marketers. formance globally’. Academy was also supported by The marketing function aimed to be regional programme coordinators a source of competitive advantage for who could ensure global applicability The challenge in 2003 the company. For this ambition to be of a common ICI way of marketing. In 2003, ICI Paints was a product- realised we needed to create fewer, Brand Learning was appointed as driven paints manufacturing business bigger, stronger brands with wider our specialist marketing capability characterised by low rates of growth distribution, an aspiration that, in consultancy partner to ensure that ICI that depended as much on category turn, relied on a more capable, profes- were tapping into external best prac- growth in key markets as on the per- sional, accountable and engaged mar- tice and expertise. formance of our brands. keting function. While some of our brands had With a clearly articulated ambition Planning a marketing capability carved out powerful and distinct and stretching business objectives, we change initiative positions in their marketplaces, many set out to develop a transformational Our central challenge was to deliver a more were poorly differentiated. The marketing capability agenda that step-change in marketing capability to lack of a brand portfolio strategy involved: drive the performance of the business meant that the available resources reorientating the organisation for with marketing as a key source of were spread too thinly, with many the future. competitive advantage. Only then brands inadequately supported. developing the ICI way of market- would the ICI marketing community Marketing tools and processes were ing be able to deliver the strategic direc- applied with varying degrees of skill planning the marketing capability tion and executional excellence around the world. Some pockets of change initiative required to revitalise business excellence existed, but with limited tackling key strategic business issues performance. transfer of best practice they driving operational marketing excel- The first task was to create a com- remained isolated success stories. lence. mon marketing capability framework At the heart of the issue was the that would define the key skill areas lack of both a common strategic mar- that were required for marketing keting framework that would provide Reorientating the organisation for excellence. focus and clarity of direction, and a the future This was translated into a robust capability agenda that would drive David Hamill recognised that having a process capability audit tool (PCAT), the performance of the marketing strong marketing leadership team which both articulated what world- function. would be critical for shaping a win- class marketing processes looked like With a number of leading brands ning marketing strategy and deliver- and enabled the development of a starting to lose share, the business ing the business’s objectives. shared vision for excellence. was looking increasingly vulnerable He appointed Kerris Bright as This tool allowed ICI to score our to any decline in the decorative paint CMO, who created a marketing lead- performance on a ten-step maturity markets worldwide. ership team that comprised both the scale against world-class performance regional marketing heads from the six in a number of key elements. When operating business units and a number the self-assessments were undertaken Karen Jeffery is Marketing Capability of functional leaders in key marketing for the first time in 2004–05, they Programme Manager at ICI and Nevine disciplines (insight, innovation, etc). produced an aggregated average level El-Warraky is a Partner at Brand Learning. This powerful team formed the first of just 3/10.

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The roll-out was also supported Delivering the programme to the organisation online with a toolkit that provided easy access to the latest thinking. started with high-impact leadership workshops Tackling key strategic business designed to engage and align the marketing issues directors across the world. This was quickly A critical factor in the success of the programme was its use to directly followed by an extensive roll-out plan to the address the burning strategic issues facing the business through the cre- professional level. The roll-out was also ation of, and alignment to, a supported online with a toolkit that provided common language and common thinking framework. easy access to the latest thinking The most urgent priority was the development of a global brand portfolio strategy for each of our six While disappointing, this low base of facilitated workshops. operating regions. was not altogether surprising and it Tailored content to build senior A live action learning programme enabled ICI to set an ambitious goal ‘leadership’ skills as well as middle was developed to fast-track capability to raise the score to 7/10 by 2010. and junior ‘professional’ skills. building for key teams. The teams Crucially, the PCAT has enabled Tailored content to reflect B2B and learned about the associated tools and ICI to prioritise the capability gaps B2C business needs. processes (from the creation of a need within the marketing function; a key The development and deployment state segmentation to the develop- implication of the first audit was the of ICI trainers to embed the ICI ment of market maps and implemen- recognition that we urgently needed way of marketing. tation plans) and then applied them to to address relative weaknesses in The creation of ‘Advance Lite their own region. strategic marketing skills such as programmes’ for general managers Over a period of six months, each insight, market strategy and planning, and other functions to foster a region was able to determine which and brand equity development. These customer-centric culture within the brands it needed to build and how skill areas became the first areas of organisation. these should be positioned in the focus in the capability programme marketplace. that ensued. Developing the ICI way of This process enabled ICI to begin Having identified the key capability marketing focusing the portfolio to concentrate gaps using PCAT, the Academy need- In order to provide a common resources behind building fewer, more ed to plan a means of addressing them language for marketers within ICI, powerful brands. in a way that clearly linked to business and also to embed an integrated, ‘best For example, in Poland, the media priorities. With the input and practice’ way of working throughout budget, which had been shared previ- endorsement of the Marketing the company, we began the develop- ously across both Dulux and the local- Leadership team, we developed a ment of the ICI way of marketing. ly acquired brands Pillak and Marketing Capability Programme This sought to combine best prac- Ekonowinka, is now concentrated strategy and plan. tice from within the organisation with entirely behind Dulux. The key elements of this were as external world-class marketing think- By early 2006, brand positionings follows. ing. A simple set of processes and had been developed for all master tools was developed, with active brands within the ICI portfolio. Modules focused on strategic mar- involvement from senior marketers The use of a common tool – the keting capabilities in the first phase and leading practitioners to ensure brand vision pyramid (see Figure 2) – (2004–5) and operational marketing their engagement and commitment. to express these positionings enabled capabilities in the second phase Delivering the programme to us to identify key areas of overlap, (2006–7). the organisation started with both in how a master brand such as A live-action learning approach to high-impact leadership workshops Dulux was positioned in different apply learning to real business designed to engage and align the mar- areas of the world, and also among issues. This required senior marketing directors across the world. other brands that were targeting the keters to both acquire and apply the This was quickly followed by an same segments. skills to develop a brand portfolio extensive roll-out plan to the profes- ICI began creating synergistic strategy for their market via a series sional level. positionings for Dulux and other lead-

