jeremy bullmore

JEREMY BULLMOREC H O P P I N G B L O C K

16 Market Leader Autumn 2008

In praise of antinomies

with its entertaining introduction by RorySutherland, there’ll be an agreeable sense of thefamiliar. We’re back to that centuries-old debateabout logic, induction and intuition; right brainand left brain.

Let me start by trying to rescue an extremelydirty word. One of the most devastating accusa-tions you can make of account planners is toaccuse them of a despicable act of intellectualdishonesty called post-rationalisation. Theunderlying inference is this: they’ve been shownsome really weird idea, apparently plucked outof nowhere by two under-educated people inblack T-shirts; and all the planner has done,with Jesuitical levels of low cunning, is to represent its origins – as if this weird idea hadbeen arrived at through some linear, evidence-based and respectably scientific step-by-stepprocess of deduction.

Non-scientists tend to be more respectful ofthe scientific method than the better scientistsare. Or, to be rather more accurate: non-scien-tists like to believe that the scientific methodemployed in the act of discovery eliminates luck,guesswork, the wild generation of hypotheses,human prejudice and – naturally – post-rational-isation. In believing all this, of course, non-scientists are not to blame. Those responsibleare the scientists themselves who, for a couple ofcenturies, led us to believe that all properly scientific discoveries were arrived at by a processof forensic thought in which every step waswholly dependent on the demonstrable validityof its predecessor. And we believed that to betrue because every scientific paper published inevery learned journal told us in peer-revieweddetail that that was indeed the way it was done.

It was one of the greater scientists – the Nobelprize-winner Sir Peter Medawar – who firstblew the gaff, at least for me. This is what hewrote in a racy little number called Induction andIntuition in Scientific Thought:

Scientific papers in the form in which they arecommunicated to learned journals are notorious formisrepresenting the processes of thought that led towhatever discoveries they describe.

In other words, by a wonderful and circularirony, those marketing case histories, which weall suspect have indulged in shameless post-rationalisation, have done so in the sublime

THERE ARE SOME subjects that don’tget talked about because they’re notworth talking about. And there are somesubjects that don’t get talked about

because they have no commonly shared vocabulary – often no familiar name. Antinomiesbelong squarely to this category.

The best definition of antinomy I know comesfrom the wonderful and sadly neglected EFSchumacher. Thirty-five years ago he publisheda book called Small is Beautiful. That’s not reallywhat it’s about – the title was suggested by hispublisher and it served him well – but the bookis full of wisdom, almost all of it still relevant tobusiness, to invention, to making things happen:and therefore to the future of planning. Let mequote:

Top management … inevitably occupies a very dif-ficult position. It carries responsibility for everythingthat happens, or fails to happen, throughout theorganisation, although it is far removed from theactual scene of events. It can deal with many well-established functions by means of directives, rules andregulations. But what about new developments, newcreative ideas? What about progress, the entrepre-neurial activity par excellence?

‘We come back to our starting point: all realhuman problems arise from the antinomy of orderand freedom. Antinomy means a contradictionbetween two laws; a conflict of authority; oppositionbetween laws or principles that appear to be foundedequally in reason.

Excellent! This is real life, full of antinomies andbigger than logic. Without order, planning, pre-dictability, central control, accountancy, instructionsto the underlings, obedience, discipline – withoutthese nothing fruitful can happen, because everythingdisintegrates. And yet – without the magnanimity ofdisorder, the happy abandon, the entrepreneurshipventuring into the unknown and incalculable, with-out the risk and the gamble, the creative imaginationrushing in where bureaucratic angels fear to tread –without this, life is a mockery and a disgrace.

All this from an economist, born in Germany,writing in 1970 and working at the time for theNational Coal Board. It’s magnificent stuff.Never has antinomy been more evocativelydefined.

For those who’ve read the ‘Art and Science’chapter in Stephen King’s brand planning book,

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belief that this makes them almost as scientificas those scientific papers that have indulged inprecisely the same deceit.

(It’s possible that the only honest case-study inthe history of marketing is the BarclayCard casewritten by Paul Feldwick, once of BMP; itdescribes in hilarious detail just how luck, agencyobduracy and a collision of events entirelyfortuitously led to an award-winning campaignof great commercial effectiveness.)

Marketing case histories and scientific papersdon’t put much store by antinomy – or at leastin one half. They quite like the bit about orderand central control and discipline, but they’renot so keen on ‘the unknown and incalculable,the risk and the gamble, the creative imagina-tion rushing in where bureaucratic angels fear totread’ – without which, says Schumacher theeconomist, ‘life is a mockery and a disgrace’.

But this is where real life yet again intrudes.However beguiling the risk and the gamble,however fruitful the unknown and the incalcula-ble, at some point a real-life client has to be persuaded that they should spend £35 million oftheir company’s money on – as it were – an animated vampire duck. For all I know, theremay be exceptions, but I’ve yet to meet a clientwho’s perfectly happy to sign off £35 million oftheir company’s money on an advertising cam-paign featuring an animated vampire duck onthe sole basis that somebody in a black T-shirttells them that it’s pushing the creative envelope.One half of this particular antinomy may favourthe ‘trust me, I’m an art director’ school of cam-paign planning and presentation, but the otherhalf certainly doesn’t. Nor is the reluctance ofclients to accept work on this basis, as is some-times suggested, clear evidence of their cow-

ardice. Penicillin may have been discovered inpart by happy accident – but a lot of retrospec-tive digging had to be done before it wasreleased 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’sessential. But it’s also essential that those whopractise it don’t cheat. Tom Peters advanced thecause some years ago by describing the processnot as post-rationalisation but as ‘retrospectivesense-making’. Edward de Bono said that yousometimes have to get to the top of the moun-tain to discover the shortest way up. All thesethings are true, and nobody gains by pretendingthey aren’t.

Stephen King famously plotted account planners on a scale from Grand Strategists at oneend to Ad Tweakers at the other. It’s easy to seethese two figures as representing the two whollycontradictory pressures that form our particularantinomy: order versus freedom; discipline andrelentless logic versus risk and unanchored intu-ition. At the one end, the Grand Strategist, with a72-slide PowerPoint deck, coshing his audienceinto exhausted submission; and, at the other, theAd Tweaker, performing elegant little creativepirouettes with never a single validated fact to spoil the party.

But to Stephen King, these were just extremeson a scale, not alternatives. We seem to bebemused by alternatives. We’ve all caught binaryfever. Everything has to be zero or one, black orwhite, Britain or Brussels, quant or qual, GrandStrategist or Ad Tweaker. If you’re not totally infavour of one while being totally opposed to theother, you’re a wimp.

Let me return to the great EF Schumacher: Whenever one encounters such opposites, each of

them with persuasive arguments in its favour, it isworth looking into the depth of the problem for something more than compromise, more than a half-and-half solution. Maybe what we really need is not either-or but the-one-and-the-other-at-the-same-time.

And, as Schumacher points out, in everyaspect of our lives – our home lives and ourworking lives, on a daily basis – we’re having toface, and manage, the simultaneous and contra-dictory requirements for both order and free-dom. And somehow we do. Good parents do itinstinctively, 24 hours a day.

The real danger in Schumacher’s antinomy isthis. To people in creative organisations, one ofhis compelling laws or principles is so much moreattractive, so much sexier, than the other. If youwere interviewing a potential creative director,what would you think if he claimed blind andblinkered allegiance to ‘order, planning, predictability, central control, accountancy, giving instruction to underlings, obedience


Market Leader Autumn 2008 19


and discipline’? (Come to think of it, there areprobably some agency CEOs who’d say, ‘Just theperson we’ve been looking for.’) To creative com-panies, ‘the magnanimity of disorder, the happyabandon, the risk and the gamble, the creativeimagination rushing in where bureaucratic angelsfear to tread’ – these are infinitely more alluringand more flattering. And therein lies their danger.

If, over the next 40 years, account planners areto deliver as much worth to their agencies andtheir clients as they have over last 40, they cannotchoose between the competing halves ofSchumacher’s antinomy. They will have toembrace both – and put them both to good use.

To celebrate the magnanimity of disorder andrisk liberates no one from the responsibility formaintaining discipline and order and painstakingaccuracy. They'll need the-one-and-the-other-at-the-same-time.

Those that can deliver the first without the sec-ond will be valued data analysts, responsibleadministrators and deadly boring drinking companions. Those that can deliver the secondwithout the first will be valued as the occasionalalchemist but seen as fundamentally flaky.

Those that can deliver both – the one-and-the-other-at-the-same-time – will inherit the earth.❦

15 July 2008 marked the 40th birthday of accountplanning as practised by advertising agencies. JWT,which together with Boase Massimi Pollitt pioneeredthe discipline, celebrated the occasion by staging anevent for clients and planners at its Knightsbridgeoffices. It was called Planning Begins at Forty andinvited speakers and audience to define the qualitiesrequired of planners and planning over the next 40years. This column, with the kind agreement of JWT,is based on Jeremy Bullmore’s contribution to thatevening.

ReferencesLannon, J. and Baskin, M. (2007) A Master

Class in Brand Planning: The Timeless Works of Stephen King. John Wiley & Sons.

Medawar, P. (1984) Pluto’s Republic. Oxford University Press.

Schumacher, EF. (1993) Small is Beautiful: A Study of Economics as if People Mattered.Vintage.



Sub-prime marketing is over

Derek Williams,formerManagingDirector ofCadburySchweppes, andveteran ofrecessions past,takes a look atthe currentscene andoffers sometough advice.

WE ARE AT the beginning of theage of spectacular discontinuity,where the past is no longer a safeguide to the future. As companies

rapidly prepare for defence or survival, all tests arenow ‘suitable for purpose’ ones.

For most marketers, this will be a test of sur-vival management as the organisation takes stockof itself and prepares for a new future. It will be aperiod of rapid and constant adaptation. We neverget back to where we were on the old escalator.

Consumers are already using their savings tocope with the costs of standing still, and when itgets beyond that they will begin rationing them-selves. Consumers will change their needs andbehaviours rapidly because the pleasure principleof recent times will not be with us for some timeto come. For business, this can be an incrediblyexciting time. Here are my tips for survival.

Criteria of adaptivenessOnce your organisation is strong on adaptation,you will find that the rate of learning and thebehaviour change in the organisation becomesfaster than the rate of change outside, and internalflexibility will be greater than external turbulence.

The human race has survived turbulence onlythrough adaptation; the same goes for organisa-tions. Some of the changes required to come outthe other side are shown below (see Table 1).

Operating plan vs budgetYou may need to have a budget, but have an oper-ating plan as well. The operating plan can be lessoptimistic on performance and can set outresources and costs at lower levels. If there is anupside it will be small, and productivity will haveto take care of it.

The operating plan gives departments moneyfor resources but that amount is also expressed asa percentage of the assumed revenue. Budgetholders have to assume revenue may be lower soas a contingency they have to have savings aheadof the game.

Nilum spendum – at all times throughout the organisationThe false Latin is mine but the law is PeterDrucker’s: ‘What is the minimum I need tospend to avoid serious malfunction?’

Hold your nerve marketingThe good times are over and we are likely tohave too many products, prices and packages.And much of our activity is sub-prime: high risk,high spend with low or no margin, and sub-sidised by the core products and packs.

Concentrate on your best performers and sup-port them. But keep your price and avoid pricewars. This is the blood stream of the company,particularly when the costs of staying in businessare rising unpredictably.

Appoint a pricing managerFind a very good, cold-hearted operator, whowill ride hard on pricing. He will be the goldprospector. He will find gold in pricing that’s notbeing implemented and then can really makesavings. This senior manager is a source of joyand salvation, and will be seen often in the officeof the MD.

Fewer and better There will be headcount casualties: not justredundant jobs but redundant skills in peoplethat are no longer relevant. The rule is you cannot cut too far – but you won’t anyway. It iscrucial: headcount attracts activity, which attractscost. Always feel free to look for new money forproposals. Much as you might want this to happen, you cannot give more resources if theoperations plan doesn’t allow it. But you canhave all managers examine what is in their budgets: how long ago was that cost acquired? Isit still better spent that way than on the new proposal?

ConclusionsForecasting darkly always sounds melodramatic,writing lists always seems simplistic and general-ising over the whole industrial spectrum can be naïve. But to survive you have to have anadaptive organisation that will work out its ownphilosophies and programmes.

I have always found that management learnsbrilliantly on the run – momentum is preciousand brings its own insights and wisdoms.❦

DEREK WILLIAMSV I E W P O I N T

Table 1

Adaptive Non-adaptive

Non-linear Straight lineManoeuvrability FixedAd-hocracy BureaucracyInvent CopyAdjust swiftly Too little too lateRadical Incremental

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quote

In this edited version of TheMarketing Society’s AnnualLecture 2008, James Murdochargues that in an increasinglyfragmented media world, marketers who are in tune withtheir customers’ values and theirown can create an internal compass to steer their companiesto rich rewards.

MARKETING TO TODAY’Sconsumer is a hard business.Audiences are fragmented.

People have no time to listen. They’recynical, media-savvy and more cluedup than ever. Long gone are the daysof Thomas Jefferson, who onceobserved that advertising was the onlybit of a newspaper you could trust.

There is some basis to all of the pessimistic talk we hear about market-ing and advertising. I’ve made morethan my share of terrible decisions in marketing, and I’ve been talked into,or talked myself into, some truly awful work.

But amidst the accumulated flotsamof any large company’s marketing his-tory, I do hope we’ve learned some

things about what works at NewsCorporation and at Sky – and perhapswhat might work for you. There are anumber of ideas we wrestle with andproblems we encounter. We are tryingto understand some of the really fundamental – indeed revolutionary –changes in global society that are happening now, and how they relate toour business, and, possibly, yours.

Societies are more connected thanever before, which means that market-ing and brand communications aremore challenging. But my belief isthat if you grapple with the bigchanges until you really get them andif you develop an internal compass tosteer your marketing and communica-tions, you will be working in a disci-pline that is more exciting, more intel-lectually rich, more delightfully com-plex and ultimately more rewardingthan it has ever been.

MODERN MARKETING

JAMES MURDOCH

By JAMES MURDOCH

Your compass in a changing world

James Murdoch is Executive Chairman andChief Executive of News Corporation, Europe &Asia and Non-Executive Chairman of BSkyB.

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The power shiftWe all realise that marketing totoday’s consumer is less transactionalthan it was even just a decade ago. It’smore based on understanding sharedvalues. It’s about working with a trulyempowered interlocutor.

We are in the middle of a transfor-mational shift in power. And wheneverything around us looks different,we are going to need our compasses tosteer a true path.

This shift in power has manydimensions. Some are obvious. Someare less so. There is a shift from elitesto individuals and communities. Ashift from content controlled by a fewto that created, adapted or distributedby a multitude. A shift from passiveconsumers – the hapless victims ofsome Madison Avenue three-cardtrick – to connected, informed andproactive counterparties who are, byand large, well aware of what you aretrying to do. We know why thesechanges have occurred – and we knowthey are irreversible, and accelerating.

Connectivity in actionConnectivity is becoming ubiquitous.The march towards it is self-evident.It is already empowering consumers ina way that would have been unthink-able to our predecessors. This kind ofconnectivity means fundamentallythat the individual becomes the agentof everything. Moving from one com-munity to another; consuming, freely,from a wide universe of sources; pub-lishing, from each individual to anynumber and any size of audience – thisis the consumer of the age we live in.

