Know Your Core Customer

Recently AB InBev, the owners of Budweiser ran a rather controversial but I would say spot on ad during the SuperBowl. (See it here) The ad has stirred up a lot of controversy with the craft brewers and beer aficionados crying foul and Budweiser’s competitors wrapping themselves in the flag of righteousness saying they would never run such an ad. As a result the ad appears to have been discontinued by Budweiser, no doubt the result of all the social media and press pressure.

This to me is a tactical error on the part of Budweiser and if I was running the brand I would be running this ad on an on-going basis. Why? Budweiser has been losing share and volume mostly to craft beers in a number of markets around the world. One of the apparent reasons is criticism from craft brewers and their supporters that Budweiser is not a “real” beer. This criticism has apparently started to resonate with the Budweiser consumer who are buying into this notion. Budweiser therefore needs to change the situation with their consumer group.

The situation Budweiser is facing reminds me a little of the problem we faced when I worked for Coca-Cola in Canada at the height of the Pepsi Challenge. Like Budweiser, Coke was looking at share declines in light of the onslaught of the Pepsi Challenge. In response we developed and ran ads that mocked the basic premise of the challenge and those who won by picking Pepsi.

However share continued to decline and so we began to dig deeper. We looked at consumer image scores and discovered the problem wasn’t that Pepsi’s image was improving with the Challenge but in fact the Coke image was declining with our consumers. Our core consumers had begun questioning if they were making the right choice. We found the answer to the problem lay not in attacking the Pepsi Challenge but rather reinforcing with our consumers all the reasons why they should chose Coke. In fact we found the best answer was in an ad campaign we had recently abandoned – “It’s the Real Thing!”

The lesson here is know who your  core consumers are and focus your appeal on them not on some group outside the target group. Budweiser are never going to convince craft beer advocates that they are “real” beer, nor should that be their objective. What they need to do, and have done well in this ad, is provide affirmation/reassurance to their core group that they are a real beer, for real beer occasions, for real people like themselves. Craft advocates may not like their depiction in the ad but I am sure it resonates with the Budweiser consumer and that is what counts.

 

In short Budweiser, man up and ignore the critics by continuing to run this ad. You are going in the right direction for your target group so ignore the critics who are never going to be part of your target group.

 

Customer Service – The Need for a Personal Touch in the Age of Machines


“Customer service is the sum of many little things done well” James Casey Founder of UPS


 


 


Many years ago as part of my brand management duties when I worked at Lipton I was made responsible for customer service (read complaints).  As such I had the pleasure of working with a very nice lady by the name of Joyce who was the primary contact with consumers.  Over the course of a week she dealt with up to 100 consumers either by letter or by phone and in each case gave a high level of personal service and interaction, the type of consumer engagement that companies should aspire to today.  She dispensed sympathy, apologized and showed empathy with each of the people with whom she interacted.  As a result well over 95% went away satisfied and in fact grateful to Joyce, a number seldom met in today’s computerized environment.  In reality it was nothing more than some coupons and recipes but more than that it was the personal human touch that resulted in the positive thoughts and in fact letters from consumers about Joyce and the job she did for us.


 


As marketers these days we spend a lot of time talking about “engagement” with our customers/consumers but we also seem to have lost that personal touch in our attempts to monitor and measure our engagement in the age of computer technology.  Some recent personal experiences highlight the impact of this loss.


 


The first thing I have noticed lately is the development of measuring response time to a complaint as the key measure of successful engagement without addressing the complaint itself.  In this regard I recently purchased a vacation trip from Sandals for my wife and myself but encountered a problem with it.  I e-mailed the Sandals people about the problem and almost immediately got an e-mail response saying “thank you for your e-mail and we have passed it along to the appropriate person for response.”  This is like hearing “your call is very important to us” as you wait for someone or something to pick up. 


 


This was followed by a minute later by a second computer generated e-mail saying in effect we have responded to your complaint and consider the matter closed.  If you want to see the status of your complaint go to this website and input this number.


 


Now from their point of view they had a terrific response time to my complaint but did they in fact deal with it?  No!  I got another computer generated e-mail about a day later telling me to contact their customer service people by phone to resolve the problem.  I guess it didn’t conform to their standard computerized responses so I needed to deal with a person.  Unfortunately after the “your call is very important to us” initial response the person essentially told me tough luck regarding my complaint.  As a result I wrote another e-mail to complain about her response.  You guessed it, I got another “thank you and we’ve passed it on” followed by another “we have responded” e-mail with yet another incident number.


 


You can see by now where this was going.  The problem never was addressed, and in fact not even responded to by a person and instead fell into a black hole and this from a company that is known for their customer service.  Fortunately for them the people at the Sandals resort more than made up for my problem through their personal service while we were there.  So much so in fact that we booked another vacation with them while we were there. 


 


Unfortunately the “fun” did not stop there.  I got a customer satisfaction survey via e-mail on my return which I filled out and cited my earlier problem.  In response I got an e-mail of apology from the resort manager saying he was sorry for what happened but wished he knew about it either before we arrived or when we were there so he could try to rectify it.  It sort of begs the question as to where my prior e-mails went.


 


This leads to the second area of consumer service response, what I call “the black hole syndrome” where you get a response that says they’ve sent your complaint onto someone but you never get a response.  Recently this happened with me in regard to a complaint I made about my fitness club, which is part of GoodLife Fitness.  I sent their “Member Experience” Department (got to love the names some companies chose for their customer relations departments) a detailed e-mail about problems at the club and was sent a response thanking me and saying my e-mail had been forwarded to the General Manager of the club and the District Manager for their response.  Now the General Manager was leaving in a few weeks time so I suspect he really didn’t care a lot about my complaint and he certainly never addressed it with me, although he knew who I was.  However I was hopeful that the District Manager would respond.  When after 4 weeks I had heard nothing from either person I wrote the Member Experience person again telling him of the lack of response.  I was rather surprised to hear back that the District Manager was only getting my e-mail for his file and does not respond to members and that he was sorry the General Manager had not responded but then he, the Member Experience person had not followed up with him either.