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ing brands in order to fuel higher lev- THE BRAND PYRAMID els of growth and to realise other associated cost benefits across the marketing mix. 8 Brand idea Driving operational marketing excellence Having improved strategic marketing 6 Reasons 7 capabilities in order to develop brand to believe Personality portfolio strategies, the next priority 5 was to successfully translate the posi- Differentiator tionings of the master brands across the marketing mix. The PCAT revealed that brand communication and activation was a 4 key area of focus, in particular the cre- Core insight ation of big ideas that would be

brought to life through integrated 1 2 3 media plans. Market and sector Target segment Competitive set In the UK ICI developed an award- winning integrated campaign ‘We Know the Colours That Go’, which was translated across multiple chan- Figure 2 nels (e.g. TV, online, and PR). This Copyright AkzoNobel (ICI) campaign resulted in the highest ever level of people spontaneously recalling improvements in the discipline and DULUX VOLUME MARKET SHARE a Dulux ad, and also dramatically rigour of ICI’s marketing activities. BY COUNTRY improved the brand’s health. A further significant benefit of the 2004–2006 % GROWTH As an example, the proportion of initiative has been a positive impact on people claiming that ‘Dulux is an recruitment, motivation and retention UK retail

expert at putting colours together’ in ICI’s marketing community. It has China increased by 21% in one year alone. not just been brands and business that Moreover, given that the core end- have grown, but also people. Poland user insight behind the campaign held For example, in Asia, 44% of our India true in other parts of the world, ICI marketing vacancies were filled inter- have been able to roll out this cam- nally in 2007 compared to 0% in 2005. Pakistan paign to other markets, like Ireland In the annual UK survey to assess and Poland. employee engagement, the grand Vietnam mean score for the 90-strong market- 0 1020304050607080 ing community improved significantly % growth The results have been from 3.59 to 3.87 between 2006 and Figure 3 impressive 2007. The impact of this marketing transfor- a sustained commitment to change mation on ICI’s business performance over the long term is needed. has been very significant. In summary Linking learning to real life business The company has achieved the Some of the key lessons from the expe- issues can ‘turbo-charge’ perform- stretching commercial targets set in rience are as follows. ance on-the-job. 2004, achieving a revenue growth of Focusing on fewer, stronger brands over 5% per annum, while increasing Investment in marketing capabilities can transform business performance. the profit to sales ratio. has a significant impact on market- A specialist capability development The latest PCAT results in 2007 ing and business performance. partner adds significant value.❦ demonstrate that ICI are making The leadership of the company must strong progress towards the vision for be fully involved to drive through 2010. Although there is still work to be the necessary changes in behaviour. [email protected] done there have been significant Things don’t happen overnight – [email protected]

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INTERVIEW JILL MCDONALD New cDonald’s gains omentum

JM: It started before I came into the Judie Lannon talks to Jill business. In the early 2000s McDonald’s McDonald, the Marketing had simply fallen behind. The business had been expanding by opening new Society’s Marketer of the restaurants but there came a point Year, about how McDonald’s where the demand was falling. And that was quite a shock for McDonald’s. The learned to listen. company was out of touch with the major trends in society. JUDIE LANNON: I understand you were head hunted from British Airways for this JL: What were the main causes do you job. What skills did they think you would think? bring to McDonald’s? JM: We were getting a lot of negative it feels like to work here. The soul of JILL MCDONALD: They were looking publicity and we hadn’t responded. the company is good but when for somebody who had brand We’d just gone quiet. But then, when you’re being attacked quite viciously experience. McDonald’s is good retail performance started falling, people from a number of different sides, the marketer, but they wanted somebody had to stop and take a big step back temptation is to just shy away from who was going to take the brand for- and really think about what was going it. Particularly if you are growing ward. I think that was the pull I had wrong with the restaurants. through opening restaurants, which over other candidates. And, of Society was changing quickly, con- tends to cloud the fall in base course, the chemistry. I really clicked sumers were changing quickly, and demand. with these people. McDonald’s is a we tended to keep our heads down massive company, so chemistry was and either apologise for what we do JL: So did the people at that time just sit important. best – which is making burgers – or down and say we’ve got to rethink this I think they could see somebody think about turning into a salad com- thing altogether, or did it come in bits who they could work with and had pany, which was obviously the wrong and pieces, and at what stage did you got brand experience from the serv- way to respond. come into it? ice sector – particularly from the But eventually we realised we need- practical side. In an airline, it doesn’t ed to take a more positive stand and JM: I think one of the key moments matter how clever the things you stick our head up with a clear view of was when Steve Easterbrook was come up with are unless they work what our core business was. We had made Chief Executive. Steve decided in an airport terminal or on an aero- to be more confident as well as more we needed to rebuild our own inter- plane which is physically con- open and transparent in our relation- nal confidence. There was nothing strained. The operational constraints ship with detractors. to be ashamed of, we wanted and in a restaurant chain like we needed to be more open and McDonald’s are similar. Sometimes JL: It’s interesting that a company as big transparent. marketers will cut themselves off as McDonald’s, which is in touch with That was a very symbolic step from the operational side. But ulti- consumers all day every day, took so long because it triggered the start of a mately delivering what customers to respond. There was litigation, and new era. Steve is very focused as a want is all that matters. Supersize Me and all the publicity that CEO. He was determined that there went along with both environmentalism was no point doing superficial glossy JL: Tell me about the McDonald’s evolu- and obesity. things, we had to fix some funda- tion. It looks like someone finally woke mentals. up and said we have to respond to these JM: It’s always easier in retrospect In addition, we had to make some attacks. How did that happen? Can you than when you’re in the middle of it. surprising moves that would chal- talk me through that? Also, the external perception of lenge people’s perception of McDonald’s is so different from what McDonald’s.