This is not just challenging for mar-keters. Look at broadcast journalism –for so long the preserve of the state orthe wealthy. It is now an option opento anyone with technology costing lessthan £50. When the attempted car-bomber was tackled at GlasgowAirport last year, coverage on SkyNews was better and faster than itsrivals because of our immediate accessto material provided by eye-witnessesat the scene – almost instantaneously

sent from their mobiles and hand-heldvideo cameras, to our newsroom, andthen back again to homes, computerscreens and mobiles. This is connec-tivity in action.

These people are not customers ofSky News in the conventional sense.As well as an audience, they are part-ners in the fundamental act of creatingour product. Sometimes they supply itto us or to others, sometimes they postit on YouTube. In fact, many probablydo both. But if we decline to transmittheir material, it will still gain expo-sure somewhere.

We are constantly confronted withan explosion in the plurality of infor-mation. Conventional news pro-grammes can debate an issue like theethics of water-boarding as an interro-gation technique, but they wouldnever dare to show the reality. Now ajournalist like Kaj Larsen is willing toundergo it and post it on Current TV for everyone to watch it on theweb, and on air, and make up theirown minds.

Plurality taken to this degree,brought about by intense competition,is uncomfortable for those who have avested interest in the status quo of the20th-century information economy.It’s frightening to them; it promptscalls for endless intrusion by regula-tors and governments.

As an example, a sentence or twofrom the annual plan of Ofcom, ourUK media regulator, caught my eyerecently. It’s something we should allpay attention to. Discussing conver-gence, Ofcom said:

‘Convergence, alongside more intensecompetition, can lead to complexity andvarying degrees of confusion and anxiety… there will continue to be a role forOfcom to intervene decisively to protectpeople from actual or potential harmwhenever this proves necessary.’

Let’s be clear. The confusion andanxiety referred to is in the minds onlyof elites who are terrified by peopletaking power from them. Is it the jobof a regulator to invent sources ofpotential harm and forestall them? All

the talk of protecting consumers is justa fig leaf: what they are really saying isthat competition and innovation mayresult in an outcome different from the carefully constructed, central plan-ner’s fantasy about how a market might work.

In reality, our customers are bothsophisticated and demanding, and theyunderstand the media. And they arenot the exception to the rule. They arethe rule. People aren’t stupid, even ifregulation obliges us to treat them as ifthey are.

Here’s an example drawn from therules on sponsorship and advertising inlicensed broadcasts, enforced partly byOfcom, partly by the European Union.

Star Plus – a Hindi language enter-tainment channel – has been bannedfrom showing in the UK the Indianversion of Are You Smarter than a 10Year Old? because the logo of an Indianmobile phone company, which doesnot even operate in this country,appears on the set. The regulationsthat prohibit this seem to operate onthe basis that viewers are not only notsmarter than ten-year-olds but wouldstruggle to compete in a nursery.

Is there some grave harm to oursociety if our Hindi-speaking cus-tomers are exposed to the fact that amobile phone company not only existsin India, but sponsors a game show?

I think we all realisethat marketing totoday’s consumer is lesstransactional than itwas even just a decadeago. It’s more based onunderstanding sharedvalues. It’s about working with a truly empowered interlocutor

JAMES MURDOCHMODERN MARKETING



I think we can probably cope withthis wholly imaginary threat to ourway of life.

Aiming Sky highBut the heart of this is not petty rulesabout advertising. Those rules are sim-ply a consequence of the establish-ment’s much deeper discontent with afree media.

And that is really just an old tuneplayed by new musicians. The delightthat British newspapers have taken inupsetting the governing elite has ran-kled with the powerful for decades.From the 19th-century Times, thun-dering against the mismanagement ofthe Crimean War, to today’s Sun,exposing the failures of bureaucrats todeliver safe streets and clean hospitals,the willingness of British newspapersto take on the authorities has been ascharacteristic as the elitist outrage ithas always evoked.

It remains the proper job of themedia, as a campaigning journalistonce observed, ‘to comfort the afflict-ed and afflict the comfortable’. That’swise, and it’s right, and it’s part of our compass.

The elites of course do learn fromtheir mistakes. The advent of radio and television allowed them theopportunity to exert the kind of grip,

through control of access to spectrum,that had never been possible withnewspapers. They created a state sys-tem that both stifled innovation, butcrucially institutionalized a collectivegroupthink in broadcast communica-tions. So we had for many years avibrant and diverse newspaper sector,but a stagnant television oligopoly thatwas bland, uncontroversial and defer-ential, if not to politicians, then cer-tainly to the bureaucratic zeitgeist ofthe day.

So the response from the establish-ment when Sky launched was partlyfear of what might happen now thatmore choice was available, and deri-sion because no-one could possiblywant anything other than four chan-nels – three state-owned – all sayingmuch the same thing.

As we know, the reality turned out tobe rather different. And although oth-ers must judge, I would argue that awholly commercial television compa-ny, entirely reliant on the choices madeevery day by its customers had to bemuch more innovative and in tunewith the values of the nation from the very beginning. It was, and is,answerable to its customers in a farmore direct sense than providedthrough a hypothecated tax, a board oftrustees or some other abrogation of accountability.

That’s not the way some criticsargue. They believe that the increasein the bandwidth and connectivity thatenables huge choice for individuals is aprocess that does indeed transferpower. But they see this transfer asfrom elected politicians to various –they would say nefarious – media andcommunications firms, which havebecome the new powers in the light-speed tumult of our contemporaryinformation economy. This is theirargument against consolidation andfor greater regulation – largely of tra-ditional media – in a hyper-competi-tive environment.

I think we can challenge this andshow that it is not only wrong on the facts, but dangerous in its implications.

First, it ignores the absolute powerof competition. What makes a mediacompany successful is how it copeswith competitive markets in whichpeople have a choice. Competitiontoday is at a more intense level than ithas ever before been because the bar-riers to providing information in thevirtual world are so low and the choiceof provider nearly infinite.

Incumbent interests – private orstate-sponsored – may not like it, butpeople remain thirsty for choice. Newproviders are constantly breakingthrough. But also because it ignoresthe bigger picture. Without a free,unmolested media there can be nogenuine free society. A democracy canonly be effective and judicious if itsdecisions are clear to the general pub-lic, debated, challenged and scruti-nised. As the Romans established, thefundamental question to understandwhen examining any decision is ‘Whogains?’ A free media allows that ques-tion to be put.

This is the context in which I thinkit’s best to look at News Corporation.It was born from a struggle to make asuccess of a single newspaper inAdelaide in the face of an established,richer and aggressive incumbent. Wegrew through a mixture of risk, invest-ment, and dedication that revivedsome once-great but ailing newspapers

MODERN MARKETING

JAMES MURDOCH



every reader. Four and a half millionlight bulbs were distributed. And thepaper sold over 400,000 extra copiesthat day. Readers recognise we areengaging with them on issues thatmatter deeply.

The future belongs to brands thatdo more than pay lip-service to realdialogue and recognise that theircustomers want them to believe insomething.

It’s tough out there at the moment.But choppy waters are usually thosetimes when innovation makes a dif-ference and outstanding marketinghas a real impact. And the way inwhich society is changing means thatgood marketing people are going tohave a seat at the top table – they arethe people that companies will needto succeed. People who respect andlisten to their customers. People whosee that they can create value byunderstanding values. People whoget freedom and celebrate it as anopportunity for genuine dialogue.People who have a compass and steerby it, in good weather – and in bad.These are the people who understand that there has been nobetter time simply to do their busi-ness better.❦

– like The Times or the Sun, for exam-ple – and gave them a future. We recognised the complacency thatinfected broadcasting in the US, UKand other markets, and we shook them up.

Connecting with customersThe basis of our growth has never beenthe creation of a monolithic view of theworld. Our compass has been aboutrespect, empowerment and choice. Weare restless, we are questioning and weare individualistic.

Our values spurred us to pitchHomer Simpson, against Bill Cosby, onFox Broadcasting in primetime. Tolaunch TG24 against RAI and Mediasetin Italy. To make the New York Post whatit is today, and The Wall Street Journalwhat it will be tomorrow.

At every step of the way we’velearned a little more about our cus-tomers and what they want – and now,increasingly, what they believe in.We’ve learned through experiencewhat difference the new empoweredworld means for our relationship withcustomers. This is not a question ofscale. It is a different way of existing.

At first we perhaps saw technology asa great opportunity for brands to talk tomore people in the same old way. Butthat was wrong. Connectivity doesn’tjust mean you get a lot more chances todeliver messages about customer serv-ice and pricing plans. This isn’t one-sided. It enables people to talk back.

Etiquette queen Miss Manners oncesuggested that if we stopped communi-cating to each other we might be ableto have a conversation. In fact, we canhave an almost infinite series of conver-sations. This changes our whole idea ofmarketing.

That’s why complaints about theattention deficit of modern consumersare in reality admissions of somethinggone badly wrong: a listening deficit onthe part of brands. Trouble cuttingthrough might have more to do with the fact that one’s brand valuesaren’t in tune with those of the modern consumer.

Of course, the idea of values-basedmarketing and dialogue with the cus-tomer is not new. But we’re all guiltyof talking about it, and then stillfalling into the familiar routines: the30-second spot, the great poster, thePR stunt – the conventional tools ofcommercial sloganeering.

There are a handful of campaignsthat are driven by real values – oneexample is Dove’s campaign for ‘RealBeauty’. They are famous becausethey are so unusual. Anyone who hasseen the execution of ‘Onslaught’, thefilm that focuses on the pressures thata young girl faces from the beautyindustry, can see that values-based,challenging marketing is extraordinar-ily powerful.

And the fact that this ad was madeby Dove, a leading participant in thesame industry, is not a weakness – itgets people talking and thinking. Thatlevel of engagement is great for anybrand, because it creates the opportu-nity to learn things about how peoplethink and about how people feel. Andit creates trust with its customers.

ConclusionsPart of trust comes from good old-fash-ioned values like customer service,transparent pricing and treating cus-tomers fairly. These are fundamental.But people rightly expect more of com-panies these days, and we should beready to respond. If we can consistentlyshow how our values and our compassguide our businesses then we will standout from the superficial corporatemakeover or the cynical marketingslight of hand.

Customers may be concerned abouteducation, or health, or the environ-ment. So are we. They may worryabout crime. So do we. And they expecttheir chosen brands to be aware of theseconcerns and respond to them. Weshould all want to work in places thathear that and do something about it.

When we take direct action we get apowerful customer response. On aSaturday in January, the Sun offered afree energy-efficient light bulb to

At first we saw technology as anopportunity for brandsto talk to more peoplein the same old way.But that was wrong.Connectivity doesn’tjust mean you get a lotmore chances to deliver messages aboutcustomer service andpricing plans. It enablespeople to talk back

JAMES MURDOCHMODERN MARKETING



PETER FIELDMARKETING IN A DOWNTURN

IN AN ARTICLE produced by theFinancial Times in June 2008, both Procter& Gamble and Unilever revealed their

intentions to maintain marketing spend intothe downturn. And although more recentlyinvestment analysts have questionedUnilever’s commitment, these companies’belief, clearly, is that this is an opportunity togain market share at the expense of weakerbusinesses that choose, or are forced, to cutmarketing expenditure. This intention wasechoed by an analyst at Investec, at a recentInternational Advertising Association con-ference, who reported that there was no evi-dence that any of the major fmcg companiesthat he scrutinised were planning to cut mar-keting expenditure. But we know from IPABellwether data (see Figure 1), as well asanecdotally, that budgets are being cut.

So the suggestion is that it is chiefly thelesser players that are cutting budgets, whilemajor players maintain theirs. The wisdom,or otherwise, behind these strategies wasreviewed earlier this year at a conferenceconvened by the IPA. Here, I summarise theFour presentations that were made.

The presentations addressed the likelyimpact on brands - and their profitability - ofreducing marketing communications expen-diture during a downturn. Clearly, if allbrands in a category were to cut expenditureequally, then apart from some minor effectson the category as a whole (the most impor-tant of which might be an increase in pricesensitivity) there would be little impact onbrands individually. But experience of previ-ous downturns reveals that this is not thegeneral response: some brands maintain oreven increase their expenditure, while otherscut theirs. And the Bellwether data corrobo-rate this variability in spending intentions.So the question under examination in reality

Marketing in a downturn: lessons from the past

Peter Field has been a marketing consultant for the lastten years and set up the IPA dataBANK in 1996.

As we approach what is increasingly looking like a recession inthe UK, it is timely to review the state of knowledge of howbusinesses should most profitably approach marketing in adownturn. Peter Field looks at the lessons from previous downturns coming to the conclusion that some large companieshave wisely learned to maintain their marketing budgets andare thus in a powerful position to squeeze smaller competitorswho have not learned this lesson.

By PETER FIELD

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categories where the reverse is true (such asluxury cars, financial services and fragrances)tend to be more resilient. The average pro-portion of consumers across all categorieswho are exclusively motivated by price isaround 10% and so even if this increasedconsiderably during a downturn, the propor-tion would remain small; there is thereforegood reason to continue to build brand pref-erence during a downturn.

Millward Brown sounded a final caution-ary note concerning the speed with which‘buzz’ (online and offline word-of-mouth)now spreads consumer views of brands. Abrand judged to be on the way down,because it has fallen silent, will very rapidlysee this manifested in word-of-mouth, whichwill accelerate the perception of failure.

boils down to: what is the impact on thosewho cut their expenditure vs those whomaintain or raise theirs?

Impacts on brand healthSetting the scene for later presentations thatexamined the impacts on profitability, thefirst presentation, from Millward Brown,explored the effects of budget cutting onthose consumer research metrics that arewidely regarded as leading indicators ofbusiness performance. As a leading UKprovider of consumer research-based brandmetrics, Millward Brown has an extensivedatabase to examine the impacts of budgetcutting. Its data show a strong correlationbetween market share and the level of 'bond-ing’ – an aggregate measure of multiplebrand–consumer relationship metrics. Theclear implication being that if budget cuttingresults in a decline in ‘bonding’, then marketshare can be expected to decline.

Crucially, further data demonstrates thattwo key constituent brand relationship met-rics – brand usage and brand image – suf-fered considerably (13% and 6% declinesrespectively) when brands ‘went dark’ (i.e.ceased to spend on communications) for aperiod of six months or more. More broadly,60% of brands ‘going dark’ see decline in atleast one key relationship metric after just sixmonths.

Moreover, the risk of failure increaseswhen communications expenditure resumesafter the end of the downturn. There is astrong relationship between the level of riskof loss of share and the key expenditure metric: share of voice – share of market(SOV–SOM), where share of voice isdefined as share of total category communi-cations expenditure (see Figure 2).

Thus brands that cut their budget relativeto competitors are at greater risk of share loss.

The level of risk is greater in some categories than others. Brands in categoriesthat are more price-driven and where brandscarry less importance to consumer choice(such as motor fuel, mineral water andapparel) are more susceptible to share losswhen cutting budgets. Conversely, brands in

quarters

Revisions to total marketing budgets (left axis)

GDP (right axis)

GD

P (yr-on-yr %

, current prices)

Bud

get r

evis

ions

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21432143214321432143214321432143213

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200220012000 2003 2004 2005 2006 20082007

BELLWETHER VS GDP Q1 2008

ADVERTISING INVESTMENT REDUCESRISK

R2 = 0.74

Media pressure (%)(Share of voice–share of market)

% lo

sing

sha

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(354 brands grouped on the basis of relative adspend)

-30 0 300

50

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Figure 1

Figure 2




Impacts on business performanceThe remaining three presentations, exam-ined the effects on the profitability of brandsof reducing communications budgets during a downturn.