 


While we talk a lot about consumer engagement we seem to be more focused on quantifiable metrics of that engagement rather than the human side.  We have lost a lot of that human touch even when we involve humans.  We offshore our call centers to save money but fail to ensure that the people manning the phones at the other end can clearly articulate a response or even have the discretion to resolve the situation.  We rely on the speed of a computer response to an e-mail rather than a personal response via e-mail.  In short we need to bring the personal touch of the Joyces of this world back into our consumer communication and demonstrate the triumph of person over machine.


 

Too Big To Innovate?


 


A number of years ago I was asking the President of Coca-Cola in Canada about their new product development program and I got a very interesting and somewhat surprising response.  He told me that they were too big to innovate but instead had a group that spotted trends and innovative brands in the marketplace and either copied them or bought them.  He said their competitive advantage was in their distribution system and they were confident they could either come with a “me too” item and thru the power of their system overpower the innovator or else they would buy them.


 


Recently while reading Amanda Lang’s excellent book, The Power of Why, I go to thinking about why it was so difficult for large companies to be innovators.  When you stop and think about it most companies when they grow to be very large firms cease to be innovators and become refiners of innovative products be it their own or a competitor.  It could be argued for example that the largest company is also the one biggest reputation for innovation, Apple.  However Apple in my opinion, has ceased to be an innovator in electronics but rather is now simply refining their innovations.  iPhone 5 is not an innovative new cellphone but rather a refinement of their existing item, likewise the latest iteration of the iPad is a refinement of their tablet not something radically new and different.  Hence the criticism of Apple for their lack of new products and analysts tying this failure to their declining share price.


 


Apple is not alone in this respect.  If you start to drill down into the “innovation” of other large perceived leading edge firms like Google and Facebook or Consumer Package Good firms like P&G, Diageo or Coca-Cola you find that the vast majority of their “new” items are not things they developed themselves but rather things they acquired by buying other firms.  Whether it is Google acquiring companies like You Tube or Facebook acquiring Instagram instead of developing their own app you find the vast majority of large companies even in markets noted for the need for innovation are not in fact developing or even allowing innovation within their own firms.  The question then is why?


 


Here are, in my view, some of the reasons for this phenomenon:


 


Organization Structure:  As an organization grows its structure becomes more and more what the military would term a “command and control” structure.  There is less cross fertilization of ideas across the organization and more development of organization silos that do not allow for outliers, people who buck the system.  The net result is the famous outside the box thinking is not only discouraged but in fact beaten down and out of the system.  Ms. Lang in her book for example cites the inability of Microsoft to capitalize on innovative new ideas that were initially developed internally but could not be taken to fruition because they crossed silos in the organization and ended up being strangled by arguments as to who would assume responsibility for the project.  The net result was a smaller firm was first to market and was seen as the innovator and in a lot of cases acquired for a huge sum by a large firm.


 


Politics:  Years ago I worked for a predecessor of Diageo, the world’s largest beverage alcohol company, IDV who were praised for their innovative new product development program.  When they started the program they solicited new concepts from anyone in the organization and trumpeted the fact that anyone from a production worker to the Chairman could submit new concepts to the New Brand Development team and they would be evaluated and concept tested.  They were flooded with new brand/product ideas from all areas of the organization and very quickly had to put a filter on what ideas they would prioritize for testing.  Unspoken was the fact that the first filter they applied was who submitted the idea.  Not surprising perhaps was the fact that all Senior Management ideas received top priority and those from lower down in the organization failed to pass the initial screen.  Even more telling was what happened once the Senior Management concepts were initially consumer tested and failed.  Rather than simply abandoning the concept they would go back and rework it.  I know in one case they reworked one concept that had bombed in 4 different tests, including at least 3 market tests before abandoning it.  It was an idea from the Managing Director of the company and in the end it was only killed off when he retired.


 


Corporate Culture:  There is a lot of talk about the need for “out of the box” thinking in large companies but there are not a lot of senior managers or organizations that actually embrace the concept.  Instead one most often encounters the famous “ya buts” as in “ya that is a great idea but we tried something like that in 1987 and it didn’t work out”.  In addition managers are taught to focus on a few things and do them well.  This inevitably leads them to narrow the scope of their work rather than expand it and to narrow the corporate mission rather than expanding the range of their business.


 


Short term financial focus:  One of the truisms is that public companies are less likely to take risks than private firms and most big companies are public firms with public reporting requirements.  They are continually looking at what they have to report to “The Street” or “The City”.  When I worked at what is now Diageo we used to say our short term plan was the next quarter and our long term plan was the fiscal year. 


 


More often than not new ideas and certainly new brands are an expense in the initial years rather than a profit contributor.  In the past I have seen new brand/product development programs budgets cut as the year went on because of a need to make a Marketing Department number.  I have also seen unrealistic goalposts established to measure success of new brands such as the need for a positive contribution to the bottom line in their test market and/or first year of rollout.


 


History shows that innovation is the key to success over time for firms so are large firms destined to fail? 


 


Not necessarily, they can as I suggested at the start, buy their innovation.  If you look at what a lot of the leading firms in a number of fields are doing you see them purchasing their innovation.  From firms such as Google, Facebook and even Microsoft and Apple to consumer packaged goods firms such as Coca-Cola you can see obvious trend here.


 


Likewise you see them doing what the President of Coke suggested to me; they line extend their existing brands into emerging new categories and use the strength of their existing business and brands to coopt the smaller brand.  We talk a lot in marketing about the benefit of being the “first mover” but this is not important for large companies.  What is important is that they identify and capitalize on an emerging trend before it becomes too big for them to copy or buy.