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vibrant colours but not so much red, which can be aggressive. But it’s important to stress that we wanted to be a better McDonald’s rather than a different McDonald’s. We also needed to be more visible to young adults, but about a third of our business is families so we had to have an environment and seating that’s suitable for families. The designs have been rolled out across the world but are slightly different everywhere. There’s quite a strong European design feel, though.

JL: What evidence do you have that this is working?

The interior design of McDonald’s was outdated and needed more vibrant colours. JM: In May, when the sales results are published, Europe was up around JL: And what were the three or four fun- all those words are important. 9.75% and the UK has delivered on damentals that had to be fixed? McDonald’s is a burger company, that growth so we’re pleased with the that’s what people love about it most way it’s going. JM: Number one was to stop getting of all, so that’s at the core. But our so het up about the PR environment menu covers a broad range of differ- JL: What do you think is the most and focus on quality, service and ent things. People do eat our deli radical thing that’s happened in the time cleanliness. This is what customers sandwiches and carrot sticks, but that you’ve been there? want from our restaurants. Make sure basically they come because they love that we had all the right systems for Big Macs and milk shakes. JM: I would say probably the re-imag- monitoring and fix problems at their ing, the new-look restaurants, root cause. JL: To what extent are the salads and because they are so visible, and this So delivering operational excellence other fresh foods window-dressing to be symbolised very quickly that some- was top priority. There was a massive seen to be appealing to modern trends? thing’s changed. It’s still McDonald’s reinvestment in kitchen equipment so but it looks different – more modern, that we could offer healthy option JM: We won’t put anything on the and fresher. That was an effective tip- food, particularly chicken, which was menu unless it sells because we have ping point for the brand. a major area of the food-eating-out limited kitchen space. So everything But the thing that is really surpris- market that we weren’t catering for. has to sell. These items don’t sell in ing to the outside world is the way Also, we increased the proportion the same volume as the Big Mac or a we’ve expanded the menus – the of restaurants that are franchised. hamburger, but, for example, we are amount of chicken and things like McDonald’s around the world is selling three times more chicken than Rainforest Alliance coffee, which is around 75% to 80% franchised. In we did 18 months ago. very competitively priced. the UK a few years ago it was proba- We also have things like fruit bags bly more like 60% company, 40% and carrot sticks, which sell very well. JL: And what’s different in the way you franchise. If you’re putting restau- For example, we have sold over 30 communicate? rants in the hands of local business million fruit bags since we introduced men and women, it’s their livelihood them five years ago. JM: There has also been quite a because it’s a 20-year tenure that you change in how we communicate – to sign up for. So there’s a lot to be JL: And what about the redesign of the consumers and to the wider public. gained from franchising restaurants restaurants, when did that start? There has been a sea-change in how we engage with the media. JL: It must have been difficult to get the JM: Relatively recently – towards the We still advertise on television but balance right between the burgers and all end of 2006. We started on the high we’re also using a lot more proactive of the new, more healthy fresh foods. street where we were looking most PR to engage with our detractors. outdated. We looked like an 80s We are spending more time with JM: Steve saw the company as a mod- brand rather than a brand for now. key stakeholders such as the ern progressive burger company. And The design needed to have more Department of Health and the Food

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My main advice is, JL: Many years ago it seemed like what your customers are telling you America had a positive image as the they want. stay close to your source of fast food when fast food was For example, the advertising to new and exciting. But given the nega- children and the obesity crisis that customers and don’t tive image that America has in terms of we’re facing. There are many differ- its obesity problem, what does the ent views as to what companies ever forget why American parentage mean now? should or shouldn’t be doing, so the they buy from you first thing to do is go with the facts. JM: We are owned by an American We’ve spent a lot of time talking to or come to you. company and, of course, hamburg- mothers about advertising to chil- ers are American in origin and we dren. They tell us they want Society moves on, so talk about the great taste of America McDonald’s to be a treat, so if you in our advertising. But since the could make the food fun and exciting you can never stop majority of our restaurants are to eat so we could get good food into owned and operated by local busi- them, that would be helpful. listening and being nessmen and women, I think there’s That’s possible because we have a balance. We certainly don’t shy access to some of the best properties prepared to change away from it but don’t think it’s any- in Hollywood, so Shrek III or Bee thing our Movie or Kung Fu Panda, which is customers are concerned with. out at the moment. So we can apply Standards Agency, and although Also these days the global company some of our marketing know-how to we’re not going to necessarily agree doesn’t impose global advertising. make the five-a-day fruit and on everything, you can’t even engage We can create our own advertising vegetable choices on the menu real- in a dialogue if you don’t understand and a lot of our menu messaging is ly appealing. It keeps our brand what’s driving their agenda. They too local. A Big Mac is a Big Mac every- relevant and it’s helping mothers get will have no idea what we’re doing, where and we’ve hit on a universal fresh fruit and vegetables into if we don’t have regular conversa- formula that people love wherever their children. tions – a proper dialogue – to get our they are. But most of the time They are quite comfortable with case across. we’re responding to people’s our food because they know we’re I don’t think people realise that local preferences. highly regulated as a market and after the Nordic countries, Sweden they expect us to abide by all the in particular, the UK is quite a long JL: It seems that you’ve always had a regulations. But they want a trip to way down the track in terms of regu- close relationship with Disney. Do you McDonald’s to be a treat for kids. lation, media attention and govern- feel that’s out of date as well? So my main advice is, stay close to ment intervention. We have some your customers and don’t ever of the most stringent regulations JM: We had a ten-year exclusive forget why they buy from you or in Europe. arrangement with Disney, which come to you. Society moves on, so ended in December 2006. We still you can never stop listening and JL: I would expect McDonald’s to benefit work with Disney if it has properties being prepared to change. It all from the current recession with people we want to go with, but it was a sounds incredibly easy but when looking for cheaper ways to entertain mutual ending of an exclusive you’re in the middle of it, it can themselves. What is it looking like? arrangement. We wanted to be free be a bit difficult to see the wood for to work with Dreamworks or Fox. the trees. JM: We say we’re not recession- Dreamworks, for instance, has some proof, but we are recession-resistant, fantastic properties, such as Shrek, so JL: And finally, when 2009 rolls around, and at the moment that’s really play- now we don’t have a single exclusive what do you want to see for the ing out. Our footfall is significantly agreement. company and for yourself? ahead of footfall in the high street. We have what we call a tiered JL: So many food and drink companies JM: The answer to both parts of the menu – the Poundsaver, which is are under attack today. What advice questions is being part of a team around 99p then we have our core would you give to other marketing peo- that’s helped to turn around our menu, the Big Mac, and then we also ple who find themselves in the same business here in the UK. I want the have more premium items like spe- position you did a few years ago? momentum to continue so cial burgers. People really do like to McDonald’s is one of the places go out to eat and it’s a treat for kids JM: Stay close to your customers, people feel they can always come to so we want to make sure we cater to listen to what all your stakeholders and get great-tasting food at all different needs. are saying and pay extra attention to affordable prices.❦