Data2Decisions

The first of these, from econometric model-ling consultancy Data2Decisions, identifieda key factor in determining the businesseffects of budget cutting: the time lag effect.Although most estimates of short-term pay-back from advertising (i.e. over small num-bers of purchase cycles) is around 50%, thepayback over the longer term (one to fouryears) is usually considerably greater than this.

A typical brand case study shows that thelong-term element of payback can be overfour times greater than the short term. Theimportance of this is considerable.Following a budget cut, a brand will contin-ue to benefit from the marketing investmentmade over the previous few years. This willmitigate any short-term business effects, andwill result in a dangerously misleadingincrease in short-term profitability. Thelonger-term business harm will be moreconsiderable, but will not be noticed at first.To illustrate this, the long-term effects oftwo different budget-cutting scenarios aremodelled for the brand. In the first scenariothe budget is cut to zero for just one year andthen returns to usual levels. In the secondscenario the budget is halved for one yearand then returns to usual levels. Sales recovery to pre-cut levels takes five andthree years respectively, with cumulativenegative impacts on the bottom line of£1.7m and £0.8m.

However, there are other dangers of com-mon downturn behaviours. The diversion ofcommunications expenditure into price pro-motions is a common response to downturn.The experience of widespread use of pricepromotions in the US automotive categoryillustrates how consumers quickly come toexpect ‘incentives’. They therefore lose theirefficiency as a generator of incremental salesand end up as a loss of profitability.

Another widely overlooked impact ofreduced brand communications expenditure

is on price elasticity. Analysis of a brand’spricing data across a campaign shows that itreduced the price elasticity of the brand (i.e.the percentage change in volume for a 1%change in price) from -2.2 to -1.5. Suchimprovements often account for the majori-ty of the profit impact of a successful cam-paign. By extension, the abandonment ofcommunications is likely to result in thegradual increase in price elasticity and thegrowing need to reduce pricing to maintainvolume. This may have a very damagingeffect on profitability, but again one that isdeceptively time-lagged.

Finally, the Data2Decisions presentationraised an unfortunate side effect of marketsin downturn: greater unpredictability andhence risk. In particular, increased volatilityin the response curve to marketing results inradically different optimum levels of expen-diture for maximum profitability. This riskcan deter expenditure, but the solution is touse modelling to determine the optimumexpenditure and to maintain brand support.

Malik PIMS

The second business effects paper is byMalik PIMS (Profit Impact of MarketStrategy). PIMS has analysed data collectedfrom around 1,000 business units in devel-oped economies during periods of marketdownturn and subsequent market recovery.The data are extremely robust and highlyrespected, and enable a comparison ofdownturns pre-2000 with more recent ones.Three performance metrics are examined:inflation-corrected ROCE during down-turn, inflation corrected ROCE during thefirst two years of market recovery, and mar-ket share change during the first two years ofrecovery.

A previous (2001) analysis of the winningbusiness strategies deployed during earlierdownturns demonstrated the importance ofincreased commitment to marketing duringa downturn.

That analysis showed that while maintain-ing or reducing fixed costs was desirable, theopposite was true of marketing costs.Communications, R&D and new productdevelopment were all areas where increasedexpenditure was associated with business




caused by increased R&D spend. CuttingR&D expenditure appears on balance theleast successful approach.

And turning lastly to the effects ofincreased new product development activity(expressed as percentage of sales derivedfrom new products) during the downturn,the recent data again reveal that patternshave evolved slightly from the earlier analy-sis, but the central conclusion remains thesame: NPD has a strongly beneficial effecton ROCE during the downturn, but ratherless so post-downturn. This is explained bythe observation that increased NPD bringsless lasting effect on market share post-downturn. Competitor response to NPD hasbecome swifter since the earlier analysis,resulting largely in only short-term benefitsto the first mover.

So the Malik PIMS analysis provides clearevidence that increasing marketing commu-nications expenditure in a downturn is aprofitable strategy for recovery becausemedia costs and competitor activity tend to fall. Essentially downturns provide a window for cheaper market share gain tobrands that increase investment. Increasedexpenditure on R&D brings similar benefits,while increased NPD is the best strategy for enhancing short-term ROCE during the downturn, but brings little benefit thereafter.

success during downturns. Improving cus-tomer preference while enabling maintainedrelative price were the means by whichincreased marketing expenditure drove success.

More recent data bring the analysis of theeffect of increased spend on marketing andR&D, and more active NPD, up to date.

Looking first at marketing spend, therecent data show that ROCE and marketshare after a downturn are considerablyenhanced by increased marketing expendi-ture during the downturn. ROCE during thedownturn is perhaps mildly adversely affect-ed by increased marketing spend, but notsignificantly, and the longer-term upsidegreatly exceeds any short-term downside. Bycontrast, cutting marketing expenditureresults in less ROCE recovery and reducedmarket share post-downturn. This pattern ofmore recent findings is therefore broadly thesame as was found with the earlier data.

Turning next to the effects of increasedR&D expenditure during the downturn, therecent data reveal that some developments inthe pattern have occurred since the earlieranalysis. While the effect on market sharepost-downturn of increased R&D spendduring it remains very positive, the effect onROCE recovery post-downturn is now moremuted. There is little or no observed adverseeffect on ROCE during the downturn

This brand isin equilibrium

This brand is underspending;share should fall

This brand is overspending;expect share to rise

SOV

(%)

120

100

80

60

40

20

200 60

Market share (%)

40 100 120800

THE CONCEPT OF EQUILIBRIUM SOVFigure 3



exceeds SOM a brand can expect to gain onepoint of market share per annum. The corol-lary of this is that a brand can expect to loseone point of market share for every ten pointsit allows its SOV to fall below its SOM. Thisis an average finding across all categories andideally the relationship for any given categoryshould be derived from econometric model-ling. Nevertheless this rule of thumb can beused as a forecasting tool for the effects of dif-ferent marketing communications expendi-ture strategies during a downturn. An impor-tant facet of this relationship is that there is aninherent time-lag between relative marketingexpenditure (SOV–SOM) and market sharegrowth. Table 1 shows the share resulting (inthe following year) from expenditure in theprevious. It is this lag that causes deceptiveshort-term profitability effects during periodsof sudden marketing expenditure change.

Table 1 applies the forecasting rule ofthumb to a hypothetical brand in a fairlycommon scenario. The brand operates in apreviously buoyant category, and prior to thedownturn mildly under-spent its SOM. A ‘panic’ scenario is modelled in which budg-et was cut to zero for two years (while com-petitors maintained real spend). The forecastmarket share in the third year falls to 5.7%from 7.1%.

The likely impact of this decline on theprofitability of the brand is modelled in Table


IPA DataMINEThe final presentation was based on an analy-sis of 880 IPA case studies submitted to theIPA Effectiveness Awards since 1980.

Share of voice (SOV) and share of market(SOM) data from the case studies have beencollected and used to examine the relation-ship between SOV and SOM and by exten-sion the effect of cutting SOV.

The theoretical relationship between equi-librium SOV and SOM, is shown in Figure 3.Brands spending above equilibrium SOV willgrow, whereas those spending below equilib-rium will shrink.

The dataBANK data validate this theoreti-cal relationship closely.

Brands lying above the curve tend to grow market share in proportion to theirdistance from it, while brands below tend tolose market share commensurately. Thus‘excess share of voice’ (SOV–SOM) is the most critical factor in explaining subsequent SOM changes. This relationshipholds during buoyant times and downturns.

The actual relationship between marketshare growth (or decline) and the level ofexcess share of voice (SOV–SOM) recordedin the case studies is shown in Figure 4. It isstatistically very reliable and closely mirrorsfindings from other databases.

The rule-of-thumb finding from this analy-sis is that for every ten points that SOV

100

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Share of voice–share of market (%)

Mar

ket s

hare

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HOW SOV DRIVES GROWTHMarket share growth vs ‘excess’ share of voice

Source: IPA dataBANK (127 cases)

–60 –40 –20 0 20 40 60 80 100

Statisticallysignificant correlation – 99%

Figure 4




2, assuming a fairly typical cost structure for apackaged goods brand. Other assumptionsmade are that category growth ceased for twoyears and resumed 5% growth in the thirdyear; that marketing communications expen-diture for the brand is restored in the thirdyear; and that fixed costs for the brand risewith RPI across the downturn. The result: ashort-term improvement in profitability israpidly overtaken by a severe decline, becom-ing acute in the third year when the market-ing budget is restored.

It is important to note the deceptive short-term profit improvement due to the laggedeffects of marketing on sales (recent authori-tative PricewaterhouseCoopers research sug-gests that 45% of the return on TV expendi-ture comes through more than one yearlater). This short-term improvement providesthe stimulus for budget cutting and brieflymasks the considerable damage inflicted onlonger-term profitability.

Applying this modelling to a less severe butmore common budget cut of 20% for twoyears (with other assumptions remaining thesame) reveals a similar but less severe pattern.However, the brand still emerges from thedownturn in a considerably weaker profitabil-ity position, as shown in the top row of Table3. Table 3 compares this scenario with theforecast profit pattern for the minimum rec-ommended expenditure level (where SOVequals SOM). This comparison reveals thewisdom of maintaining marketing budgetsduring a downturn: cumulative profits gener-ated in the SOV=SOM scenario over thethree-year period greatly exceed the mild cutscenario, despite a disadvantage in the firstyear. Though it should be noted that no DCFanalysis has been applied, which would tendto lessen the overall advantage.

ConclusionsThe key conclusions from the four presenta-tions can be summarised as follows:

Cutting budget in a downturn will helpdefend profits only in the very short term.Ultimately the brand will emerge from thedownturn weaker and much less profitable.It is better to maintain SOV at or aboveSOM during a downturn: the longer-term

Table 1

PROFIT FORECAST FOR ‘PANIC’ SCENARIOPanic scenario: zero budget

Year 2007 2008 2009 2010

Brand X sales £317m £314m £282m £269mFixed costings (excluding marketing) £68m £70m £72m £74mVariable costs (excluding marketing) £202m £200m £180m £171mMarketing spend £7.9m 0 0 £7.9mTotal costs £278m £270m £251m £253mOperating profit £39m £44m £31m £16m

Table 2

PROFIT FORECASTS FOR MILD CUT VS.SOV=SOMComparison with SOV-based approach

Operating profit:

2007 2008 2009 2010

Mild cut £39m £38m £33m £32mSOV=SOM £38m £36m £34m £38m

Table 3

improvement in profitability is likely togreatly outweigh the short-term reduction.If other brands are cutting budgets thelonger-term benefit of maintaining expenditure will be even greater.

So it appears that the major players are thewise ones - they have learned to take advan-tage of downturns to grow. Perhaps they areencouraged by the investment community,which has also clearly learned the lessons ofprevious downturns: on the day analysts ques-tioned Unilever’s commitment to maintainingmarketing expenditure, the company’s shareprice fell 8%, despite better than expectedshort term results. Budget-cutters take note. ❦

[email protected]


SHARE FORECAST FOR ‘PANIC’SCENARIOPanic scenario: zero budget

Year 2007 2008 2009 2010

Brand X spend £7.9m £0m £0mCompetitor spend £117m £120m £123mMarket spend £125m £120m £123mShare of voice 6.3% 0% 0%Excess SOV –0.7% –7.0% –6.3%Share growth –0.07% –0.7% –0.6%Share 7.1% 7.0% 6.3% 5.7%


SETH & RANDALLMARKETING IN A DOWNTURN

SUPERMARKET retailing has beenmuch in the news – for obvious rea-sons. In difficult times, it is the weekly

shopping expedition that the crunch hitsfirst and, for many people, hardest. Thisarticle looks at the supermarket scene in theUK and US to see who the winners and losers are in this important category. In addition we look at longer term trendsalready taking shape.

Who is winning?

Wal-Mart

If you accept its statements and recent revenuefigures, it’s once again in rude health as UScustomers, on whom it is largely dependent,reacquaint themselves with Wal-Mart’s ‘lowprice – always’ message and its omnipresentone-stop-shopping model. Wal-Mart has sixmammoth shopping centres on a 20-milestretch from Phoenix to Scottsdale.Simultaneously they’re all flourishing.

However, Wal-Mart’s success outside theUS is confined for the moment to NAFTA(Canada and Mexico) and British Asda.Germany was disastrous and Japan looks littlebetter, although its efforts persist.

Tesco

Powerful at home, now justifiably viewed asthe West’s most innovative retailer. Far fromslowing its expansion as hard times bite, Tescohas been putting the foot down. No question,Leahy’s team see tough times as more of a helpthan a hindrance. Taking an internationalview, Tesco is now best in class: strong inEastern Europe, a good and growing presence

Supermarket retailing in troubled timesBy ANDREW SETH AND GEOFFREY RANDALL


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

All downturns produce winners as well as losers and the super-market sector is no exception. Looking mainly at the UK andUS, Seth and Randall see the predictable pattern of polarisation with Wal-Mart and Tesco as having the capacity tocope with troubled times. Winners are also the discounters withquestion marks over just how well the premium brands M&Sand Waitrose will cope. Losers are mainly the independentswith further question marks over the big brands (Sainsbury’sand Morrisons) in the middle. Looking further ahead, theauthors speculate on trends that will shape the post recessionperiod: more personal service, smaller high street stores, sustainability, continued internet shopping and the ever-presentattacks by a range of lobbying groups.

Seth_Special.qxd 8/21/2008 17:27 Page 32

notably Aldi in Europe and its Trader Joe’sUS subsidiary. Next Lidl, which is a forceright across Europe. Its stripped-down stores,scrimpy ranges and bargain-basement pricesgain share virtually everywhere.

Who loses?The short answer is the independent trade –smaller than ever, but destined to becomesmaller still, given its lack of competitiveness.

Secondly, middle-ground retailers, proba-bly including Sainsbury’s, recovering from itstraumas but acutely pincered by Tesco andAsda on the left and Waitrose and M&S onthe right. Sainsbury’s remains unable to deliv-er decent trading margins. Morrisons, havingabsorbed Safeway, retired its doyen founderand relaunched under new leadership, looksbetter placed.

The rest will surely find life difficult.Circumstances similar to the UK will apply inWestern Europe and the US. Discounterswith limited product range, good space utili-sation and rock-bottom prices attract moreconsumers and grow. The best self-serviceoperators – Wegman, Whole Foods, Publix,H.E. Butt in the US – may remain unhurt.But the undifferentiated, less clearly posi-tioned supermarket brands will certainly suf-fer share decline.

How will the top end fare?Will the top-end of the market collapse?Perhaps not. In Britain Waitrose does welland confidently announces smaller stores.Waitrose delivers consistent quality as doesM&S, although we have yet to see how muchfurther damage will be done to M&S’s shareprice and how the new foods director willwork out. But providing it keeps quality per-ceptions, consumer concern with nutritionalvalues and health will stand these brands ingood stead, and will not disappear.

Longer-term trends at workRecessions do not last for ever, however, andwe should look beyond the current depressedclimate to ascertain whether there are morelasting forces at work that will change the

in Asia Pacific (see page 36). But it is its goingwest that has caused most fluttering in the dovecots.

By its own high standards, the Tesco moveinto California is brave and innovative. Byanyone’s standards it shows revolutionary ele-ments, starting with the brand name(Fresh&Easy). Unlike anywhere else, it adopt-ed a small-store format (10,000 sq ft) perhapsanticipating emergent trends, (of which morelater), and rapidly opened 60 stores beforecontroversially announcing an understandablepause in proceedings.