 


What it also says however is that if you want to be an innovative marketer and brand builder you are going to have a difficult time doing it within the confines of a large company.  This is why I suggest that as one climbs the management ladder in large firms you see less and less innovative thinking because for the most part it gets driven out of the company and those who are truly creative and innovative have left to start their own firms.

Privatizing LCBO Wine Sales – Be Careful What You Ask For!


To paraphrase Winston Churchill the LCBO is the worst form for selling beverage alcohol in Ontario, except for all the others that have been tried.  Having worked with over 100 different beverage alcohol jurisdictions I have seen the good, the bad and the truly horrifying from a consumers point of view.  There is no question that there are a lot of things that could and should be improved at the LCBO but privatizing the system is not one of them, particularly in a time where the government is trying to rein in a $14 billion deficit.


 


I learned a long time ago to be careful what you ask for because you just might get it.  With that in mind I would offer a counterpoint to the advocates of privatizing the LCBO entirely or even adding the private sale of wine to sale at the LCBO.


 


More Store Locations:  The short answer is yes there will be more stores but don’t expect them to carry the selection one finds in most LCBO stores.  That is what happened in every case where privatized beverage alcohol occurred.  Entrepreneurs and large chains moved in aggressively to open outlets but not all succeeded.  If one looks at either Alberta or BC, the most cited alternatives you would see that yes the number of outlets grew but the average size of most stores is about the size of a large convenience store and they carry far fewer items than a typical LCBO store. 


 


For the most part the outlets focus on low cost items that are in high demand.  In the case of BC where they compete with the government BCLDB stores you will find they have a lot of what in the industry calls “pocket sizes” or mickies, 200ml and 375ml along with low priced wines and spirits that are not found in the BCLDB stores.   What duplicate items there are, are market leaders in every category.  A broad cross section of premium wines and spirits is not their claim to fame.


 


The reason for the low priced non BCLDB listed wines and spirits is that they can be marked up a lot more than is the case for items that are sold in BCLDB stores where there is a reference price.  There is only a small discount offered to them on items sold in BCLDB stores so once an item is listed in the government stores the private outlets have little interest in selling  or promoting them. 


 


The other oft cited example is the grocery or Depanneur segment in Quebec.  Here again there are a lot of stores with very little selection.  There are apparently over 11,000 outlets outside the SAQ and while most supermarkets carry beer and wine the majority of stores are small convenience stores the size of a 7 -11 but again the selection in the case of beer is market leaders only.  It should be noted that all wine sold in these stores must be produced in Quebec and not available in other markets and therefore they are bulk imported wines which are bottled in Quebec.  Even in the case of the grocery chains such as Metro you are looking at a single aisle of wines, not a complete store.


 


Greater Product availability:  This is something that is touted by the Ontario Wine Council in their current “My Wine Shop” campaign.  This however is a fallacy if one looks at both the current private wine stores owned by the big wineries and at what is happening in other provinces.  As stated earlier most stores in Alberta and BC are the size of a large convenience store and carry perhaps 750 items, about what you might find on both sides of an aisle in a large supermarket chain store.  The large Alberta stores such as The Great Canadian Liquor Store, owned by Loblaw’s, have perhaps double that number of items but this is still far fewer than most urban LCBO stores. 


 


And what in fact do they carry?  They carry the big brands that sell and there is no reason to believe that if private wine and beer sales were allowed in Ontario, it would be any different.  No private enterprise that wants to stay in business is going to carry the vast array of domestic wines offered by the members of the Ontario Wine Council.  The demand simply isn’t there to justify it.  Instead they will carry the big sellers to maximize their profits. 


 


If one goes into a standalone Wine Rack or Vineyard Estates store which are owned by the two biggest Ontario wineries, Constellation/Vincor and Peller Estates respectively you would find no more than about 150 different wines and in the case of the kiosk stores found in supermarkets which are owned by the various wineries, you are looking at no more than about 100 different items, probably closer to 50.


 


With 124 active commercial wineries having at least 10 to 20 different wines each you would fill a store if you listed all Ontario wines, something that the Wine Council originally advocated but can’t be done because of the NAFTA agreement.  Hence their including imported wines as well in their current campaign.  When you add imported wines to the mix the chances of expanded distribution for lesser known Ontario wines becomes even more of a pipe dream, particularly if you are going to maintain and/or grow the LCBO contribution to the government.


 


Government transfers will either be maintained or grow with the addition or transfer to a private store system.  Tim Hudak and others have suggested that somehow we can maintain the $1.6 billion transfer payment the LCBO sends to the government this year, up some $300 million from last year but it is difficult to see how this can happen based on experience in other markets, without a significant increase in retail prices.  Beppi Crosariol in his December 15th article in the Globe & Mail on the situation states that “Ontario would retain full control over markups … as Alberta does under its fully private liquor retail system”.  In point of fact Alberta does not control retail mark-ups only the price which goods are sold to the retail store.  The store is then allowed to mark the goods up as they see fit.  What he also fails to mention is that the system in Alberta uses a flat tax based on alcohol content that has not changed materially since the retail system was privatized over 20 years ago.  This has meant virtually no change in the dollar contribution to the Alberta government’s coffers in this time while Ontario’s ad valorum tax has meant huge growth in the contribution by the LCBO to government revenues.  In fact a recent study by The Canadian Center for Policy Alternatives and The Parkland Institute comparing the Alberta to Saskatchewan system suggested that Alberta has lost some $1.5 billion due to forgone revenue and lower tax rates.