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NECDOTAL evidence suggests that, in the weeks leading How marketers A up to the Business Week issue of Interbrand’s annual brand league table, bets are placed among the biggest US should use brand owners on who will be top, and who will have moved up most places. Putting aside any cynicism about the brand valuation mechanics of the calculations behind the brand valuation, the league table itself has entered the boardroom psy- che, and, for a moment in time, occupies the attention of CEOs. Perhaps this level of interest is understandable given that, typically, half of the top 100 brands in the Interbrand global brand league table are US bred and owned. There is no doubt that the founders of Interbrand, John Murphy and Tom Blackett, who first developed the concept of brand valuation and a methodology for estimating it, were visionaries and revolutionaries. They were the precursors and champions of a new breed of consultancy, keen to ‘bridge the gap between marketing and finance’ (in the words of another emi- nent brand valuation consultancy, Brand Finance). But, 20 years on, where has the marketing community got to? How far along the road to revolution have marketing departments and agencies travelled? Are we any closer to achieving our ambition of being recognised, as an industry, for the shareholder value we create, through nurturing and developing brand assets? By JANET HULL This article is written from a generalist, practitioner viewpoint. My obser- vations are based on an amalgam of this experience and address three key The techniques and methodologies of brand valuation have had a areas: where have we made headway, dramatic impact on business. Generally this has been positive, with where have we shot ourselves in the vastly increased interest in the value of intangibles leading to the foot, and what might the future hold? disclosure of the value of acquired brands on the balance sheet. However, ‘brand valuation techniques’ is a marketplace and the 1. Where have we made competition between different valuation techniques has caused headway? confusion and inappropriate (often misleading) league tables. Janet Hull Increased media interest in the argues that brand valuation needs to be positioned away from league financial value of brands tables and be incorporated more into the day-to-day marketing and League tables have proliferated, both brand management activities of practitioners. globally and by geographic territory and sector. Hardly a month goes by