Its food distinctiveness is built around alocally owned ‘kitchen’ supplying much of thefresh food, and features personal counsel onrecipes and food matters in-store, whileunmanned checkouts are mechanised.Differentiation is based on high-quality, freshfood, visible store service and deliberately lowpricing. The ambition is there for all to see.

Is it working? Commentaries are mixed, butthe company remains confident and essential-ly it will be months or years before anyoneknows. However one sure sign of salience isthat both Wal-Mart (Marketside) and Safeway(Vons) responded by opening their own com-parable outlets, apparently concluding this wasa trend they could not ignore. Less obvious isthe latter’s high-price strategy, no doubt aimedat keeping its new brands as ‘niche’ entrants,and minimising cannibalisation of existingbusiness – an anxiety that Tesco does not have.

Our view, obtained on the spot in Californiathis year, suggests that Tesco may have got alot right. The combination of fresh food qual-ity, unique in-store consumer service, andcompetitive pricing looks formidable. Tescohas put its best talent into the US, and its ten-year track record has been outstanding. WithWal-Mart defending itself vigorously, othersimitating, and a strong Aldi brand (TraderJoe’s) alive and well in the US west,Fresh&Easy will be thoroughly examined. If itworks, the company will have an interestingbrand available elsewhere – probably includ-ing the UK, where a small-store high-streetand suburban presence can be exploited.

Discounters

There are other winners. As you would expectin a recession, discounters are in fine form,




retailing. Here are some signs that we see emerging.

Demands for personally relevantgoods and servicesAt its root is the arrival of more demandingand discriminating shoppers. This is no newphenomenon – people have said this foryears. However, the providers haveremained firmly in control hitherto, anddelivered what they saw as the appropriateresponse as and when they were ready, andinvariably at no cost to themselves.

The importance of food and nutrition,concerns for health and physical well-being,obesity worries, genuine attention anddelight in food preparation, and an overallawareness of ‘what I want and need’ drivesthis change. It manifests itself in a desire forinformation of value and personal counsel –consider the plethora of recipe books,omnipresent food pundits and unavoidablefood programmes on prime-time TV. Foodstores will need to respond – Whole Foods,Waitrose, Marks & Spencer, Trader Joe’s,Fresh&Easy all know they have to do so.

Personally relevant information becomesthe relevant discriminator, delivered as andwhen it’s wanted, and wherever possible, faceto face by individuals, i.e. not by machineand not to the world at large. That this willcost the providers is self-evident. That it willtherefore frequently be resisted long andhard follows – remember human servicecosts in developed societies are those thatrise fastest. But, at the end of the day, con-sumers rule, and when they decide onchange, it will happen. That time may wellbe with us now.

Internet shopping

Of course interactivity between provider andconsumer can take place in many ways. Theinternet has been a radical new force indeveloping information provision to shop-pers and in some cases it has taken overentire transactions. We can expect this tocontinue. We can also expect higher stan-dards of demand to become pervasive asconsumers seek more precise, personal, reli-able and accommodating responses to their

consumer’s outlook on food shopping. Wethink there are, and though some may beembryonic, they are noticeable and differentfrom past trends. We suggest that thesetrends may be strong enough to become permanent.

At its most fundamental we see an emerg-ing relationship between provider (thestore) and customers, which will differ fromwhat we have been used to for most of thepast half-century. This sounds a bold claimand we need to offer evidence.

The prevailing model of out-of-townsuperstore/hypermarket/supermarket shop-ping that has dominated food retailing in theWest – and, increasingly, elsewhere – foralmost half a century may be in for a change.Trends are not for ever; they are by definitioncyclical, even though cycles may be very long.

If consumers see important advantages in some new offer, they will change theirbehaviour and what were originally seen as maverick providers gradually gainmomentum.

Our contention is that we may be at theearliest stages of such a change in food


The end of cheap food?

In addition to the current economic downturn there are more fundamental issues. Indeed, some critics have concluded ourwhole retail model is unsustainable. If you’re feeling strong, try the melodramatic opinions in Hungry City: how food shapes our lives(Carolyn Steel 2008) or The End of Food: the coming crisis in theworld food industry (Paul Roberts 2008) for a genuinely frightening world vision.

These authors argue that the quantity and quality of food wehave come to take for granted in the West can’t last much longer.The paradisal dream of plenty realised daily on supermarketshelves piled high with cheap, colourful, convenient and reliableproduce turns out in fact to be more of a nightmare. It not onlydenies the nature of food itself (‘seasonal, squashable, bruisable,irregular, unpredictable, in Steel’s words), it is unsustainable as wellas dangerously destructive in the long run. It rests on coercive, conformist and monopolistic policies openly dedicated to the suppression of individuality, autonomy and free choice.

We expect to see more of this kind of polemic.

Adapted from Hilary Spurling, The Observer, 8 June 2008.



and indeed all significant aspects of theshopping transaction.

The return of the high street?

Shopping by car (still the invariable norm),store parking, traffic congestion, poor publictransport provision and the high price of oilare all major and linked issues. Given theconstellation of store availability in the UK,but even more in the US, there is today littlealternative to shopping by car. One-stopshopping is an appreciated consumer benefit. However, this may not last in itspresent form.

Alternative models exist. French townsretain vibrant high streets, and well-patron-ised food shops invariably populate them. Ofcourse, time-starved families rarely havetime to shop for fresh bread twice a day butsome adjustment towards this alternativemodel, among others, may be imminent.

Could this be one reason Fresh&Easyopened (many) local stores – small in size –in the US? Does Waitrose have similarnotions in the south of England? May thiseven be a part of the Co-op’s future arsenal –possessors as it is of many little-regardedhigh-street stores? Tesco began its modestrejuvenation of the high street with theMetro operation ten years ago so it – andSainsbury’s, who quickly followed – knowsthat it can work.

However, it is the notion of ‘consumerengagement’ and of an emergent ‘communi-ty’ that may give this movement its big kickforward. This is a bold assertion and would,were it to happen, represent a major changefor free-market Western society. It is cer-tainly not established among a major cus-

requirements. Ocado, the well-regarded butstill after eight years unprofitable internetspecialist, is poised interestingly as recessionbites. Whether it can grow and, a fortiori,deliver profits is uncertain

Our contention is that the era of theimpersonal transaction-managed food shop-ping is already beginning to disappear, andthrough time the need for informed and per-sonal guidance will grow – if it works for, sayan expensive fillet-steak meal, why can’t italso work just as well in home hygiene,health and beauty, bread varieties, even water?

Ironically we may be witnessing a return toold corner-store patterns of behaviour,where the retailer’s first move was to greetshoppers, whom they usually knew well, –invariably by name. A resultant shared com-munal relationship existed between them,which was often very hard to break.

Climate change and sustainability

Environmental concerns have been signifi-cant new forces affecting consumers andproviders. While the recession may havedriven this down the priorities list for themoment, it has not gone away. For manypeople, and for a high percentage of‘thought leaders’ these issues remain para-mount. Research shows 25% of UK con-sumers list this as an enduring high priority.Their deeply held and rational concerns willnot be resolved by frenzied action fromretailers or an expedient government onmatters such as plastic bags. The issues aremore enduring and comprehensive.

It is heartening after decades of endemicdecline to talk about the Co-op’s capacity todifferentiate and grow using ethical andenvironmental values, the Co-op is now bet-ter placed to succeed.

Packaging is certainly a major element inits resolution and it’s interesting to note thatit is ‘over-packaging’ of fresh food thatapparently worries Fresh&Easy’s leadershipmost. Our view is that as this issue retains itsprominence and grows in significance it willaffect many more aspects of food provisionand buying, and in a more radical way than ithas done so far, affecting ingredients, foodcomposition, distribution, communications


We may be witnessing a return to old corner-store patterns of behaviour, wherethe retailer’s first move was to greet shop-pers, whom they usually knew well – invariably by name. A resultant shared communal relationship existed betweenthem, which was often very hard to break



tomer segment today and has a long way togo before Anglo Saxon food culture getsanywhere close to, say, its Mediterraneanequivalents. All we are saying is that someearly signals of this kind of change in theUS/UK can now be detected.

Big retailers under attack from pressure groupsFrom what has preceded you might concludethat competition is alive and well around theretail world. In fact divergent trends can beseen. Alongside increased willingness insome places to ‘let markets decide’ andassume the consumer will benefit at the endof the day, there are countervailing trends.Immense pressures exist on major retail play-ers from consumer movements. The biggestcompanies experience the most determinedand frequently hostile, pressure. Wal-Marttries with difficulty to control a big-scaleAmerica-wide protest movement, wherearticulate forces collaborate to arrest itsapparently unstoppable expansion.

The same thing happens at British Tesco,with assorted groups of animal-rightsactivists, high-value chicken farmers andoverseas shop-floor representatives unitingto seek to destabilise the company’s AGM. Ofcourse we need not feel sorry for these com-

panies: they are big and strong enough tostate their case, which they do firmly andoccasionally with venom. But pressures grow.They are better informed and effective, andsince they often attract tacit or even overtpolitical support, they have become majorfactors preoccupying company leadership. Inthe UK, supermarkets have been investigatedthree times in a decade by government agen-cies and a fourth investigation seems now tobe underway. Is this sensible use of resources?

A different (and better?) futureThe conclusion seems to be that food retail-ing has never been more excitingly poisedbetween a group of developing consumerdemands and a set of highly competitivecompanies. The market has over ten yearsbecome, once and for all, truly global, whichmakes these movements more visible and rel-evant, wherever you live. Some of the resultsmay represent the beginnings of a genuinelybetter world, as indeed were the first self-service stores 50 years ago. What seems clearis that the most determinedly innovativedeserve to win fastest – be they consumers or retailers.❦

[email protected] [email protected]


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 anyonewho wants to figure in global retailing simply has to be. For a period it has been China dominating thinking, and every majorplayer 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 Hymallpartnership, 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 populationin 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 wholeset of scalable and profitable retail models. Increasing penetration of hypermarkets, supermarkets and even one thousand ormore mega speciality stores are expected quickly.

There are several well-funded Indian retailers (Reliance, Godrej, ITC, Birla), and aspiring international competitors will haveto strike partner relationships with local Indian companies - as Wal-Mart achieved and Tesco desperately covets. Their urgencyis understandable. While the West reels under recession and collapsing spending, supply exceeds demand. India confrontsinflation 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, theIndian government sets out to make it inherently difficult for foreign investors to enter - the process won’t be easy.




MARKETING IN A DOWNTURN

RICHARD JENKINGS

W ith the credit crunch entering theOxford Dictionary for the first timewe are all aware of the way that

consumers’ spending power is beingsqueezed between rises in fuel, food andhousing costs. What then does this mean forthe companies that sell electrical goods?

The past world of electrical retailers in theUK is littered with companies that are gone,although in some cases still remembered.Powerhouse and Miller Brothers went intoadministration in 2006 and before themTempo, Radio Rentals, Rumbelows and oth-ers passed into history.

At the moment the industry is dominatedby a small number of major multiples, mostnotably Comet and the Dixons group with awide range of specialists from John Lewis toRicher Sounds. The supermarkets have alsoseen a significant rise, with Tesco having alarger market share than John Lewis after

The downturn is the catalyst for a number of different trends inelectrical goods retailing; Richard Jenkings summarises the keychallenges for the leading electrical goods brands. The internetincreases its appeal as a place not only to check prices but alsoto shop, with competition from Amazon turning the screw. Onthe high street, supermarkets increasingly stock electrical goodsat keen prices, new outlets such as HMV are emerging andCarphone Warehouse’s link with US retailer Best Buy will bringa greater professionalism and customer service to the market-place. These activities together with pressures on manufacturerbrands, constant price pressure, green issues and convergenceof technology promise much change in electrical retailing.

By RICHARD JENKINGS

The future of big box electrical brands

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should be safe if perceived as being upmarketenough and, at the other end, we can expectbetter sales of discounted televisions fromsupermarkets. Perhaps the biggest threat isthat consumers may decide not to updatetheir equipment and wait until the econom-ic uncertainty is resolved.

2. Internet – clicks and bricks

Increasingly, people are using the internetnot only to compare the price and features ofelectrical goods, but also to buy. Most ofthe bricks-and-mortar electrical retailerssell on the net and the move of Amazoninto this area has certainly hotted up thecompetition. Figures show the growing vol-ume of people using the sites to browse andbuy electrical goods. With an increasinglyvalue-conscious consumer the second-handmarket can also be expected to grow witheBay and others adding to the pressure.

3. Supermarkets – buy a TV while you’rehere

It seems that most big supermarkets aretrying to sell you TVs, DVD players and allmanner of electrical goods. Indeed a recentsurvey stated that these items are necessitiesin a household’s budget and not luxuries.Certainly many of the largest Asda Wal-Mart and Tesco Extra stores begin to looklike department stores with their own elec-trical departments. Their strengths arekeen pricing, space and the captive audi-ence that is already there to buy food. Thedrawback is that it is rare to find staff thatreally know about the goods they are sell-ing.

4. Best Buy/Carphone Warehouse link-up

The recently announced joint venturebetween Carphone Warehouse and the USgiant retailer Best Buy has been much trumpeted in the UK press. The ability forCarphone Warehouse to sell a wide rangeof smaller electronic goods will add to thecompetition already hotting up, with movesby HMV, M&S and all other major super-markets increasingly moving into this area.The reputation of Carphone Warehousefor customer care, coupled with existingrelationship with Apple as suppliers of the

2006 and Asda adding electrical space.(Verdict). Meanwhile online sales fromAmazon and others have grown to be a sig-nificant part of the market.

Verdict considered that the Comet andDixons group had nearly reached full marketsaturation by late 2006 and were in-fillingthe remaining gaps. Since then Dixons hashad a programme of 75 closures (for mainlyCurrys Digital in-town stores) to concen-trate on out of town in larger stores and on-line. Most recently Carphone Warehouseand US retailer Best Buy have announced atie-up, potentially bringing the Best Buyreputation for scale, low costs and staffknowledge to the UK. For the electricalretailer, 2008 is becoming an interestingyear.

All the current electrical retailers now facea wide range of challenges that are likely toshake up the present market structure. Let’snow look at each of these and what they maymean for the current players.

1. The wider economy weakening – creditcrunch starts to bite

Large electrical goods and big TVs in par-ticular are purchases often triggered byhouse moves. So fewer people moving, andwider economic uncertainty and loss of con-fidence makes it harder to sell big-ticketelectrical items, although these goods areoften going down in price. Most economistsseem to think that we are looking at a year ormore of depressed demand. Historically it has often been the super-lux-ury brands and the discounters that havefared best in hard times. So Bang & Olufsen

Increasingly people are using the internetnot only to compare the price and featuresof electrical goods, but also to buy. Most of the bricks-and-mortar electrical retailers sell on the net, and the move of Amazoninto this area has certainly hotted up the competition

Richard Jenkings is a Retail Consultant at Experian Ltd.


RICHARD JENKINGS



iPhone will make it a formidable competitor.Best Buy will bring its US model of large

out-of-town electrical sheds, majoring onboth keen prices and staff knowledge aboutits technical products. Starting in 2009 itplans 200 big blue boxes (big out-of-townstores) in the UK. The Best Buy technicalsupport, the ‘Geek squad’, has already beenimitated by the ‘Comet on Call’ service.