 


A better model would be what has happened in BC and recently in Washington State.   In BC there is a discount on the price to the retailer on all items sold at the BCLDB of about 10% but the retailer is free to mark the goods up as much as they like.  In addition goods not sold in BCLDB stores have a fixed mark-up at which they are sold to the retailer but the retailer then is allowed to mark these goods up as they see fit, normally from 30% to 50% of the purchase price from the BCLDB.  That margin comes straight out of the BCLDB transfers to the province.


 


In the case of Washington State a referendum last Fall resulted in the entire system, both wholesale and retail being privatized.  Under the terms of the referendum private enterprise, namely beverage alcohol retailers and distributors had to guarantee the state’s profit for a minimum of 3 years.  To do this the state added a 17% tax on top of their sales tax for retailers and a 10% tax, dropping to 5% after 3 years at the wholesale level, provided a minimum of $150 million was raised by the wholesale taxes.  The net result has been a reported increase in retail prices of around 17% and a drop in consumer sales since the system was privatized in June.  In addition Washington State wineries which had similar favourable treatment by the Washington State liquor board in their stores are now complaining about their loss of distribution and increased costs of doing business in the state.


 


There is no question that the LCBO can do a lot of things better than it does now but from an Ontario winery perspective I would be very careful about asking for the system to be privatized.  At the moment they receive a lot of things no other category or country receive from the LCBO including a disproportionate share of shelf space, the first and best location in all LCBO stores, rebates on their sales to the LCBO, a dedicated key promotion period as well as an incubator program for small wineries that protect them from the “normal” LCBO listing policies plus a special unpaid monthly marketing program (Superstars) in the LCBO’s stores and Food and Drink magazine to name just some of the benefits.  That is unlikely to happen in a private store system.  The Wine Council has suggested they would like to level the playing field for Ontario wines in the LCBO but in point of fact it is already tilted heavily in their favour.


 


In summary I believe that the expansion of wine sales to private stores will not result in an increase in the number of wines available in Ontario, will increase the price of domestic wines sold through the private channel and decrease the revenue the LCBO transfers to the province each year with no corresponding increase from the private sector.  My advice to the Wine Council and others – Be careful what you ask for because you just might get it!

A time for Champions!


 


As a marketer you can tell a lot about a company and its aspirations by the titles it bestows on its marketing team.  Take for example the titles; Brand Manager, Product Manager and Category Manager.


 


For me when I see the title Product Manager it raises a red flag as a brand marketer because it tells me the company is focused on products not brands.   By using the title Product Manager the organization gives the impression it is likely to be production led rather than brand and marketing driven. This in turn leads me to make an assumption it  is more  executional rather than strategic with regards to its  marketing efforts.  Similarly when I see the title Category Manager, particularly given how organizations are being flattened, I see it as a sign that for this particular  company brands within a category are  potentially interchangeable.  While this is not necessarily the case in all instances you nevertheless are often looking at a financially driven enterprise that is looking to optimize their financial results through category management rather than building brands for the long term.


 


Then there is the title Brand Manager.  This is the first signal that a  company has a commitment to building brands to build their business.  As Graham Robertson of Beloved Brands points out in his white paper Building a Marketing Career, a Brand Manager becomes involved both with the ownership and strategic thinking of the brand(s) within his or her responsibility.  I used to tell my MBA students “a Brand Manager has responsibility for everything and control over nothing.”.   The Brand Manager should be the steward of the brand but all too often they have little control over critical key elements of the day to day execution of the brand’s strategy.  Finance tells them the costs and often dictates their Marketing budget, Production produces the brand and Sales sells it for them, often controlling the price at which it is sold to the customer (or at a minimum the feature price)  without regard to the impact on the brand’s image or identity.


 


Perhaps the time has come to change the Brand Manager’s title to something else.  I am not an advocate of some of the new “creative” titles you see such as “Chief Disruptor” or “Customer Advocate” but I recently saw a posting by a former client of mine, Great Western Brewing for a Brand Champion and I was intrigued by it.  In part it read as follows:


“The Great Western Brewing Company’s Brand Champion is a key member of the Marketing Team who passionately will drive enhancement of the GWB product portfolio with a focus on building brand equity and generating profitable and sustainable market share growth.


The Brand Champion will lead the development of the GWB corporate and portfolio strategy within the various markets and segments of the Beverage Alcohol Category while understanding category dynamics, trends and market conditions.


The Individual will use their Entrepreneurial Spirit, Leadership Skills, Strategic Thinking, and Marketing Instinct to enhance and optimize our portfolio. The Champion will need to be able to obtain a strong understanding of the beer consumer and the category.”


 


Now Great Western Brewing is a relatively small company by beer company standards and as a result has a relatively small marketing group.  Hence their “Brand Champion” is in fact a category champion in that they are responsible for championing all the brands in their portfolio, not just one, but I believe they are on the right track here.  The detailed job description goes on to talk about being an advocate for the brands within all functions  of the company and fostering a brand culture of excellence in all areas from production, to finance, to sales and administration.  They may not have Shopper Marketing Managers or Consumer Insights Managers or Brand Strategists but they do have a Brand Champion to provide overall corporate leadership for their brands.


 


It can also be argued that the Brand Champion should not be at the Brand Manager level in an organization, particularly where a brand dominates the organization.  A Brand Manager is simply too junior for such a critical role in the organization.  Here the most senior person in the organization should play this role.  Take for example Apple.  Prior to Steve Jobs death he was the Brand Champion of Apple and was recognized as such by all concerned.  This lives on to this day where every Apple misstep (Apple Maps anyone?) is met with the comment “Steve would never have allowed that to happen”.  However Jobs himself told Tim Cook in 2011 “I never want you to ask what I would have done” but rather do what he saw best for the Apple brand.  The problem is that Cook has not yet stepped up and clearly demonstrated he is the Apple Champion and demonstrates Jobs obsession with the brand, its identity and its image over everything else.  The result has been infighting in the organization and apparently a lack of brand vision.