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without another brand league table of the world’s quoted companies Although UK in origin, appearing. We have bought our way resides in intangibles, and that brands into the market with exclusive spon- constitute 20% of this intangible value interest in brand sored features and supplements. on average. valuation is definitely Notable proponents are Interbrand (Business Week), Millward Brown New standards promote the going global. Interbrand Optimor (Financial Times), Brand disclosure of acquired brands on the Finance (Financial Director), and The balance sheet is now a global Intangible Business (The Grocer). While brand valuation consultancies network. Brand Finance Outside these sponsored features, make the running in terms of profile media reporting of the value of brands on the shop floor they now compete has affiliate offices in has undoubtedly increased. Consid- with management consultancies. PwC eration of brand value now stretches is a prime example of a management 18 countries and claims to assessments of celebrities, football consultancy bringing an audit pedi- that its India office, in teams, countries and political leaders. gree to the business of brand valua- Although UK in origin, interest in tion. Equally, brand valuation is a particular, is doing a brand valuation is definitely going service offered by mergers and acqui- global. Interbrand is now a global net- sitions advisers in investment banks. roaring trade work. Brand Finance now has affiliate This growth of interest in the finan- offices in 18 countries and claims that cial value of brands at acquisition, its India office, in particular, is doing a because of the relative disparity enterprise value or market value that is roaring trade. between book value and market value, the basis of analysis? Is it brand has been recognised in the most strength or brand power or brand Increased economic interest in recent International Financial Repor- voltage that is the key dynamic? And intangibles ting Standards. how are any of these defined? Intangible value has entered the ver- The International Financial In the case of Interbrand, brand nacular of economists and politicians Reporting Council, under IFRS 3, ‘strength’ is ascertained through a alike. now recommends a breakdown of structured evaluation (marks out of Economist and columnist Roger ‘goodwill entries’ in balance sheet 100) of the brand’s market, stability, Bootle, writing in 2003, in his reporting – a move that has been leadership position, growth trend, breakthrough book, Money for spurred on by massive lobbying by support, geographic footprint and Nothing, indicated that the industrial brand valuation consultancies). legal protectability. revolution was behind us and that we Although only acquired brands are In the case of Brand Finance, brand had now entered the intangible age. allowed to be reported in this way (not strength is called Brand Beta ® and is The creative economy programme, internally developed brands), the orig- scored against the parallel attributes of now under development through the inators of the brand valuation philoso- time in the market, distribution, mar- Department of Culture, Media and phy must have felt they had made sig- ket share, market position, sales Sport, is a direct result of recognition nificant headway when this develop- growth rate, price premium, price by the UK Treasury that over 7% of ment in global accounting guidelines elasticity, marketing spend, advertis- UK gross value added (GVA) is became reality in 2007. ing awareness and brand awareness. A derived from the combined output of In summary, we have created a more score of 50 out of 100 implies that the the UK creative industries, placing favourable climate for more meaning- brand offers average investment risk. them on a par with the UK financial ful discussions about the value of A score of 100 implies a theoretically services sector in terms of economic brands to take place. risk-free brand, which would be dis- value. counted at the risk-free rate. A score The first Global Intangible Tracker of zero implies a particularly weak (GITTM), based on analysis of the 2. Where have we shot brand that doubles the equity risk pre- enterprise value of listed companies ourselves in the foot? mium. on the top 25 stock markets of the In the case of Millward Brown, world, and launched by Brand Finance Fighting among ourselves about brand strength is a combination of in association with the IPA in early methodologies brand presence, brand ‘voltage’ and 2007, calculates that 62% of the value In the attempt to differentiate them- brand equity, and draws on the com- selves from each other, brand valua- bined data sets of the WPP ‘Brandz’ Janet Hull is Consultant Head of Marketing tion consultancies in-fight about study and other Millward Brown and Reputation Management at the IPA. methodologies and definitions. Is it brand tracking proprietary tools.

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The degrees of variation might fit on a pin-head, but the consequence of the wide range of different vocabulary in use is a perceived lack of clarity, consistency and comparability, and a broad suspicion of self-interest and subjectivity in the choice of methodology. M&A specialists at investment banks claim not to accept at face value any valuation that is provided to them, and tend to do their own. There is even a risk that, because of the disparity in approaches to brand valuation, branding and sound brand steward- delivered against the original vision the IFRS decision to recommend ship. set for it. Arguably, brand valuation brand valuation on the balance sheet, consultancies have got stuck in a rut of in the case of acquired brands, may be Marketing and agency folk failing to their own making, and are perceived reversed. David Haigh, of Brand utilise brand valuation’s ‘potential’ by the wider market to be focused on Finance, who is chairing the IFRS Up until five years ago, the head of a league tables and balance sheet report- committee looking at standardisation sister agency to Interbrand was still ing; and marketing and agencies of brand valuation on the balance describing ‘brand valuation’ as a ‘flash haven’t exactly picked up sheet, claims to be increasing sceptical in the pan’. The members of the IPA the baton. about what the outcome might be. Value of Advertising Group, which has the responsibility of promoting Finance directors using brand valua- and breeding an effectiveness culture What might the future hold? tion as a financial instrument between agencies and marketing, If we go back to the basics of what In addition, there is a real risk that, recognise the need for greater under- brand valuation is about, it is clear that rather than bringing finance and mar- standing of its current application or it is increasingly relevant, in an era of keting closer together, brand valuation broader relevance. ever-greater focus on marketing is being hijacked by the finance Although the word ‘brand valuation’ accountability. department. trips freely off the tongues of many Alex Batchelor, earlier in his career, More brand valuations, it appears, marketers, there appears to be limited at Interbrand, writing in Brands and are commissioned for financial pur- understanding of the process. How Branding, explained the concept of poses than for marketing purposes. many marketing or agency folk can brand valuation as follows: They are being used, for example, to claim that they have been involved in ‘The value today of a brand’s future optimise tax advantages across sub- a brand valuation, or are applying the earnings is a function of how high these sidiaries and geographies; to bolster a principles or practice of brand valua- earnings are, and of how likely it is that balance sheet in difficult times; to tion to their day-to-day decision mak- they will be achieved. It should thus take fight a reverse takeover; and, in some ing and management of brand assets? into consideration three things about the cases, to restructure marketing depart- When Brand Finance last ran a well- brand: ments and brand portfolios. publicised masterclass in London, 1. its financial performance (in order In conversations with brand valua- linked to a Haymarket Events Brand to identify its true net earnings) tion consultancies, the lasting impres- Summit on the application of brand 2. its marketing strength and its com- sion is that most of the demand for valuation to brand marketing, of the petitive advantage over other brands (to their services is coming from the 20 people in attendance, only two establish security of demand) finance or legal teams, rather than the were from the UK. The remainder of 3. its legal position (to prove that it is a marketing departments of major cor- the delegates were from the Middle separable property).’ porates, or, indeed, from agencies. East, Canada and Asia. The fact that the impairment test Against this backdrop of a lack of Paul Temporal, writing in Advanced for brands on the balance sheet only broad engagement, there is a real risk Brand Management, enlarges upon this allows for a potential value reduction, that we in the UK are failing to capi- by explaining brand valuation in terms but not an increase, demonstrates a talise on the inherent promise of of economic value: profound lack of understanding, on brand valuation, and are even intent ‘How do brands add value? the part of the financial community, on devaluing the concept before it has In economic terms the answer is simple: about the fundamentals of the value of reached maturity in the market, or has they impact on both the demand and