5. Other retailers entering the market (e.g.HMV, M&S and others)

The already crowded marketplace has goteven busier as retailers on the margins of themarket start to enter it. HMV, finding musicsales pressured by downloaded music, is sell-ing more electrical equipment to watch andplay on. As time goes by iPods, DVD playersand much more will be available in outlets thatnever used to sell them. It is hard to believethat everybody can sell electrical goods and Iam forced to think that we may be seeing a re-run of the earlier days of pay- as-you gomobile phones when you could buy themfrom everywhere including my barbers. Therewill not be room for everyone and, in time,those offering the best combination of range,price-service and knowledge will survive.

6. Price pressure – ever cheaper deals

In an era when inflation is starting to raise itsugly head once more, many electrical goodshave been falling in price, in both relative andreal terms. I now have a DVD player that costme less than some of the discs I am playing onit. The consumer may be seeing serious infla-tion in many items of expenditure but electri-cal goods have certainly got cheaper. Themajor existing retailers have until recent timesconcentrated their advertising on price, andmany small electrical items such as digitalcameras have become commoditised. In thismarket margins can be small and only largevolume can make the process stack up.

7. Events

In the early days of television the first TVsales coincided with the coronation. Eversince, major events have had an effect onsales. Sadly the failure of England to qualifyfor Euro 2008 will have held back sales inthis sector, as well as being bad news for

pizza delivery and supermarket multi-packbeer. Recent events such as the Olympics inChina will have helped spur demandalthough even the recent price cutting onlarge TVs has still been held back by a lackof confidence in the wider economy.

8. Technological change and innovation

Over the years, technological innovation hasdriven electrical markets. Many white goodssales are replacements but many sales ofentertainment products are based on new-ness, innovation and fashion. Records fol-lowed by eight track, followed by cassetteplayers have given way to CDs and then harddisk MP3 players and iPods. VHSVideo hasgiven way to DVDs and then down loadedfilms. The big trends are iPods, SatNavs andthe combination of HD TVs linked to HDservice boxes and Blue Ray players. Being upto date in timing the phasing in of new tech-nologies and phasing out of old technologiesis crucial to success.

9. Behaviour changes

A pub and restaurant operator has describedhow the recent Saturday night when thefinals of Britain’s Got Talent and the choice ofa ‘Nancy’ for Oliver resulted in a quiet nightfor restaurants. This can be seen as part of awider trend, with more people staying athome. The combination of ‘better’Saturday- night variety TV and ready meals

HMV is selling moreelectrical equipment towatch and play on.


RICHARD JENKINGS



But leaving issues of fashion and brand loyal-ty aside, customers often like to see a range ofoffers such as those from Phones4U andCarphone Warehouse.

12. Convergence of technology

We are moving towards a world where all youneed is a single device that does everything: mobile phone, email, satnav, com-puter, a portable TV all in one.

For electrical retailers that are strong in onearea, such as Halfords for SatNav or Jessopsfor cameras it can be a threat as technologies converge. When you can buy adigital camera very cheaply online or get asatnav fitted as standard in your car or onyour mobile phone then this changes themarket. In both these cases Halfords andJessops have pushed the importance of serviceand the knowledge of their staff. It is clearthat the public want to be helped and thosecompanies offering product knowledge willdo best, providing they can still offer a good deal.

Some conclusions:Unless you are a specialist, you will need tocombine the vast scale that gives you the abil-ity to offer the best value with staff that knowabout your products. You need to follow fash-ions and key demand-triggering events.

Despite the increasing costs of fuel weexpect the trend towards fewer, bigger electrical shops to continue and, with theexception of a few specialists, to be at the edgeor out of town.

What then can we conclude about thefuture of big box electrical retailing in theUK? For many electrical goods, there is anelement of play, the fascination of a new gadget is irresistible. The FutureFoundation’s Nvision survey shows that peo-ple still want to touch and play with their toysbefore they buy them. I see no reason whythis should not continue. ❦

This piece is based on Jenkings’ exclusive article,first published on www.warc.com, June 2008.

[email protected]

offers such as those from M&S suggesting achilled meal and wine for a fixed price of£10, may help electrical retailers sales.

10. Rising costs of energy, and green issues

We can already see that the energy efficiencyof electrical goods is a factor in people’schoice of products. This is strong in whitegoods, with the energy rating of ABC beingtagged to washing machines, fridges and dishwashers. With rising costs of energy andgrowing environmental concern, this trendcan be expected to spread to most electricalgoods. However, people still think moreabout the cost of purchase rather than thecosts of running an item over time. Printersare cheap but toner is expensive. The price ofa washing machine matters more to peoplethan how much power and water it uses to runit. It is likely, however, that the large amountsof advertising and press inches dedicated tothe size of carbon footprints will influencepeople’s choice of products, and that the lifes-pan, running costs and carbon rating of goodswill become more important. Those retailerswith a green image will benefit.

11. Manufacturers’ brands

The strength of the retailer over the manu-facturer still dominates, but there are a fewnotable exceptions, such as Apple and to alesser extent Sony with their own stores aswell as sales through other people’s shops.Such stores as Nike and Apple act as brandshow-cases, places of retail theatre, and helpadvertise the products. Historically manymobile phone shops have been strongly tiedto their supplier – O2, Vodafone and Orange.

People still think more aboutthe cost of purchase ratherthan the cost of running anitem over time. The price ofa washing machine mattersmore to people than howmuch power and water ituses to run it


RICHARD JENKINGS



MATTHEW LYNNMARKETING IN A DOWNTURN

Coffee is the purebrew of capitalism,says MatthewLynn. As the creditcrunch bites, nowonder theworld’s most ubiquitous coffee-house chain isheading for trouble.

In Christopher Guest’s witty caninemockumentary Best in Show, there is aline of dialogue that tells you everything

you need to know about the world’s biggestcoffee chain. ‘We met at Starbucks,’ says awoman character of her current romance.‘Not the same Starbucks, but we saw eachother at different Starbucks across the streetfrom each other.’

Not many companies are so instantlyrecognisable that their brand names can bedropped straight into a movie without intro-duction. Nor are there many whose ubiquitycould be the punchline for a gag. Indeed,there is probably only one: Starbucks.

But, quite possibly, not any more. For thefirst time since it was founded in Seattle in1971, the company that introduced theworld to the double mint mocha decaf skin-ny latte is on the retreat. Its stock price hasbeen hammered. Its key founder has beenhauled back to restore the old magic. It isexperimenting with new products to reviveflagging sales. And, most significantly, it hasannounced that 600 of its American shopsare to close, the first major cull since it wasfounded. For the first time, people are starting to ask if the caffeine empire is aboutto fall.

If so, it will be as good a symbol as any ofthe closing of an era of capitalist exuberance.You could have an interesting debate aboutwhich was the most iconic business of thelast couple of decades. Microsoft was therichest, and Apple probably the coolest. But,for an exercise in pure marketing, for thechutzpah involved in turning frothy milk andhot air into one of the most powerful brandsin the world, it would be hard to beat Starbucks.

Economic historians have occasionallynoted the connections between coffee andcapitalism. Stock markets were, of course,originally coffee houses. One of the firstfutures markets, started in New York in1882, traded coffee contracts. As industriali-sation spread, so did coffee drinking.‘Caffeine underpinned the dramatic rise ofcapitalism and its most successful offspring,globalisation,’ notes the historian AnthonyWild in Coffee: A Dark History. Indeed, withits ingredients of commodity trading, indus-trial process and global branding, it is thecapitalist drink par excellence. So it probablyshouldn’t come as any great surprise that therampant quarter-century bull market from1982 to 2007 should have a coffee company

Starbucks: the decline

of the empire

By MATTHEW LYNN

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way) and rebranded its chain with the soon-to-be-familiar green and white colours. Overthe next decade, Starbucks mushroomed tomore than 16,000 shops around the world. Iteven opened in France – though purists willbe pleased to note that it struggled there,and shied away from Italy altogether.

There was no great mystery about themodel. Starbucks, whatever it liked to claim,never really had the best coffee in the world.But, like most chains, it offered somethingelse instead: reliability. You could drop into aStarbucks anywhere in the world and youwould know what you were getting. It intro-duced the sort of café where you could sitaround drinking coffee and reading thepapers to countries where such places hadnever really existed before. In Britain, it wasa big step up from Joe’s greasy spoon withNescafé in a chipped mug. Likewise, to mostAmericans it was a step up from an old-fashioned diner.

A cultural iconAlong the way, Starbucks turned itself into acultural icon, inspiring admiration and con-tempt in equal measure. There is a wholeshelf of books about Starbucks: ten at the lastcount, including How Starbucks Saved MyLife, the story of a JWT executive who goesto work at the coffee chain after gettingdownsized (and soon to be made into a filmstarring Tom Hanks). During the dotcombubble, it became a cliché that every newbusiness was started in Starbucks: like mostclichés, there was some truth in it, and thechino-clad, Starbucks-cup-clutching entre-preneur became an archetype of the era.

For every devotee, however, there is anequally passionate detractor. During theanti-globalisation riots in Seattle, Starbuckswas one of the main targets – smashed up forsymbolising the bland, corporate homo-genisation of what used to be small localbusinesses.

The chain was singled out by NaomiKlein, high priestess of the anti-globalisation movement, in her book NoLogo: ‘Starbucks seemed to understand brandnames at a level even deeper than MadisonAvenue, incorporating marketing into every

as one of its most emblematic successes.Starbucks certainly seems to have beenaware of that. The original company wasfounded way back in 1971, its name borrowed from Moby Dick (Starbuck wasCaptain Ahab’s first mate). But it remainedno more than a popular local coffee shop inSeattle until the entrepreneur HowardSchultz climbed on board in 1982 armedwith a big idea.

The big ideaComing back from Italy, he figuredAmericans might like a Mediterranean-stylecoffee house. Just as McDonald’s had taken atraditional German food item – the ham-burger – and repackaged it for the US beforeselling it back to the rest of the world, soSchultz would take European-style café cul-ture, reinvent it for the American market,then roll the format out worldwide. Itworked a treat.

A fairly simple idea was wrapped up in thekind of messianic hyperbole in whichAmerican business specialises. ‘I wanted toblend coffee with romance, to dare toachieve what others said was impossible, todefy the odds with innovative ideas, and todo all this with elegance and style,’ wroteSchultz in his own book about the company,Pour Your Heart Into It: How Starbucks Built aCompany One Cup at a Time.

The formula certainly worked. By the timeStarbucks listed in 1992, it had 165 shops. Itopened its first foreign store in Tokyo in1996, and in 1998 it arrived in Britain whenit bought the Seattle Coffee Company (abusiness largely cloned from Starbucks any-

For every devotee, there is an equally passionate detractor. During the anti-globalisation riots in Seattle, Starbuckswas one of the main targets – smashed upfor symbolising the bland, corporate homogenisation of what used to be smalllocal businesses




fibre of its corporate concept – from thechain’s strategic association with books, bluesand jazz to its Euro-latte lingo,’ she wrote.

Yet what both fans and enemies failed tospot was that, like many companies before it,Starbucks was simply growing too big for itsown good. In reality, very few companies getto take over the universe, and Starbucks hasproved no exception to that rule. In the lastyear, it has found business turning as cold asa frappuccino.

In 2000, Schultz had stepped aside fromday-to-day management of the chain. Butin January this year, he was reappointedchief executive after customer traffic inestablished Starbucks outlets was reportedto have fallen for the first time ever and thestock price dived. In America, Starbucks’profits were in retreat, in part because ofcompetition from McDonald’s and Dunkin’Donuts, which both started sellingrespectable coffee at lower prices. Inmemos to staff, Schultz fretted about the‘commoditisation of our brand’, and wor-ried that automated espresso machines andpre-bagged coffee beans had made storesmore efficient but removed the ‘romanceand theatre’. Now 600 cafés across the USare being shut down, while analysts esti-mate that as many as half of the storesopened since 2003 don’t make any money.The first 50 will have been shut by the endof this month.

Even allowing for the credit crunch, thestock has been hammered. From a peak of$40 in 2006, it has dropped all the way backto $14. Nobody is expecting a swift recov-ery. Nicole Miller Regan, an analyst at theUS securities firm Piper Jaffray, concedesthat Starbucks’ management is now tack-ling the decline, but says, ‘we do not expectthose strategies to have a meaningfulimpact in the short term’.

The big bangSo what went wrong? One problem is that thechain simply became too hyper (maybe it wasall the caffeine). In Manhattan, for example,there are 185 stores, eight per square mile.Even New Yorkers find that a bit excessive. Asan analysis by Harvard Business School point-

ed out, Starbucks was guilty of too muchexpansion. ‘To grow, Starbucks increasinglyappealed to grab-and-go customers for whomservice meant speed of order delivery ratherthan recognition by and conversation with abarista,’ it argued. Indeed, in another leakedmemo last year, Schultz himself acknowledgedthe problem: ‘Stores no longer have the soulof the past and reflect a chain of stores versusthe warm feeling of a neighbourhood store.’

Rather like McDonald’s, a company itincreasingly resembles, Starbucks has beenrevamping its menu. It has just introducedfruit smoothies in the US and will roll themout around the world. Earlier this year itclosed its entire American chain for part of aday to retrain staff in the craft of coffee making. It is trying to get back to the idea of apersonally created coffee, delivered with a shotof friendly conversation. The trouble is, onceyou become a giant corporation, that’s veryhard to do. Most mega-corporations sell onprice, convenience or innovation: they don’ttry to sell on service for the simple reason thatthey know they are not much good at it. Thecoffee house was meant to be small, local andintimate. Trying to take it global may wellhave been an absurdly over-ambitious idea inthe first place. As it became bigger, it becamesoulless. And that was always going to be itsdownfall in the end.

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 financial markets. The credit crunch has, quite simply, blown the cappuccino froth off a global brand that perfectly encapsulated theeasy-money, easy-living era.❦

This article has been printed with kind permissionof Spectator.co.uk, July 2008.

What both fans and enemies failed to spotwas that, like many companies before it,Starbucks was simply growing too big for itsown good. In reality, very few companiesget to take over the universe, andStarbucks has proved no exception to that



JEFFERY & EL-WARRAKYC A S E S T U D Y

Winners of the Grand Prix andthe Marketing Capabilities awardin the Marketing Society Awardsfor Excellence 2008, this case history (jointly submitted by ICIand Brand Learning) is an impressive illustration of the planning and implementation of a re-engineered marketing function. The international scopeand business results are testimony to the value of a majorinvestment in people andprocesses to professionalise acompany’s marketing expertise.


ICI transforms performance bymarketing excellence

ICI PAINTS (now AkzoNobel) hastraditionally been a product-drivenpaints manufacturing company,

and has grown organically through astrong brand presence in a limitednumber of markets and through vari-ous local acquisitions.

In 2003, the business was slowingdown with the share of our leadingpaints brand, Dulux, declining in sev-eral key markets. At this stage, it wasnot clear where future growth couldcome from.

In 2004, a newly appointed CEO,David Hamill, outlined an ambitiousgrowth agenda for the company togrow sales revenue by at least 4% perannum over the next three years, withan incrementally higher rate of profitthan rate of sales. This was a stretchinggoal and required reorientating thecompany to become a more brand-led,customer-centric organisation.

By December 2007, ICI was theglobal leader in decorative paints,

By KAREN JEFFERY AND NEVINE EL-WARRAKY

having achieved a sales revenue com-pound annual growth rate (CAGR) inexcess of 5% between 2004 and 2007,compared to an average 3% CAGRover the previous three years (seeFigure 1). Brand share also grew inmany key markets.