 


What brands need today is fewer Product Managers, Category Managers or technocrats running them and more Brand Champions.  In other words brands need people who are not just conversant hot areas of marketing such as trade marketing, shopper marketing or social media but rather they are also strong advocates for their brands.  They live and breathe their brands and are forceful advocates for them both inside and outside the company.  They can’t wait to get up in the morning and go to work in the belief that their brand is the best and they need to both communicate that to all concerned and to find ways of making their brand even better in everyone’s eyes.  They in short are people on a mission to build their brand in every stakeholder’s eyes.

Weaning the Sales Force and Retailer off Price Promotions


In a recent blog post entitled “Partners in Profit” I suggested we as Marketers needed to revisit our dependence on trade marketing and price promotions in particular.  If we were going to focus on brand building I argued we needed to be able to divert current resources from trade marketing into consumer marketing and I deplored the almost total reliance today in CPG on trade spending.  I stated we need to rebalance our trade and consumer spending if we are going to build long term consumer brand loyalty.  I quite rightly was criticized in a subsequent response to this post for failing to offer a solution to the situation.  In fact the poster commented, perhaps somewhat unfairly, that I was taking “a trip through fantasyland with yearnings of what has been lost.”


 


In response let me start by saying I am a realist and in that respect I recognize there are some components of trade marketing/spending with retailers that we as marketers are not going to be able to change.  First and foremost is the fact they are going to expect and require that we continue to grow payments to them for advertising and display activity.  Whether they are called co-op advertising funds, volume rebate programs, key account marketing programs or whatever those funds are necessary to continue to promote brands in the key retail chains and frankly to ensure their continued listing.  They are a cost of doing business and why in most cases they don’t even show up in a marketing budget but are put into the sales budget or in some cases are simply shown as part of the cost of goods.  Equally in most cases they are managed by the sales team and not the marketing team. 


 


What I know can be changed is the discretionary part of trade promotions, particularly price promotions but first we need to understand if there is a problem and the magnitude of the problem.  To do that we need to do something most marketers don’t do and that is evaluate the success or failure of all of our promotions, not just price.  In short did they pay back or would we have been better served not to have run them at all.


 


I’m sure most marketers have been faced with the proposition from sales of “Let’s cut the marketing programs in the last 3 months and give me the money to run a large discount and load up the trade.  That way we can all make our numbers for the year.”  Inevitably the CEO and CFO agree to this and off sales goes and loads up the trade and the company makes the number but at what cost? 


 


No one stops to calculate what the impact of the proposed price promotion has on future sales and profitability.  Yes you get a huge bump in sales during the period of the discount but what happens afterwards?  Often what happens is there is a huge drop-off in sales in the first quarter of the following year, sales that don’t happen because the retailer is still working off the stock he bought in at the end of the year.  If you were to do an analysis showing the average rate of sale and corresponding profit before during and most importantly after the promotion would you in fact show that you generated incremental profit versus a lower discount and/or no discount at all?


 


As marketers we need to start doing this type of analysis on all our promotional programs regardless of the time of year and determine if they are adding to our brand’s bottom line or in fact subtracting from it.


 


In addition we should be testing the depth, the length and the frequency/timing of our price promotions.  All too often we simply repeat what we have done in the past without looking at whether or not changes are required to our trade promotional strategy and execution in these three areas.  I will address what can be done in each of these variables in turn starting with depth.


 


How many times have the sales team run a price discount to the trade for the same amount X dollars off per case with the trade.  The argument usually when questioned about the amount is “this is what we did in the past so this is what the minimum is going forward”.  But is that really the case?  Do we know that $3.00 per case off invoice would not work as well as $5.00 per case?  We also have moved away from proof of performance deals for the most part in CPG.  The argument used to be it was too difficult to work out how many cases a chain sold when the brand was on feature but this was before UPC codes, scanners and daily sales reporting were generally available.  There is no reason now why you can’t negotiate an arrangement with the chain to pay them one discount for the duration of the promotion and a second higher rate for sales to consumers during the time period in which they have a feature price in store.


 


This highlights the second area we as Marketers need to examine, the duration of the price promotion programs.  In most cases we run price promotions for a minimum 4 week period and I have seen them as long as 8 weeks but are they really effective? 


 


In an analysis I did a number of years ago I found that our accounts were buying in heavily during the first week and they ran their price feature in the first two weeks.  The next few weeks’ sales were relatively slow but there was a sudden burst of orders in the final week as the accounts stocked up on discounted stock prior to the end of the deal.  In fact in one market we found that over 90% of the most popular size of the total years sales were being done at the same discounted price.  This analysis highlighted two things we needed to change; first we needed to go to a two stage discount program (off invoice and proof of performance) and second that our promotions ran too long and we should cut them back to two week programs.  This we did and we improved both profitability and were able to fund more consumer directed programs, both advertising and promotion and still deliver the bottom line.


 


Finally we all have a tendency to be creatures of habit.  This point was driven home to me a number of years ago when I went on a call to a head office with one of our Key Account Managers.  Because I was there the Key Account Manager tried to get the buyer to order some more of my brands.  The buyer looked at his calendar and said no, not at this time.  When I asked him why he pointed to his calendar and said your next promotion starts in 6 weeks time and I have enough stock to last me until then.  I then asked him how he knew that (he was correct by the way) and he showed me his calendar with all our promotions set out for the year on it saying you guys have run the same program at the same time every year for the last 3 years so I just wait and buy on deal because I know when the next one is coming. 