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supply curves. On the demand side, brands IPA Finance Policy Group among ing from the likes of Nielsen, TNS enable a product to achieve a higher price them, who are keen to engage in more and IRI, and are reported to be fre- at a given sales volume. On the supply side realistic discussions about value-based quent commissioners of adhoc brands require lower cost of capital, lower remuneration. research. Even YouGov daily brand staff acquisition and retention costs, vol- Perhaps the biggest flaw in the tracking is starting to make inroads. ume economies of scale, higher trade and brand valuation process, at the current Martin Deboo’s recommendation to customer recognition and loyalty.’ time, is the undue public and promo- the industry from the same IPA semi- tional emphasis placed on pinpointing nar, was as follows: Jan Lindeman of Interbrand, also net present value at a moment in time, ‘Adopting a metrics-based approach, writing in Brands and Branding, argues in order to meet the requirements of rather than putting brands and other that what’s important is that the basis league tables and accounting stan- intangibles on the balance sheet, is the best of brand valuation – economic value – dards. way forward. Identify yourselves firmly makes it comparable with other By focusing market understanding with the organic (sales) growth agenda – investment decisions within organisa- on the retrospective balance sheet, we make it your business to understand how tions. He advocates a multitude of have failed to gain acceptance for the what you do contributes to this. Think possible applications for brand valua- broader predictive relevance of the financial payback and drill down, rather tion; from making decisions on busi- brand valuation process. Brand valua- than intermediate variables and drill up – ness and brand investments, to organ- tion needs reframing as a strategic for- help your client “tell the story” of ising and optimising the use of differ- ward-planning and performance where growth has come from. Work pro- ent brands in the business according measurement tool, not a balance sheet actively with your clients around to their respective economic value reporting tool after the event. how best to operationalise a metrics-based contribution, to measuring the return We need to transform ‘point in reporting system.’ on brand investments, to linking time valuation’ into ‘dynamic brand remuneration and career development evaluation’. Having left Interbrand to head up of marketing staff to brand value Martin Deboo, equity analyst at marketing at Orange, Alex Batchelor, development. In short, he advocates Investec, speaking to an IPA seminar wrote about his experiences in the value-based management systems that in spring 2007, advised the audience of board room, in Market Leader in sum- can align the management of the strategic planners and marketers: mer 2005: brand asset with that of other corpo- ‘Don’t stress about “intangible assets” ‘To survive board meetings, you need to rate assets. too much – get the growth/investment/ put what you are saying in context, and It is unlikely that anyone in market- margin equation right and let me worry particularly how it relates to the momen- ing or agencies would deny the rele- about the valuation implications.’ tum of the company: whether you are get- vance of these core beliefs coming ting better or getting worse.’ from some of the leading exponents of There is no doubt that the analyst brand valuation consultancy. So the community is becoming increasingly In his experience: fundamental relevance of the thinking marketing-savvy and is ready to be ‘Data has to be in a manageable form behind brand valuation is beyond engaged in a more informed dialogue that points clearly to action, and in an dispute. about the relationship between mar- accessible form to enable management to Being able to justify brand invest- keting investment and shareholder understand why particular strategies are ment, in terms of its contribution to value. From IPA conversations with necessary.’ future cash flow and profitability equity analysts there is a real hunger encourages a mid- to long-term per- for information that enables the ‘City’ spective on the value of marketing to evaluate the quality and quantity of activity. Being competent in making marketing activity in quoted compa- Brand valuation needs the economic argument for maintain- nies: in order to understand the differ- ing or increasing levels of spend rela- ence between good and bad brand reframing as a strategic tive to the competition, in order to stewardship, and to assess the effect of increase market share or optimise the this intangible asset in future tangible forward-planning and impact of brand improvements, is cash flows. performance something that most marketers and There is a trend for more analysts to agencies aspire to. come from the industries they are fol- measurement tool, not Having the knowledge and where- lowing. The big investment banks are withal to be held accountable for value becoming big purchasers of data, a balance sheet report- creation excites that contingent in the which was traditionally the preserve of ing tool after the event marketing and agency community, the marketing and agencies. They’re buy-