How did we achieve this? Central toour success has been a global market-ing capability initiative that was supported and endorsed by a commit-ted marketing leadership team. Theinitiative started with the set-up of the‘Advance Marketing Academy’ todevelop and execute the capabilitytransformational programme, and hasled to several work streams thataddressed some key strategic chal-lenges, such as developing a focusedportfolio strategy and identifying mas-ter brand positionings.

This article outlines how buildingmarketing capabilities across theorganisation with the support of BrandLearning has helped transform the

Jeffery.qxd 8/27/2008 12:39 Page 44

business and achieve our stretchingcommercial goals, while simultaneous-ly developing our marketers.

The challenge in 2003In 2003, ICI Paints was a product-driven paints manufacturing businesscharacterised by low rates of growththat depended as much on categorygrowth in key markets as on the per-formance of our brands.

While some of our brands hadcarved out powerful and distinctpositions in their marketplaces, manymore were poorly differentiated. Thelack of a brand portfolio strategymeant that the available resourceswere spread too thinly, with manybrands inadequately supported.

Marketing tools and processes wereapplied with varying degrees of skillaround the world. Some pockets ofexcellence existed, but with limitedtransfer of best practice theyremained isolated success stories.

At the heart of the issue was thelack of both a common strategic mar-keting framework that would providefocus and clarity of direction, and acapability agenda that would drivethe performance of the marketingfunction.

With a number of leading brandsstarting to lose share, the businesswas looking increasingly vulnerableto any decline in the decorative paintmarkets worldwide.

The strategic ambitionWith the arrival of a new CEO, DavidHamill, in 2004 came the recognitionthat Marketing needed to step up andplay a more strategic role in trans-forming the business into a brand-led,customer-centric organisation thatcould achieve sales revenue growth ofat least 4% per annum.

A new marketing vision was articu-lated, to ‘lead the business in deliver-ing sustainable, profitable top-linegrowth through developing world-class marketing capabilities and per-formance globally’.

The marketing function aimed to bea source of competitive advantage forthe company. For this ambition to berealised we needed to create fewer,bigger, stronger brands with widerdistribution, an aspiration that, inturn, relied on a more capable, profes-sional, accountable and engaged mar-keting function.

With a clearly articulated ambitionand stretching business objectives, weset out to develop a transformationalmarketing capability agenda thatinvolved:

reorientating the organisation forthe future.developing the ICI way of market-ingplanning the marketing capabilitychange initiative tackling key strategic business issuesdriving operational marketing excel-lence.

Reorientating the organisation forthe futureDavid Hamill recognised that having astrong marketing leadership teamwould be critical for shaping a win-ning marketing strategy and deliver-ing the business’s objectives.

He appointed Kerris Bright asCMO, who created a marketing lead-ership team that comprised both theregional marketing heads from the sixoperating business units and a numberof functional leaders in key marketingdisciplines (insight, innovation, etc).

This powerful team formed the first

marketing governance body for keystrategic decisions as well as the mar-keting capability initiative that was tofollow. They aimed to ensure that bestpractice would be co-developed,deployed and refreshed across theorganisation.

Thereafter the ‘Advance MarketingAcademy’ was established to plan,develop and execute the marketingcapability transformation programme.Working in conjunction with the mar-keting leadership team to ensurealignment of key stakeholders, theAcademy was also supported byregional programme coordinatorswho could ensure global applicabilityof a common ICI way of marketing.

Brand Learning was appointed asour specialist marketing capabilityconsultancy partner to ensure that ICIwere tapping into external best prac-tice and expertise.

Planning a marketing capabilitychange initiativeOur central challenge was to deliver astep-change in marketing capability todrive the performance of the businesswith marketing as a key source ofcompetitive advantage. Only thenwould the ICI marketing communitybe able to deliver the strategic direc-tion and executional excellencerequired to revitalise business performance.

The first task was to create a com-mon marketing capability frameworkthat would define the key skill areasthat were required for marketingexcellence.

This was translated into a robustprocess capability audit tool (PCAT),which both articulated what world-class marketing processes looked likeand enabled the development of ashared vision for excellence.

This tool allowed ICI to score ourperformance on a ten-step maturityscale against world-class performancein a number of key elements. Whenthe self-assessments were undertakenfor the first time in 2004–05, they produced an aggregated average levelof just 3/10.



Karen Jeffery is Marketing Capability Programme Manager at ICI and Nevine El-Warraky is a Partner at Brand Learning.

DIY PAINT MARKET SHARE – UK

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2007200420022000

Figure 1


While disappointing, this low basewas not altogether surprising and itenabled ICI to set an ambitious goalto raise the score to 7/10 by 2010.

Crucially, the PCAT has enabledICI to prioritise the capability gapswithin the marketing function; a keyimplication of the first audit was therecognition that we urgently neededto address relative weaknesses instrategic marketing skills such asinsight, market strategy and planning,and brand equity development. Theseskill areas became the first areas offocus in the capability programme that ensued.

Having identified the key capabilitygaps using PCAT, the Academy need-ed to plan a means of addressing themin a way that clearly linked to business priorities. With the input andendorsement of the MarketingLeadership team, we developed aMarketing Capability Programmestrategy and plan.

The key elements of this were as follows.

Modules focused on strategic mar-keting capabilities in the first phase(2004–5) and operational marketingcapabilities in the second phase(2006–7).A live-action learning approach toapply learning to real businessissues. This required senior mar-keters to both acquire and apply theskills to develop a brand portfoliostrategy for their market via a series

of facilitated workshops.Tailored content to build senior‘leadership’ skills as well as middleand junior ‘professional’ skills.Tailored content to reflect B2B andB2C business needs.The development and deploymentof ICI trainers to embed the ICIway of marketing.The creation of ‘Advance Lite programmes’ for general managersand other functions to foster a customer-centric culture within theorganisation.

Developing the ICI way of marketingIn order to provide a common language for marketers within ICI,and also to embed an integrated, ‘bestpractice’ way of working throughoutthe company, we began the develop-ment of the ICI way of marketing.

This sought to combine best prac-tice from within the organisation withexternal world-class marketing think-ing. A simple set of processes andtools was developed, with activeinvolvement from senior marketersand leading practitioners to ensuretheir engagement and commitment.

Delivering the programme to the organisation started with high-impact leadership workshopsdesigned to engage and align the mar-keting directors across the world.This was quickly followed by anextensive roll-out plan to the profes-sional level.

The roll-out was also supported online with a toolkit that providedeasy access to the latest thinking.

Tackling key strategic businessissuesA critical factor in the success of theprogramme was its use to directlyaddress the burning strategic issuesfacing the business through the cre-ation of, and alignment to, a common language and commonthinking framework.

The most urgent priority was thedevelopment of a global brand portfolio strategy for each of our sixoperating regions.

A live action learning programmewas developed to fast-track capabilitybuilding for key teams. The teamslearned about the associated tools andprocesses (from the creation of a needstate segmentation to the develop-ment of market maps and implemen-tation plans) and then applied them totheir own region.

Over a period of six months, eachregion was able to determine whichbrands it needed to build and howthese should be positioned in the marketplace.

This process enabled ICI to beginfocusing the portfolio to concentrateresources behind building fewer, morepowerful brands.

For example, in Poland, the mediabudget, which had been shared previ-ously across both Dulux and the local-ly acquired brands Pillak andEkonowinka, is now concentratedentirely behind Dulux.

By early 2006, brand positioningshad been developed for all masterbrands within the ICI portfolio.

The use of a common tool – thebrand vision pyramid (see Figure 2) –to express these positionings enabledus to identify key areas of overlap,both in how a master brand such asDulux was positioned in differentareas of the world, and also amongother brands that were targeting thesame segments.

ICI began creating synergistic positionings for Dulux and other lead-

C A S E S T U D Y

JEFFERY & EL-WARRAKY


Delivering the programme to the organisationstarted with high-impact leadership workshopsdesigned to engage and align the marketingdirectors across the world. This was quickly followed by an extensive roll-out plan to the professional level. The roll-out was also supported online with a toolkit that providedeasy access to the latest thinking


a sustained commitment to changeover the long term is needed.Linking learning to real life businessissues can ‘turbo-charge’ perform-ance on-the-job.Focusing on fewer, stronger brandscan transform business performance.A specialist capability developmentpartner adds significant value.❦

[email protected] [email protected]

ing brands in order to fuel higher lev-els of growth and to realise other asso-ciated cost benefits across the market-ing mix.

Driving operational marketing excellenceHaving improved strategic marketingcapabilities in order to develop brandportfolio strategies, the next prioritywas to successfully translate the posi-tionings of the master brands acrossthe marketing mix.

The PCAT revealed that brandcommunication and activation was akey area of focus, in particular the cre-ation of big ideas that would bebrought to life through integratedmedia plans.

In the UK ICI developed an award-winning integrated campaign ‘WeKnow the Colours That Go’, whichwas translated across multiple chan-nels (e.g. TV, online, and PR). Thiscampaign resulted in the highest everlevel of people spontaneously recallinga Dulux ad, and also dramaticallyimproved the brand’s health.

As an example, the proportion ofpeople claiming that ‘Dulux is anexpert at putting colours together’increased by 21% in one year alone.

Moreover, given that the core end-user insight behind the campaign heldtrue in other parts of the world, ICIhave been able to roll out this cam-paign to other markets, like Irelandand Poland.

The results have beenimpressiveThe impact of this marketing transfor-mation on ICI’s business performancehas been very significant.

The company has achieved thestretching commercial targets set in2004, achieving a revenue growth ofover 5% per annum, while increasingthe profit to sales ratio.

The latest PCAT results in 2007demonstrate that ICI are makingstrong progress towards the vision for2010. Although there is still work to bedone there have been significant

improvements in the discipline andrigour of ICI’s marketing activities.

A further significant benefit of theinitiative has been a positive impact onrecruitment, motivation and retentionin ICI’s marketing community. It hasnot just been brands and business thathave grown, but also people.

For example, in Asia, 44% of ourmarketing vacancies were filled inter-nally in 2007 compared to 0% in 2005.In the annual UK survey to assessemployee engagement, the grandmean score for the 90-strong market-ing community improved significantlyfrom 3.59 to 3.87 between 2006 and2007.

In summarySome of the key lessons from the expe-rience are as follows.

Investment in marketing capabilitieshas a significant impact on market-ing and business performance.The leadership of the company mustbe fully involved to drive throughthe necessary changes in behaviour.Things don’t happen overnight –



DULUX VOLUME MARKET SHARE BY COUNTRY2004–2006 % GROWTH

% growth

0 10 20 30 40 50 60 70 80

Vietnam

Pakistan

India

Poland

China

UK retail

THE BRAND PYRAMID

8

Brand idea

2

Target segment

3

Competitive set

1

Market and sector

4

Core insight

5

Differentiator

6

Reasons

to believe

7

Personality

Figure 3

Figure 2Copyright AkzoNobel (ICI)



I N T E R V I E W

JILL MCDONALD

JM: It started before I came into thebusiness. In the early 2000s McDonald’shad simply fallen behind. The businesshad been expanding by opening newrestaurants but there came a pointwhere the demand was falling. And thatwas quite a shock for McDonald’s. Thecompany was out of touch with themajor trends in society.

JL: What were the main causes do youthink?

JM: We were getting a lot of negativepublicity and we hadn’t responded.We’d just gone quiet. But then, whenperformance started falling, peoplehad to stop and take a big step backand really think about what was goingwrong with the restaurants.

Society was changing quickly, con-sumers were changing quickly, andwe tended to keep our heads downand either apologise for what we dobest – which is making burgers – orthink about turning into a salad com-pany, which was obviously the wrongway to respond.

But eventually we realised we need-ed to take a more positive stand andstick our head up with a clear view ofwhat our core business was. We hadto be more confident as well as moreopen and transparent in our relation-ship with detractors.

JL: It’s interesting that a company as bigas McDonald’s, which is in touch with consumers all day every day, took so longto respond. There was litigation, andSupersize Me and all the publicity thatwent along with both environmentalismand obesity.

JM: It’s always easier in retrospectthan when you’re in the middle of it.Also, the external perception ofMcDonald’s is so different from what

it feels like to work here. The soul ofthe company is good but whenyou’re being attacked quite viciouslyfrom a number of different sides, thetemptation is to just shy away fromit. Particularly if you are growingthrough opening restaurants, whichtends to cloud the fall in basedemand.

JL: So did the people at that time just sitdown and say we’ve got to rethink thisthing altogether, or did it come in bitsand pieces, and at what stage did youcome into it?

JM: I think one of the key momentswas when Steve Easterbrook wasmade Chief Executive. Steve decidedwe needed to rebuild our own inter-nal confidence. There was nothing to be ashamed of, we wanted and we needed to be more open andtransparent.

That was a very symbolic stepbecause it triggered the start of anew era. Steve is very focused as aCEO. He was determined that therewas no point doing superficial glossythings, we had to fix some funda-mentals.

In addition, we had to make somesurprising moves that would chal-lenge people’s perception ofMcDonald’s.

JUDIE LANNON: I understand you werehead hunted from British Airways for thisjob. What skills did they think you wouldbring to McDonald’s?

JILL MCDONALD: They were lookingfor somebody who had brand experience. McDonald’s is good retailmarketer, but they wanted somebodywho was going to take the brand for-ward. I think that was the pull I hadover other candidates. And, ofcourse, the chemistry. I really clickedwith these people. McDonald’s is amassive company, so chemistry wasimportant.

I think they could see somebodywho they could work with and hadgot brand experience from the serv-ice sector – particularly from thepractical side. In an airline, it doesn’tmatter how clever the things youcome up with are unless they workin an airport terminal or on an aero-plane which is physically con-strained. The operational constraintsin a restaurant chain likeMcDonald’s are similar. Sometimesmarketers will cut themselves offfrom the operational side. But ulti-mately delivering what customerswant is all that matters.

JL: Tell me about the McDonald’s evolu-tion. It looks like someone finally wokeup and said we have to respond to theseattacks. How did that happen? Can youtalk me through that?

New cDonald’s gains omentum

Judie Lannon talks to JillMcDonald, the MarketingSociety’s Marketer of theYear, about how McDonald’slearned to listen.

Interview - McDonald.qxd 8/21/2008 17:40 Page 48


I N T E R V I E W

JL: And what were the three or four fun-damentals that had to be fixed?

JM: Number one was to stop gettingso het up about the PR environmentand focus on quality, service andcleanliness. This is what customerswant from our restaurants. Make surethat we had all the right systems formonitoring and fix problems at theirroot cause.

So delivering operational excellencewas top priority. There was a massivereinvestment in kitchen equipment sothat we could offer healthy optionfood, particularly chicken, which wasa major area of the food-eating-outmarket that we weren’t catering for.

Also, we increased the proportionof restaurants that are franchised.McDonald’s around the world isaround 75% to 80% franchised. Inthe UK a few years ago it was proba-bly more like 60% company, 40%franchise. If you’re putting restau-rants in the hands of local businessmen and women, it’s their livelihoodbecause it’s a 20-year tenure that yousign up for. So there’s a lot to begained from franchising restaurants

JL: It must have been difficult to get thebalance right between the burgers and allof the new, more healthy fresh foods.

JM: Steve saw the company as a mod-ern progressive burger company. And

all those words are important.McDonald’s is a burger company,that’s what people love about it mostof all, so that’s at the core. But ourmenu covers a broad range of differ-ent things. People do eat our delisandwiches and carrot sticks, butbasically they come because they loveBig Macs and milk shakes.