 


When was the last time you changed the timing of one of your promotional programs?  I recognize there are times when we have to be on promotion but there are also times when I question why we chose to promote based on price.  For example I have spent a number of years in the beverage alcohol business and the key selling period for spirits is between December 1 and December 31.  Over 30% of a premium/ultra premium brand’s sales can occur during this one month period that includes both Christmas and New Years.  People are predisposed to trade up in terms of their purchases so why do brands such as Patron or Johnny Walker Black whisky that are iconic brands, chose to price promote during this period?  Yet they do, just as Coke and Pepsi run huge price discounts during this period that offset one another at a time when consumers would probably spend a little extra on soft drinks.   Yes they need to be front and center in the retail chains but at the lowest price of the year?   Consumer directed promotions such as gift packs or added value could have just as big an impact here as price but often what happens is that we give the consumer both, added value and price.


 


None of these proposed modifications are silver bullets that can overnight move a brand from predominantly trade promotion activity to consumer driven activity nor should they be implemented without testing and evaluation.  However they are options that marketers need to consider in their search for funds to undertake long term brand building.

It’s Time to Change Marketing’s Image


 


As marketers we are all involved with building our brands image with others be they consumers, customers, vendors, employees or other stakeholders but why is it that we have done such a poor job of building our profession’s image?


 


This was driven home for me in the recent past by the following incidents:


 



  • A senior purchasing/procurement manager said to me that “marketers do nothing but sit in their ivory towers and build plans that go nowhere.  It is guys like me and the sales people that bring the reality of the situation to bear for Senior Management.”

  • Another colleague told me of a presentation made by the head of his company’s HR Department presenting his rationale as to why he should take over as the Chief Marketing Officer of the company.  In essence his argument was he understood human relations and as such would be ideally suited to understand what motivates consumers to buy the company’s brands.  The CEO actually gave it serious consideration before deciding to combine the Marketing and Sales role into one with a VP of Sales and Marketing headed up by the former VP of Sales.

  • I saw a statistic that said only 14% of CEO’s in Fortune 500 companies in North America had come from a marketing background.  Most had either a Finance (number 1) or Sales background.  This is a far cry from 25 years or more ago when the majority of corporate leaders came from Marketing and Marketing was seen as the area of leadership in the company, at least as far as packaged goods was concerned.

 


So how has it come to this?  First of all in my opinion despite the fact we are all supposed to be great communicators we have failed to communicate what Marketing is and what we as Marketers do, particularly in regard to Brand Marketing.  In a lot of cases we have allowed others to define Marketing for us and have failed to delineate reasonable expectations for Marketing plans and programs. 


 


One example is the change several of years ago by the Direct Marketing Association to the Canadian Marketing Association.  Now I have nothing against direct mail/response but it is not Marketing!  It is a useful tool in the marketing mix but it is not the be all and end all.  Yet when the Direct Marketing Association made this change to the best of my knowledge no marketer stood up and objected, including me.  One needs to look no further today than the agenda for their AGM to see how the association now pays lip service to any topic beyond direct response which leaves the impression with outsiders that only direct response is Marketing.


 


We have also failed to communicate the need for long term brand building by a company.  The net result is one of the first things to go in any budget review are consumer brand building items; advertising, consumer promotion, sponsorship, PR etc in favour of short term volume building items such as price discounts.  In addition we have seen the shift away from consumer programs to trade directed programs.  In fact it is often cited that now over 80% of a CPG brand’s marketing budget is directed towards trade marketing programs and it is continuing to grow.  As a result you see brand awareness, repeat purchase and loyalty all declining along with the price gap between private label/store brands and national brands.


 


One of the biggest problems in trying to convince management to go for brand building programs is the fact they seldom payback in a very short time.  In an environment where management’s perspective of the short term is 3 months (the next fiscal quarter) and the long term is a year there is tremendous pressure to deliver a payback in less than a year.  I find this strange in that if it was a capital expenditure such as new plant or even a new piece of equipment management would be looking at a 3 to 5 year payback on their investment but a marketing investment has to pay back in a year or less.  I recently was involved in a relaunch of a brand with an extensive consumer marketing campaign incorporating new advertising, new social media, trial generation and experiential programs all designed to re-engage our core consumers with the brand.  However 3 months after the launch the program was cut because Senior Management hadn’t seen a big sales increase.  They therefore cut the program to fund price discounting instead to make their number for the year.


 


What we as Marketers need to do is better manage Senior Management’s expectations in terms of payback for marketing programs.  A number of years ago I was responsible for Black Velvet Canadian Whisky on a worldwide basis and our most important market was the US where we did around 2.5 million cases a year in sales and generated an operating profit of more than $25 million US a year.  We had a major consulting firm come in and do a detailed analysis of the brand by a bunch of very bright financial consultants.  In one of their presentations they went through each element of our marketing mix and did a financial analysis that to them demonstrated that nothing paid back.  Not our advertising, not our consumer promotion programs, not our big PR program, nothing except for price discounting.  To which my first question was “If that is the case how did we get to 2.5 million cases and over $25 million operating profit per year – serendipity?”  Their problem was they were looking for an immediate short term (less than a year) payback rather than looking at the long term success we had in brand building.


 


In summary we need to do a much better job in communicating how brands are built and what an appropriate time frame is for a payback.  Back when I started in Brand Management with Unilever we looked at a loss in the test market and a Year 1 loss in the rollout of the test.  We broke even in Year 2 and recovered all our losses and made a small profit in Year 3.  That to me is a reasonable model but I also believe it is one that is seldom employed today in most companies.  Additionally we used to run test programs on existing brands of heavy up expenditures in things like advertising or consumer promotion in a market to see if we could increase sales to the point they paid back for us.  Normally this was a one to two year test program but when is the last time any of us have either undertaken such a test or heard of one being done?


 


In short we need to better communicate and better manage people’s expectations if we are to improve the image of Marketing in the coming years.  Failure to do so will result in a continuing decline for both the image of Marketing and the value of the brands for which we are responsible.