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Brand valuation value; and make them aware of how Brand valuation consultancies may these metrics need to be reported and well argue that there is nothing new in experts find connected. In short, invite research what I am saying and that they have themselves grappling companies to respond to client and strong case examples of all these agency needs rather than being dictat- things being in play. However, my to make sense of the ed to by the techniques and tools they belief is that there is still much room already have in play. for improvement. Marketing depart- marketing and brand If we are successful in this process, ments and agencies in the UK are best data available to them and whether we progress to full brand placed to lead the charge, but need to valuation or stop at the point of move quickly if they are not to be dynamic brand evaluation, we will be overtaken by Asia, which is displaying better placed to communicate the a real appetite for improving its mar- Above all, we need metrics value and contribution of marketing keting professionalism.❦ fit for purpose to business performance across all Brand valuation specialists are as functions and departments, including [email protected] dependent as any of us on the quality finance. And it should follow that the of the market and brand data made quality of marketing activity will Bibliography available to them for the quality of become appreciated better by external Badenhausen, K. (1995) Brands: the their valuations. The subjectivity of shareholders and stakeholders. Again, Management Factor. FW, August. which they sometimes stand accused, the IPA’s endeavours to focus report- Batchelor, A. (2005) ‘Brand valuation as a is often the consequence of a lack of ing about marketing and brand per- management tool.’ Market Leader, relevant data in appropriate formats. formance on the narrative section of Summer. Brand valuation experts, many of annual reports and accounts, rather Belle Frank, B., Sussman, M. with whom come from a finance back- than the financial section, is confirma- Palka, A. (2008) ‘Brand Health measures ground, find themselves struggling to tion of a belief in the value of this new your mother would love.’ Admap, make sense of the marketing and direction. The IR Magazine UK March, Issue 492. brand data available to them. Award for Best Narrative Reporting, Best practice in narrative reporting The new IPA publication, KPIs for and accompanying literature and 2008: Key learning from the IR Marketing Reporting, proposes a research, is sponsored by the IPA for Magazine UK Awards judging process framework for thinking about market- this purpose. (2008) IPA. ing metrics, and provides a compre- Bootle, R. (2003) Money for Nothing: Real hensive set of 20 generic performance Wealth, Financial Fantasies and the indicators from which to develop spe- In conclusion Economy of the Future. Nicholas Brierley cific data sets. These include measures The objective of this article was to Publishing. of success (business value, customer offer a generalist, practitioner view on Clifton, R and Simmons, J. (2003, 2004) value, brand value); predictors of suc- the future of brand valuation. Brands and Branding. The Economist in cess (A&P investment strategy, pro- It argues that in the first 20 years of association with Profile Books Ltd. motional mix, innovation intensity) the life of brand valuation, we have Deboo, M. (2007) How analysts think and financial metrics (marketing pay- prepared a more favourable climate about intangibles and brands. Speech back). The publication advocates that for meaningful discussions about the given at the IPA ‘Intangible Revolution’ marketing departments and agencies value of brands. But we have failed as seminar, February. work together to create a coherent yet to capitalise on the huge potential Global Brands (2008), Financial Times approach to marketing reporting, that brand valuation principles and Special Report. using this framework as stimulus. practices offer for mainstream market- Global Intangible Tracker (GITTM) Finding the right research tools and ing reporting and decision making. (2007) Brand Finance with IPA. techniques should then flow from It advocates that brand valuation Hart, S. and Murphy, J. (1997) Brands: using this framework. In the quest for needs to be repositioned away from The New Wealth Creators. Macmillan. the right metrics, our best advice is league tables and balance-sheet KPIs for marketing reporting: a frame that measurement strategy precede reporting. It should be a metrics- work for effective marketing disclosure tactics, and that, before jumping to the based approach to day-to-day market- (2008) IPA. detail of research measures, we take a ing and brand management that is Temporal, P. (2002) Advanced Brand step back and think about what we capable of withstanding boardroom Management: From Vision to Valuation. need to measure and why; then set a scrutiny. It should also be capable of John Wiley & Sons. brief to research companies indicating being reported in the narrative sec- Walshe, P. (2008) ‘What price a strong the type of metrics that will be of most tions of companies’ annual reports. brand? Market Leader. Spring.

Market Leader Autumn 2008 55 Speaker’s Corner - Kirchner.qxd 8/21/2008 17:45 Page 56

SPEAKER’S CORNER CHARLES KIRCHNER

The marketing services supply chain: delivering the best for less

ESPITE some significant blips, melt- However, our efforts to develop direct mar- downs and 'black weekdays of one keting ‘one-to-one’ campaigns were constrained sort or another, the last meaningful by a lack of understanding and experience. As it recession took place in the late 1980’s turned out, this was compounded by our agency Dand early 1990’s. This means that it is unlikely partners who, despite protestations to the con- that anyone under 40 will have had practical trary, were heavily reliant on third-party suppli- experience of operating in any other business ers whose comfort zone lay in technology and environment than the recent relatively data management rather than in brand market- happy past. ing. For those of us who have been there before, there seem to be two principal options in this situation. The less heroic one is to take flight, Opportunity lies in the ‘back office’ CHARLES dig in and look forward to donning the T-shirts In retrospect, the most dramatic impact of the emblazoned with ‘I survived the last recession last recession on the marketing world was KIRCHNER and I’m going to survive this one too’. undoubtedly on the marketing communications recalls the The other more challenging option is to supply side – the ‘back office’ that drives the reflect on personal experiences of the last major operational delivery of all marketing campaigns. previous recession and see if there are any potentially use- With bewildering rapidity the long-standing recession and ful hints and tips which may be relevant to the conventional agency remuneration of 15% next year or two. commission was first questioned and then over- gives tips on My memories of the early 90’s recession as a thrown, to be almost wholly replaced by fee- Marketing Director of a branded FMCG com- based structures. Client marketers were how to save pany are disappointingly fragmentary. But I was required to master entirely new and often money in the a newly-minted marketer and I recall the mar- mind-stretching skills, both in defining the keting focus swinging from sales and volume to scope of agencies’ work as well as linking differ- marketing market share and increasingly tenuous share-of- ent aspects to commercial negotiations and per- voice measures. formance bonus metrics. Agencies also strug- services supply The reality gradually dawned when brands gled with the unfamiliar concept of linking chain without which had always been regarded as mainstream remuneration, however tenuously, with market- were subtly re-positioned into a newly defined ing outputs. losing quality. ‘premium sector’. The low price sector brands, Media buying and planning was rapidly hitherto referred as ‘price-fighters’, increasingly divorced from the creative agencies and placed occupied the middle ground both in consumer with a growing group of independents such as perception and share of market. TMD and PHD on grounds of eye-watering General market profitability nose-dived cost reductions and the less persuasive promise accordingly: marketing budget and headcounts of specialist skills and new media insights. followed suit. The standard response to this In reality the people behind the independents development was to adopt victim status: resisting were often the same and in due course the inde- all budget cutting through attritional guerrilla pendents became less so, reverting back to skirmishing, while bemoaning the short-sighted- shared ownership with the creative agencies. ness of finance. In a slightly panicked response to tumbling budgets and the rapid development of technolo- Slash and preserve gy, efforts were focused on finding more effec- What is of interest to the current generation of tive means of communication than the conven- marketing leaders is what will happen over the tional routes which at that time were heavily next few months, and maybe years. weighted towards traditional broadcast media Are there lessons from the last big downturn such as TV, press and posters. some 15 years ago that have the faintest relevance to the present, or have the intervening Charles Kirchner is Chairman of Marketing Supply massive changes, particularly in technology, Chain International Ltd. invalidated any comparisons?