JL: To what extent are the salads andother fresh foods window-dressing to beseen to be appealing to modern trends?

JM: We won’t put anything on themenu unless it sells because we havelimited kitchen space. So everythinghas to sell. These items don’t sell inthe same volume as the Big Mac or ahamburger, but, for example, we areselling three times more chicken thanwe did 18 months ago.

We also have things like fruit bagsand carrot sticks, which sell very well.For example, we have sold over 30million fruit bags since we introducedthem five years ago.

JL: And what about the redesign of therestaurants, when did that start?

JM: Relatively recently – towards theend of 2006. We started on the highstreet where we were looking mostoutdated. We looked like an 80sbrand rather than a brand for now.The design needed to have more

vibrant colours but not so much red,which can be aggressive. But it’simportant to stress that we wanted tobe a better McDonald’s rather than adifferent McDonald’s.

We also needed to be more visibleto young adults, but about a third ofour business is families so we had tohave an environment and seatingthat’s suitable for families. Thedesigns have been rolled out acrossthe world but are slightly differenteverywhere. There’s quite a strongEuropean design feel, though.

JL: What evidence do you have that thisis working?

JM: In May, when the sales results arepublished, Europe was up around9.75% and the UK has delivered onthat growth so we’re pleased with theway it’s going.

JL: What do you think is the most radical thing that’s happened in the timethat you’ve been there?

JM: I would say probably the re-imag-ing, the new-look restaurants,because they are so visible, and thissymbolised very quickly that some-thing’s changed. It’s still McDonald’sbut it looks different – more modern,and fresher. That was an effective tip-ping point for the brand.

But the thing that is really surpris-ing to the outside world is the waywe’ve expanded the menus – theamount of chicken and things likeRainforest Alliance coffee, which isvery competitively priced.

JL: And what’s different in the way youcommunicate?

JM: There has also been quite achange in how we communicate – toconsumers and to the wider public.There has been a sea-change in howwe engage with the media.

We still advertise on television butwe’re also using a lot more proactivePR to engage with our detractors.

We are spending more time withkey stakeholders such as theDepartment of Health and the Food

JILL MCDONALD

The interior design of McDonald’s was outdated and needed more vibrant colours.



I N T E R V I E W

Standards Agency, and althoughwe’re not going to necessarily agreeon everything, you can’t even engagein a dialogue if you don’t understandwhat’s driving their agenda. They toowill have no idea what we’re doing, if we don’t have regular conversa-tions – a proper dialogue – to get ourcase across.

I don’t think people realise thatafter the Nordic countries, Swedenin particular, the UK is quite a longway down the track in terms of regu-lation, media attention and govern-ment intervention. We have some of the most stringent regulations in Europe.

JL: I would expect McDonald’s to benefitfrom the current recession with peoplelooking for cheaper ways to entertainthemselves. What is it looking like?

JM: We say we’re not recession-proof, but we are recession-resistant,and at the moment that’s really play-ing out. Our footfall is significantlyahead of footfall in the high street.

We have what we call a tieredmenu – the Poundsaver, which isaround 99p then we have our coremenu, the Big Mac, and then we alsohave more premium items like spe-cial burgers. People really do like togo out to eat and it’s a treat for kidsso we want to make sure we cater toall different needs.

JILL MCDONALD

JL: Many years ago it seemed likeAmerica had a positive image as thesource of fast food when fast food wasnew and exciting. But given the nega-tive image that America has in terms ofits obesity problem, what does theAmerican parentage mean now?

JM: We are owned by an Americancompany and, of course, hamburg-ers are American in origin and wetalk about the great taste of Americain our advertising. But since themajority of our restaurants areowned and operated by local busi-nessmen and women, I think there’sa balance. We certainly don’t shyaway from it but don’t think it’s any-thing our customers are concerned with.

Also these days the global companydoesn’t impose global advertising.We can create our own advertisingand a lot of our menu messaging islocal. A Big Mac is a Big Mac every-where and we’ve hit on a universalformula that people love whereverthey are. But most of the time we’re responding to people’s local preferences.

JL: It seems that you’ve always had aclose relationship with Disney. Do youfeel that’s out of date as well?

JM: We had a ten-year exclusivearrangement with Disney, whichended in December 2006. We stillwork with Disney if it has propertieswe want to go with, but it was amutual ending of an exclusivearrangement. We wanted to be freeto work with Dreamworks or Fox.Dreamworks, for instance, has somefantastic properties, such as Shrek, sonow we don’t have a single exclusiveagreement.

JL: So many food and drink companiesare under attack today. What advicewould you give to other marketing peo-ple who find themselves in the sameposition you did a few years ago?

JM: Stay close to your customers, listen to what all your stakeholdersare saying and pay extra attention to

what your customers are telling youthey want.

For example, the advertising to children and the obesity crisis thatwe’re facing. There are many differ-ent views as to what companiesshould or shouldn’t be doing, so thefirst thing to do is go with the facts.We’ve spent a lot of time talking tomothers about advertising to chil-dren. They tell us they wantMcDonald’s to be a treat, so if youcould make the food fun and excitingto eat so we could get good food intothem, that would be helpful.

That’s possible because we haveaccess to some of the best propertiesin Hollywood, so Shrek III or BeeMovie or Kung Fu Panda, which isout at the moment. So we can applysome of our marketing know-how tomake the five-a-day fruit and vegetable choices on the menu real-ly appealing. It keeps our brand relevant and it’s helping mothers getfresh fruit and vegetables into their children.

They are quite comfortable withour food because they know we’rehighly regulated as a market andthey expect us to abide by all theregulations. But they want a trip toMcDonald’s to be a treat for kids.

So my main advice is, stay close toyour customers and don’t ever forget why they buy from you orcome to you. Society moves on, soyou can never stop listening andbeing prepared to change. It allsounds incredibly easy but whenyou’re in the middle of it, it can be a bit difficult to see the wood forthe trees.

JL: And finally, when 2009 rolls around,what do you want to see for the company and for yourself?

JM: The answer to both parts of thequestions is being part of a teamthat’s helped to turn around our business here in the UK. I want themomentum to continue soMcDonald’s is one of the places people feel they can always come toand get great-tasting food at affordable prices.❦

My main advice is,

stay close to your

customers and don’t

ever forget why

they buy from you

or come to you.

Society moves on, so

you can never stop

listening and being

prepared to change



The techniques and methodologies of brand valuation have had a dramatic impact on business. Generally this has been positive, withvastly increased interest in the value of intangibles leading to the disclosure of the value of acquired brands on the balance sheet.However, ‘brand valuation techniques’ is a marketplace and the competition between different valuation techniques has caused confusion and inappropriate (often misleading) league tables. Janet Hullargues that brand valuation needs to be positioned away from leaguetables and be incorporated more into the day-to-day marketing andbrand management activities of practitioners.

ANECDOTAL evidence sug-gests that, in the weeks leadingup to the Business Week issue of

Interbrand’s annual brand league table,bets are placed among the biggest USbrand owners on who will be top, andwho will have moved up most places.Putting aside any cynicism about themechanics of the calculations behindthe brand valuation, the league tableitself has entered the boardroom psy-che, and, for a moment in time, occu-pies the attention of CEOs. Perhapsthis level of interest is understandablegiven that, typically, half of the top 100brands in the Interbrand global brandleague table are US bred and owned.

There is no doubt that the foundersof Interbrand, John Murphy and TomBlackett, who first developed the concept of brand valuation and amethodology for estimating it, werevisionaries and revolutionaries. Theywere the precursors and champions ofa new breed of consultancy, keen to‘bridge the gap between marketing andfinance’ (in the words of another emi-nent brand valuation consultancy,Brand Finance). But, 20 years on,where has the marketing communitygot to? How far along the road to rev-olution have marketing departmentsand agencies travelled? Are we anycloser to achieving our ambition ofbeing recognised, as an industry, forthe shareholder value we create,through nurturing and developingbrand assets?

This article is written from a gener-alist, practitioner viewpoint. My obser-vations are based on an amalgam ofthis experience and address three keyareas: where have we made headway,where have we shot ourselves in thefoot, and what might the future hold?

1. Where have we madeheadway?

Increased media interest in the financial value of brands League tables have proliferated, bothglobally and by geographic territoryand sector. Hardly a month goes by

B R A N D V A L U A T I O N

JANET HULL

By JANET HULL

How marketersshould use brand valuation

Hull.qxd 8/21/2008 17:43 Page 51


without another brand league tableappearing. We have bought our wayinto the market with exclusive spon-sored features and supplements.Notable proponents are Interbrand(Business Week), Millward BrownOptimor (Financial Times), BrandFinance (Financial Director), and TheIntangible Business (The Grocer).

Outside these sponsored features,media reporting of the value of brandshas undoubtedly increased. Consid-eration of brand value now stretchesto assessments of celebrities, footballteams, countries and political leaders.

Although UK in origin, interest inbrand valuation is definitely goingglobal. Interbrand is now a global net-work. Brand Finance now has affiliateoffices in 18 countries and claims thatits India office, in particular, is doing aroaring trade.

Increased economic interest inintangiblesIntangible value has entered the ver-nacular of economists and politiciansalike.

Economist and columnist RogerBootle, writing in 2003, in his breakthrough book, Money forNothing, indicated that the industrialrevolution was behind us and that wehad now entered the intangible age.

The creative economy programme,now under development through theDepartment of Culture, Media andSport, is a direct result of recognitionby the UK Treasury that over 7% ofUK gross value added (GVA) isderived from the combined output ofthe UK creative industries, placingthem on a par with the UK financialservices sector in terms of economicvalue.

The first Global Intangible Tracker(GITTM), based on analysis of theenterprise value of listed companieson the top 25 stock markets of theworld, and launched by Brand Financein association with the IPA in early2007, calculates that 62% of the value

of the world’s quoted companiesresides in intangibles, and that brandsconstitute 20% of this intangible valueon average.

New standards promote the disclosure of acquired brands on thebalance sheet While brand valuation consultanciesmake the running in terms of profileon the shop floor they now competewith management consultancies. PwCis a prime example of a managementconsultancy bringing an audit pedi-gree to the business of brand valua-tion. Equally, brand valuation is aservice offered by mergers and acqui-sitions advisers in investment banks.

This growth of interest in the finan-cial value of brands at acquisition,because of the relative disparitybetween book value and market value,has been recognised in the mostrecent International Financial Repor-ting Standards.

The International FinancialReporting Council, under IFRS 3,now recommends a breakdown of‘goodwill entries’ in balance sheetreporting – a move that has beenspurred on by massive lobbying bybrand valuation consultancies).Although only acquired brands areallowed to be reported in this way (notinternally developed brands), the orig-inators of the brand valuation philoso-phy must have felt they had made sig-nificant headway when this develop-ment in global accounting guidelinesbecame reality in 2007.

In summary, we have created a morefavourable climate for more meaning-ful discussions about the value ofbrands to take place.

2. Where have we shot ourselves in the foot?

Fighting among ourselves aboutmethodologiesIn the attempt to differentiate them-selves from each other, brand valua-tion consultancies in-fight aboutmethodologies and definitions. Is it

enterprise value or market value that isthe basis of analysis? Is it brandstrength or brand power or brandvoltage that is the key dynamic? Andhow are any of these defined?

In the case of Interbrand, brand‘strength’ is ascertained through astructured evaluation (marks out of100) of the brand’s market, stability,leadership position, growth trend,support, geographic footprint andlegal protectability.

In the case of Brand Finance, brandstrength is called Brand Beta ® and isscored against the parallel attributes oftime in the market, distribution, mar-ket share, market position, salesgrowth rate, price premium, priceelasticity, marketing spend, advertis-ing awareness and brand awareness. Ascore of 50 out of 100 implies that thebrand offers average investment risk.A score of 100 implies a theoreticallyrisk-free brand, which would be dis-counted at the risk-free rate. A scoreof zero implies a particularly weakbrand that doubles the equity risk pre-mium.

In the case of Millward Brown,brand strength is a combination ofbrand presence, brand ‘voltage’ andbrand equity, and draws on the com-bined data sets of the WPP ‘Brandz’study and other Millward Brownbrand tracking proprietary tools.

Although UK in origin,interest in brand valuation is definitelygoing global. Interbrandis now a global network. Brand Financehas affiliate offices in18 countries and claimsthat its India office, inparticular, is doing aroaring trade

JANET HULLB R A N D V A L U A T I O N

Janet Hull is Consultant Head of Marketingand Reputation Management at the IPA.

Hull.qxd 8/21/2008 17:43 Page 52


The degrees of variation might fiton a pin-head, but the consequence ofthe wide range of different vocabularyin use is a perceived lack of clarity,consistency and comparability, and abroad suspicion of self-interest andsubjectivity in the choice of methodol-ogy.

M&A specialists at investmentbanks claim not to accept at face valueany valuation that is provided to them,and tend to do their own. There iseven a risk that, because of the dispar-ity in approaches to brand valuation,the IFRS decision to recommendbrand valuation on the balance sheet,in the case of acquired brands, may bereversed. David Haigh, of BrandFinance, who is chairing the IFRScommittee looking at standardisationof brand valuation on the balancesheet, claims to be increasing scepticalabout what the outcome might be.

Finance directors using brand valua-tion as a financial instrument In addition, there is a real risk that,rather than bringing finance and mar-keting closer together, brand valuationis being hijacked by the financedepartment.

More brand valuations, it appears,are commissioned for financial pur-poses than for marketing purposes.They are being used, for example, tooptimise tax advantages across sub-sidiaries and geographies; to bolster abalance sheet in difficult times; tofight a reverse takeover; and, in somecases, to restructure marketing depart-ments and brand portfolios.

In conversations with brand valua-tion consultancies, the lasting impres-sion is that most of the demand fortheir services is coming from thefinance or legal teams, rather than themarketing departments of major cor-porates, or, indeed, from agencies.

The fact that the impairment testfor brands on the balance sheet onlyallows for a potential value reduction,but not an increase, demonstrates aprofound lack of understanding, onthe part of the financial community,about the fundamentals of the value of

branding and sound brand steward-ship.

Marketing and agency folk failing toutilise brand valuation’s ‘potential’Up until five years ago, the head of asister agency to Interbrand was stilldescribing ‘brand valuation’ as a ‘flashin the pan’. The members of the IPAValue of Advertising Group, whichhas the responsibility of promotingand breeding an effectiveness culturebetween agencies and marketing,recognise the need for greater under-standing of its current application orbroader relevance.

Although the word ‘brand valuation’trips freely off the tongues of manymarketers, there appears to be limitedunderstanding of the process. Howmany marketing or agency folk canclaim that they have been involved ina brand valuation, or are applying theprinciples or practice of brand valua-tion to their day-to-day decision mak-ing and management of brand assets?

When Brand Finance last ran a well-publicised masterclass in London,linked to a Haymarket Events BrandSummit on the application of brandvaluation to brand marketing, of the20 people in attendance, only twowere from the UK. The remainder ofthe delegates were from the MiddleEast, Canada and Asia.

Against this backdrop of a lack ofbroad engagement, there is a real riskthat we in the UK are failing to capi-talise on the inherent promise ofbrand valuation, and are even intenton devaluing the concept before it hasreached maturity in the market, or has

delivered against the original visionset for it. Arguably, brand valuationconsultancies have got stuck in a rut oftheir own making, and are perceivedby the wider market to be focused onleague tables and balance sheet report-ing; and marketing and agencieshaven’t exactly picked up the baton.