Partners in Profit?

The recent announcement by Unilever that they are shifting most of their marketing resources for Knorr and possibly other brands such as Becel to in store merchandising activity completes the shift of marketing funds away from consumer directed out of store activity such as advertising to virtually 100% of spending occurring in store.  See the link here for the full story.  Is this the way of the future for CPG brands and if so are we as marketers abdicating our role to the retailer and the more important question is, should we?


 


In the age of Mad Men right through the 70’s and into the early 80’s Marketers focused on developing consumer demand by utilizing consumer advertising to drive listings in retail outlets.  You followed the classic consumer adoption model of generating awareness then trial followed by repeat purchase of a new brand.   CPG marketers launched new brands with massive advertising campaigns and their presentations to retailers basically said “You need to carry this item because we are going to create so much consumer awareness for it your customers are going to demand it”.  Yes there was an introductory discount but this was generally in the 10% – 15% range and was limited to a 4 week introductory period.  If the retailer didn’t list the brand in that time they didn’t get the discount.  


 


Trade spending for the most part was limited to co-op advertising and a volume rebate program for key accounts that was tied directly to their purchases of the various company brands.  Total spending in this area was around 5% to 7% of net sales of a brand and was tied directly to advertised promotions of the brands in the account.


 


Of course there were trade oriented promotions over and above this amount but for the most part they were things like bonus packs, buy one get one free etc. and price discounts were relatively few and far between.  Those discounts that happened were often based on proof of performance that is the retailer had to prove they passed the discount onto the consumer before they could claim the full discount.  It was common for the discount to be 50% up front and 50% based on the number of cases moved through to the consumer, not purchased during the deal period.


 


The brand owner clearly dominated the retail channel to the point where they could virtually dictate retail pricing.  In fact in the mid 70’s Coca-Cola Ltd. in Canada embarked on what they called a “Value Pricing” strategy whereby they pre-priced all their large size containers with a suggested retail price printed on the label.  When some retail chains balked at this plan they were told it was a take it or leave it proposition and if they didn’t agree to take the pre-labeled product they would not get a substitute.  A leading chain representing about 20% of grocery sales refused and delisted Coke brands.  The company responded with newspaper ads telling consumers that they were pre-pricing their brands to ensure the consumer was getting the best value and that to look for stores that carried pre-priced Coke as it was a sign that they were getting the best value for their shopping dollar.  After about 4 weeks without Coke in their stores the chain agreed to relist the brands because of the damage the newspaper campaign was doing to their image and reputation as having competitive prices.


 


It is tough to imagine anyone, even Coca-Cola being able to do this today given the concentration of retail grocery chains in Canada and elsewhere.  In Canada it is estimated that 5 chains/groups control over 80% of the grocery sales.  Equally the estimates of the cost of listing fees etc. for a new item run between $500,000 and $1,000,000 in order to secure complete national distribution, well out of reach of most small to medium sized firms.


 


So what is the future?  Well I have seen one possibility and it is disconcerting from a brand owner’s standpoint.  I have been a beverage alcohol market for a number of years now which in Canada means for the most part dealing with a single retailer, a government liquor board.  I once presented a new item to one of the largest liquor boards that included a complete program involving consumer advertising, trial generation programs both in their outlets and in bars and clubs along with an array of bought promotional programs from them.  Their reaction to the presentation was “why don’t you just give us all your money (over $350,000) and we will allocate it amongst our various programs”.  Their argument was that they had their own consumer magazines and their own in store sampling program so why did we need to go to any outsider for this.  Their contention was that they would use the funds more effectively and efficiently than I would on programs that they would devise to meet their needs.  It was only when I pointed out to them that by doing this they potentially opened themselves up to adverse publicity from other advertising mediums and bar and club owners that they backed off.  Their concern was for their image with their political masters, not because they thought there was anything wrong with what they were proposing. 


 


It is doubtful that a private retailer would have the same qualms.  This was driven home when I presented an innovative new juice product from a small supplier to a major chain who agreed to list it on the understanding that we would produce a private label item of similar quality just for them.  When we refused we were not listed and in the end had to pay a significant listing fee for the right to be in their stores.


 


The question then is what to do now?  It has been said that over 85% of CPG marketing budgets is now being spent on trade/shopper marketing programs and in a lot of cases, including Knorr now it is approaching 100%.  However is this new model sustainable or even feasible for most companies or brands?


 


The short answer is no.  The Unilever plan for Knorr calls for 4 different displays throughout the perimeter aisle of the store.  If you add Unilever’s major competitors you rapidly run out of available display locations which then means they become subject to bidding. 


 


Equally what do you do in the case of a new item?  Knorr is an established brand with a certain level of consumer awareness but putting all your money into in store activities for a new brand launch has the potential of reducing awareness for your brand, the first step in consumer adoption.  Yes people will find it in store and if you have sampling, recipe and other in store programs to create trial but will you build lasting awareness for your brand?  In short we as marketers need to find ways of building awareness and trial while continuing to support the necessary in-store activities but how?


 


Clearly there needs to be a rebalancing of marketing spending from where it is today but it is also clear that we cannot go back to the “good old days” of the 60’s and 70’s.  For years now I have been part of numerous “Partners in Profit” presentations to chains by suppliers particularly in regard to shopper marketing.  A partnership however is generally a 50/50 proposition and clearly this is not the case currently.  There needs to be greater emphasis on consumer branding activities at the expense of trade marketing.  Note I make a distinction between shopper marketing which involves specific brand promotion to shoppers in a given chain as opposed to the straight discounts and listing/maintenance fees we are now paying to the chains. 