56 Market Leader Autumn 2008 Speaker’s Corner - Kirchner.qxd 8/21/2008 17:45 Page 57

SPEAKER’S CORNER CHARLES KIRCHNER

It is a truism that in a recession ‘big brands get The key question will be whether this 30% of bigger’. The reality is that in a climate of weak marketing investment (and associated activity) is consumer confidence, falling demand and price transparent and capable of being broken down warfare, the ability of marketing to influence pur- in meaningful terms. The sad reality is that for chasing behaviour is likely to become a great deal many marketers the operational processes that more reactive and tactical. stands between their approval of a creative con- It seems that the single biggest culpable error cept and final delivery are woefully opaque. In made by marketers last time around was the most cases they have not been systematically failure to realise that, in a recession, proactively tackled in the last 15 years or more. controlling cost becomes as important a market- There really is no substitute for detailed ing skill as great creative insight and visionary analysis to ensure that significant sums are iden- pricing strategies. tified, ring-fenced and re-deployed to brand Traditional marketers are still inclined to view support in a way that is clear and convincing to cost cutting as ‘a bad thing with little differentia- the non-marketers on the management team. tion between “working” spend (that which influ- The guiding principle is that the better under- ences the consumer) and “operational” spend that stood and clearly defined areas of spend will goes to generating and delivering the marketing yield less than the more arcane and seemingly assets, of whatever type’. ‘black boxed’ operational budget pockets. By this token, agency fees (both creative and media) despite being relatively high ticket areas Operational spend underneath the microscope So what avenues are open for the modern marketer anxious to maximise ‘working’ spend? It seems that the single biggest culpable The obvious first step is to instigate (often in tandem with procurement colleagues) a thorough error made by marketers last time around, review of the marketing cost base, taking the was the failure to realise that in a recession range, scale and frequency of activities as a ‘given’ and assuming that quality standards and speed to pro-actively controlling cost becomes as market are also sacrosanct. This will rapidly isolate the 30% of ‘non-working’ operational important a marketing skill as great creative marketing spend that is dedicated to campaign delivery. insight and visionary pricing strategies

Market Leader Autumn 2008 57 Speaker’s Corner - Kirchner.qxd 8/21/2008 17:45 Page 58

SPEAKER’S CORNER CHARLES KIRCHNER

HINTS AND TIPS

Rule Do Don’t Get the right mindset Think about ‘working’ spend in particular Act like a victim and put up the i.e. the ‘behind the’ scenes operational cost barricades to protect all spend at all cost Select the right areas Pick the elements you really can control Treat marketing headcount (both to focus i.e. through budget ownership or internal influence internal and agency) as sacrosanct Understand the Demand full transparency on all marketing Round up the ‘usual’ suspects to avoid full spend picture processes and spend focusing on ‘difficult’ areas that have been neglected Share and mitigate Ensure that available technology is being used Be afraid to involve your marketing the number crunching to support efficiency partners. Agencies will be open to suggestion and will help Small quick wins are Capitalise on opportunities as they arise Retreat to a marketing ivory tower better than anything

are unlikely to be the first priority as they have incurred will be highly sensitive to both volume usually been closely examined by both market- (through cross-brand and ideally cross-market ing and procurement over a number of years aggregation) and origin (through low-cost coun- and through bruising negotiation cycles. tries which are often the ultimate source for Paradoxically the opposite is true of the per- more local intermediaries). formance-related elements of agency remunera- As a general rule it is possible to free 5–8% of tion (especially media) which have usually been the overall marketing budget through streamlin- grossly neglected, poorly managed and can pro- ing these ‘non-working’ operational elements. In vide a very rich return in comparison to the recessionary times, re-deploying these finds can effort required to unlock their potential value. make a very real difference to the fortunes of a In contrast, the intimidating areas of advertis- brand, particularly when competitors are throt- ing production and the range of marketing tling back on their support programmes. materials from POS to ‘trinkets and trash’ will The reduction of marketing headcount is still provide a ripe target for swift efficiency gains, often a taboo subject for marketers. But market- particularly when third parties (primarily agency ing is a people-intensive business, particularly partners) are involved in the supply chain when direct (employed) resources are added to It is important to keep front-of-mind that the agency and consultancy resources. So these are non-creative activities and the costs removing unnecessary cost in this area will also provide a significant boost to sustaining brand performance during hard times. In the operational arena Finally, in the operational arena, marketers and agencies alike have been reluctant adopters marketers and agencies alike of proven and easy to operate technology solutions, geared to both speeding up laborious and have been slow and time-consuming manual processes, as well as reluctant adopters of proven reducing the necessity to reinvent wheels. and technology solutions, Five simple rules In summary some simple tips may be helpful to geared to both speeding up guide the willing marketer who has so far enjoyed the summer days of operating in a non- laborious and time recessionary environment. The last recession indicated that marketing is consuming manual processes not exempt from a wintry economic climate. as well as facilitating best This time around, it will be better to anticipate and actively manage controllable operational practice sharing and variables rather than passively reacting to events and watching the inevitable budget cuts arrive.❦ reducing the futile necessity to reinvent wheels [email protected]

58 Market Leader Autumn 2008