 


It will be a slow process to wean our retail “partners” off the current trade deals but if we are to build consumer franchises for our brands we must begin to do this.  If can’t do this we are going to continue to concentrate power in the retailer’s hands and run the risk of either being delisted or not listed because we can’t pay the necessary promotion costs to them.  Alternatively our brands become nothing more than price brands as we all move down to the lowest possible price but at what cost? 

Climbing The Brand Ladder


I have been having a number of discussions lately with Marketers about how to build “brand ladders” particularly in the Consumer Packaged Goods (CPG) and beverage alcohol space. 


 


In my discussions there seems to be some confusion about what exactly a brand ladder is and how it works.  A brand ladder is a series of items in a product category that have a common brand name and are priced at different points in a category.  There is generally some way of differentiating the individual items based on product features/benefits.  The concept is that an entry level consumer starts at the bottom of this price/feature ladder and as they gain expertise they begin to climb the ladder to more complex and higher priced items.


 


For example for years now we have seen this in a number of hard goods categories such as running athletic shoes.   You start off with what is an entry level shoe for people just getting into a sport or activity priced at the bottom of the category as a “value brand”.  You then add features/benefits and increase the price point along the way to the point where you a number of distinct items at various price points.  In the case of athletic shoes these can range from $50 a pair to several hundred dollars a pair.  Certainly that is the brand model that companies like Nike and New Balance have employed with great success.  The more committed/expert you get the higher up the ladder you climb.  Note that when they launch a new line/ladder they do so with multiple items with varying features at different price points at the same time thus constructing their ladder at the time of initial launch instead of doing what a lot of packaged goods people do; start with one item, generally at the bottom of the price range and try and add new items as premium extensions over time.


 


Perhaps that is why when one looks at a lot of grocery items there is relatively little being done in the way of building brand ladders.  What tends to happen instead is that new premium lines are launched as new brands; even in the most indulgent/luxury categories such as ice cream.  In the ice cream category the producers launch products with discernible differences at different price points but under different names.


 


Most line extensions for grocery brands tend to be based on flavour and tend to be line priced even when there are distinct differences.  I know that a number of years ago when I worked at Coca-Cola we discussed premium pricing for Diet Coke because the product cost versus regular Coke was much higher but in the end decided we could not justify a premium price to the consumer and simply ate the extra cost.


 


In beverage alcohol there has been a mixed bag in terms of results.  The keys to success in building a ladder are the starting price point for the ladder, the number of items initially launched and most importantly discernible differences between the various items under the same brand name.  As a result some categories such as vodka are a virtual graveyard of ladders that didn’t work while others such as scotch and wines have achieved a measure of success because of their ability to accentuate the points of difference as a rationale for a higher price point.


 


Take a look at the Johnny Walker ladder of whiskies as an example of something that works.  The starting point, Johnny Walker red is at a premium price point to begin with and as you go up through Black, Green, Gold to Blue there are distinct differences in the product and taste profiles with which   consumers can readily identify.  That is why it has now been ranked the number 1 wine and spirit brand in terms of brand value.  On the other hand their parent, Diageo has been singularly unsuccessful in building a ladder for their Smirnoff brand despite several attempts to launch a premium Smirnoff Black extension as people just did not see a difference that justified the price premium and frankly in most markets did not see Smirnoff as a premium brand.


 


This experience has carried over into wine brands as well.  There are any number of mainstream “fun/lifestyle” brands that have attempted to build a premium extension, usually by tacking the descriptor “Reserve” before the brand name.  As a colleague once remarked to me in regard to a leading US wine brand “I have a tough time believing that a wine brand that is poured out of a beer like draft tap from a 50 gallon drum can also be a $100 a bottle estate bottled wine as well.”  Further it begs the question as to why you would want to pollute the image of your wine by having a cheap wine by the same name.


 


In short in my experience if you are looking to build a brand ladder, in CPG or beverage alcohol you need the following:


 



  • A premium price starting point for your base brand.

  • Having at least two if not more brands in your ladder launched at the same time.

  • Clear points of differentiation between the rungs of the ladder that is you have to give the consumer a clear and compelling reason to climb the ladder and ideally it is because he is going to get a perceptively better quality product.

Building a Brand


I believe there are two types of marketers; the technicians who focus on the process of marketing and the champions who are focused on the brand(s) themselves and become strong advocates for their brands.  I must confess that I am much more of a brand champion than a brand technician.


 


When I first started in Consumer Packaged Goods marketing at Unilever I was passionate about the brands for which I was responsible.  I was famous for going into the bathroom cupboards of my friends and expressing shock if they had another bar soap instead of Dove or another toothpaste instead of Pepsodent or Close-up.  I felt it was my duty to cure them of the error of their ways and to ensure that in future they only bought the brands for which I was responsible. 


 


Needless to say this activity did not necessarily endear me to my friends, particularly those who worked for a competitor.  In fact it got so bad once I moved to Coke and one of my best friends moved to Pepsi that our wives had to make a rule that we were not allowed to talk business after the first 30 minutes and neither of us was allowed to extol the respective virtues of our brand to others, especially bartenders or restaurateurs when we went out for dinner or to meet with friends.


 


When I joined IDV, now Diageo the Managing Director George Bull used to start just about every presentation he gave with the opening line: Brands! Brands! Brands!  George was a passionate champion of brands and encouraged everyone in the organization to think about brands.  The company even had an incubator new brand development program that was theoretically open to anyone in the company who wanted to develop their own wine or spirit brand for the company.  It was in this environment and culture that my championship of brands came to fruition.


 


This blog is dedicated to the idea of how to build brands because brands are the foundation of any good company regardless of the business it is in; consumer facing; business facing or both.  The essence of brand building for me is understanding who your consumer is and what their wants, needs and most importantly their desires are.  They may not be able to clearly articulate them for marketers but it is critical that we as marketers, understand them.