What might the future hold?If we go back to the basics of whatbrand valuation is about, it is clear thatit is increasingly relevant, in an era ofever-greater focus on marketingaccountability.

Alex Batchelor, earlier in his career,at Interbrand, writing in Brands andBranding, explained the concept ofbrand valuation as follows:

‘The value today of a brand’s futureearnings is a function of how high theseearnings are, and of how likely it is thatthey will be achieved. It should thus takeinto consideration three things about thebrand:

1. its financial performance (in order to identify its true net earnings) 2. its marketing strength and its com-petitive advantage over other brands (to establish security of demand)3. its legal position (to prove that it is a separable property).’

Paul Temporal, writing in AdvancedBrand Management, enlarges upon thisby explaining brand valuation in termsof economic value:

‘How do brands add value? In economic terms the answer is simple:

they impact on both the demand and


JANET HULL

Hull.qxd 8/21/2008 17:43 Page 53


ing from the likes of Nielsen, TNSand IRI, and are reported to be fre-quent commissioners of adhocresearch. Even YouGov daily brandtracking is starting to make inroads.

Martin Deboo’s recommendation tothe industry from the same IPA semi-nar, was as follows:

‘Adopting a metrics-based approach,rather than putting brands and otherintangibles on the balance sheet, is the bestway forward. Identify yourselves firmlywith the organic (sales) growth agenda –make it your business to understand howwhat you do contributes to this. Thinkfinancial payback and drill down, ratherthan intermediate variables and drill up –help your client “tell the story” of where growth has come from. Work pro-actively with your clients around how best to operationalise a metrics-basedreporting system.’

Having left Interbrand to head upmarketing at Orange, Alex Batchelor,wrote about his experiences in theboard room, in Market Leader in sum-mer 2005:

‘To survive board meetings, you need toput what you are saying in context, andparticularly how it relates to the momen-tum of the company: whether you are get-ting better or getting worse.’

In his experience: ‘Data has to be in a manageable form

that points clearly to action, and in anaccessible form to enable management tounderstand why particular strategies arenecessary.’

supply curves. On the demand side, brandsenable a product to achieve a higher priceat a given sales volume. On the supply sidebrands require lower cost of capital, lowerstaff acquisition and retention costs, vol-ume economies of scale, higher trade andcustomer recognition and loyalty.’

Jan Lindeman of Interbrand, alsowriting in Brands and Branding, arguesthat what’s important is that the basisof brand valuation – economic value –makes it comparable with otherinvestment decisions within organisa-tions. He advocates a multitude ofpossible applications for brand valua-tion; from making decisions on busi-ness and brand investments, to organ-ising and optimising the use of differ-ent brands in the business accordingto their respective economic valuecontribution, to measuring the returnon brand investments, to linkingremuneration and career developmentof marketing staff to brand valuedevelopment. In short, he advocatesvalue-based management systems thatcan align the management of thebrand asset with that of other corpo-rate assets.

It is unlikely that anyone in market-ing or agencies would deny the rele-vance of these core beliefs comingfrom some of the leading exponents ofbrand valuation consultancy. So thefundamental relevance of the thinkingbehind brand valuation is beyond dispute.

Being able to justify brand invest-ment, in terms of its contribution tofuture cash flow and profitabilityencourages a mid- to long-term per-spective on the value of marketingactivity. Being competent in makingthe economic argument for maintain-ing or increasing levels of spend rela-tive to the competition, in order toincrease market share or optimise theimpact of brand improvements, issomething that most marketers andagencies aspire to.

Having the knowledge and where-withal to be held accountable for valuecreation excites that contingent in themarketing and agency community, the

IPA Finance Policy Group amongthem, who are keen to engage in more realistic discussions about value-basedremuneration.

Perhaps the biggest flaw in thebrand valuation process, at the currenttime, is the undue public and promo-tional emphasis placed on pinpointingnet present value at a moment in time,in order to meet the requirements ofleague tables and accounting stan-dards.

By focusing market understandingon the retrospective balance sheet, wehave failed to gain acceptance for thebroader predictive relevance of thebrand valuation process. Brand valua-tion needs reframing as a strategic for-ward-planning and performancemeasurement tool, not a balance sheetreporting tool after the event.

We need to transform ‘point in time valuation’ into ‘dynamic brandevaluation’.

Martin Deboo, equity analyst atInvestec, speaking to an IPA seminarin spring 2007, advised the audience ofstrategic planners and marketers:

‘Don’t stress about “intangible assets”too much – get the growth/investment/margin equation right and let me worryabout the valuation implications.’

There is no doubt that the analystcommunity is becoming increasinglymarketing-savvy and is ready to beengaged in a more informed dialogueabout the relationship between mar-keting investment and shareholdervalue. From IPA conversations withequity analysts there is a real hungerfor information that enables the ‘City’to evaluate the quality and quantity ofmarketing activity in quoted compa-nies: in order to understand the differ-ence between good and bad brandstewardship, and to assess the effect ofthis intangible asset in future tangiblecash flows.

There is a trend for more analysts tocome from the industries they are fol-lowing. The big investment banks arebecoming big purchasers of data,which was traditionally the preserve ofmarketing and agencies. They’re buy-

Brand valuation needsreframing as a strategicforward-planning andperformance measurement tool, nota balance sheet report-ing tool after the event

JANET HULLB R A N D V A L U A T I O N

Hull.qxd 8/21/2008 17:43 Page 54


Above all, we need metricsfit for purposeBrand valuation specialists are asdependent as any of us on the qualityof the market and brand data madeavailable to them for the quality oftheir valuations. The subjectivity ofwhich they sometimes stand accused,is often the consequence of a lack ofrelevant data in appropriate formats.Brand valuation experts, many ofwhom come from a finance back-ground, find themselves struggling tomake sense of the marketing andbrand data available to them.

The new IPA publication, KPIs forMarketing Reporting, proposes aframework for thinking about market-ing metrics, and provides a compre-hensive set of 20 generic performanceindicators from which to develop spe-cific data sets. These include measuresof success (business value, customervalue, brand value); predictors of suc-cess (A&P investment strategy, pro-motional mix, innovation intensity)and financial metrics (marketing pay-back). The publication advocates thatmarketing departments and agencieswork together to create a coherentapproach to marketing reporting,using this framework as stimulus.

Finding the right research tools andtechniques should then flow fromusing this framework. In the quest forthe right metrics, our best advice isthat measurement strategy precedetactics, and that, before jumping to thedetail of research measures, we take astep back and think about what weneed to measure and why; then set abrief to research companies indicatingthe type of metrics that will be of most

value; and make them aware of howthese metrics need to be reported andconnected. In short, invite researchcompanies to respond to client andagency needs rather than being dictat-ed to by the techniques and tools theyalready have in play.

If we are successful in this process,and whether we progress to full brand valuation or stop at the point ofdynamic brand evaluation, we will bebetter placed to communicate thevalue and contribution of marketingto business performance across allfunctions and departments, includingfinance. And it should follow that thequality of marketing activity willbecome appreciated better by externalshareholders and stakeholders. Again,the IPA’s endeavours to focus report-ing about marketing and brand per-formance on the narrative section ofannual reports and accounts, ratherthan the financial section, is confirma-tion of a belief in the value of this newdirection. The IR Magazine UKAward for Best Narrative Reporting,and accompanying literature andresearch, is sponsored by the IPA forthis purpose.

In conclusionThe objective of this article was tooffer a generalist, practitioner view onthe future of brand valuation.

It argues that in the first 20 years ofthe life of brand valuation, we haveprepared a more favourable climatefor meaningful discussions about thevalue of brands. But we have failed asyet to capitalise on the huge potentialthat brand valuation principles andpractices offer for mainstream market-ing reporting and decision making.

It advocates that brand valuationneeds to be repositioned away fromleague tables and balance-sheetreporting. It should be a metrics-based approach to day-to-day market-ing and brand management that iscapable of withstanding boardroomscrutiny. It should also be capable ofbeing reported in the narrative sec-tions of companies’ annual reports.

Brand valuation consultancies maywell argue that there is nothing new inwhat I am saying and that they havestrong case examples of all thesethings being in play. However, mybelief is that there is still much roomfor improvement. Marketing depart-ments and agencies in the UK are bestplaced to lead the charge, but need tomove quickly if they are not to beovertaken by Asia, which is displayinga real appetite for improving its mar-keting professionalism.❦

[email protected]

BibliographyBadenhausen, K. (1995) Brands: the

Management Factor. FW, August.Batchelor, A. (2005) ‘Brand valuation as a

management tool.’ Market Leader, Summer.

Belle Frank, B., Sussman, M. with Palka, A. (2008) ‘Brand Health measures your mother would love.’ Admap,March, Issue 492.

Best practice in narrative reporting 2008: Key learning from the IR Magazine UK Awards judging process (2008) IPA.

Bootle, R. (2003) Money for Nothing: Real Wealth, Financial Fantasies and the Economy of the Future. Nicholas Brierley Publishing.

Clifton, R and Simmons, J. (2003, 2004) Brands and Branding. The Economist in association with Profile Books Ltd.

Deboo, M. (2007) How analysts think about intangibles and brands. Speech given at the IPA ‘Intangible Revolution’ seminar, February.

Global Brands (2008), Financial Times Special Report.

Global Intangible Tracker (GITTM) (2007) Brand Finance with IPA.

Hart, S. and Murphy, J. (1997) Brands: The New Wealth Creators. Macmillan.

KPIs for marketing reporting: a framework for effective marketing disclosure (2008) IPA.

Temporal, P. (2002) Advanced Brand Management: From Vision to Valuation. John Wiley & Sons.

Walshe, P. (2008) ‘What price a strong brand? Market Leader. Spring.


JANET HULL

Brand valuationexperts find themselves grapplingto make sense of themarketing and branddata available to them

Hull.qxd 8/21/2008 17:43 Page 55


The marketing services supply chain:delivering the best for less

CHARLESKIRCHNERrecalls the previous recession andgives tips onhow to savemoney in themarketing services supplychain withoutlosing quality.

DESPITE some significant blips, melt-downs and 'black weekdays of onesort or another, the last meaningfulrecession took place in the late 1980’s

and early 1990’s. This means that it is unlikelythat anyone under 40 will have had practicalexperience of operating in any other businessenvironment than the recent relatively happy past.

For those of us who have been there before,there seem to be two principal options in thissituation. The less heroic one is to take flight,dig in and look forward to donning the T-shirtsemblazoned with ‘I survived the last recessionand I’m going to survive this one too’.

The other more challenging option is toreflect on personal experiences of the last majorrecession and see if there are any potentially use-ful hints and tips which may be relevant to thenext year or two.

My memories of the early 90’s recession as aMarketing Director of a branded FMCG com-pany are disappointingly fragmentary. But I wasa newly-minted marketer and I recall the mar-keting focus swinging from sales and volume tomarket share and increasingly tenuous share-of-voice measures.

The reality gradually dawned when brandswhich had always been regarded as mainstreamwere subtly re-positioned into a newly defined‘premium sector’. The low price sector brands,hitherto referred as ‘price-fighters’, increasinglyoccupied the middle ground both in consumerperception and share of market.

General market profitability nose-divedaccordingly: marketing budget and headcountsfollowed suit. The standard response to thisdevelopment was to adopt victim status: resistingall budget cutting through attritional guerrillaskirmishing, while bemoaning the short-sighted-ness of finance.

In a slightly panicked response to tumblingbudgets and the rapid development of technolo-gy, efforts were focused on finding more effec-tive means of communication than the conven-tional routes which at that time were heavilyweighted towards traditional broadcast mediasuch as TV, press and posters.

However, our efforts to develop direct mar-keting ‘one-to-one’ campaigns were constrainedby a lack of understanding and experience. As itturned out, this was compounded by our agencypartners who, despite protestations to the con-trary, were heavily reliant on third-party suppli-ers whose comfort zone lay in technology anddata management rather than in brand market-ing.

Opportunity lies in the ‘back office’In retrospect, the most dramatic impact of thelast recession on the marketing world wasundoubtedly on the marketing communicationssupply side – the ‘back office’ that drives theoperational delivery of all marketing campaigns.

With bewildering rapidity the long-standingconventional agency remuneration of 15%commission was first questioned and then over-thrown, to be almost wholly replaced by fee-based structures. Client marketers wererequired to master entirely new and oftenmind-stretching skills, both in defining thescope of agencies’ work as well as linking differ-ent aspects to commercial negotiations and per-formance bonus metrics. Agencies also strug-gled with the unfamiliar concept of linkingremuneration, however tenuously, with market-ing outputs.

Media buying and planning was rapidlydivorced from the creative agencies and placedwith a growing group of independents such asTMD and PHD on grounds of eye-wateringcost reductions and the less persuasive promiseof specialist skills and new media insights.

In reality the people behind the independentswere often the same and in due course the inde-pendents became less so, reverting back toshared ownership with the creative agencies.

Slash and preserveWhat is of interest to the current generation ofmarketing leaders is what will happen over thenext few months, and maybe years.

Are there lessons from the last big downturnsome 15 years ago that have the faintest rele-vance to the present, or have the interveningmassive changes, particularly in technology,invalidated any comparisons?

Charles Kirchner is Chairman of Marketing SupplyChain International Ltd.

CHARLES KIRCHNERSPEAKER’S CORNER

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


CHARLES KIRCHNERSPEAKER’S CORNER

It is a truism that in a recession ‘big brands getbigger’. The reality is that in a climate of weakconsumer confidence, falling demand and pricewarfare, the ability of marketing to influence pur-chasing behaviour is likely to become a great dealmore reactive and tactical.

It seems that the single biggest culpable errormade by marketers last time around was the failure to realise that, in a recession, proactivelycontrolling cost becomes as important a market-ing skill as great creative insight and visionarypricing strategies.

Traditional marketers are still inclined to viewcost cutting as ‘a bad thing with little differentia-tion between “working” spend (that which influ-ences the consumer) and “operational” spend thatgoes to generating and delivering the marketingassets, of whatever type’.

Operational spend underneath the microscopeSo what avenues are open for the modern marketer anxious to maximise ‘working’ spend?

The obvious first step is to instigate (often intandem with procurement colleagues) a thoroughreview of the marketing cost base, taking therange, scale and frequency of activities as a ‘given’and assuming that quality standards and speed tomarket are also sacrosanct. This will rapidly isolate the 30% of ‘non-working’ operationalmarketing spend that is dedicated to campaigndelivery.

The key question will be whether this 30% ofmarketing investment (and associated activity) istransparent and capable of being broken downin meaningful terms. The sad reality is that formany marketers the operational processes thatstands between their approval of a creative con-cept and final delivery are woefully opaque. Inmost cases they have not been systematicallytackled in the last 15 years or more.

There really is no substitute for detailedanalysis to ensure that significant sums are iden-tified, ring-fenced and re-deployed to brandsupport in a way that is clear and convincing tothe non-marketers on the management team.The guiding principle is that the better under-stood and clearly defined areas of spend willyield less than the more arcane and seemingly‘black boxed’ operational budget pockets.

By this token, agency fees (both creative andmedia) despite being relatively high ticket areas

It seems that the single biggest culpableerror made by marketers last time around,was the failure to realise that in a recessionpro-actively controlling cost becomes asimportant a marketing skill as great creativeinsight and visionary pricing strategies


SPEAKER’S CORNER

CHARLES KIRCHNER

are unlikely to be the first priority as they haveusually been closely examined by both market-ing and procurement over a number of yearsand through bruising negotiation cycles.Paradoxically the opposite is true of the per-formance-related elements of agency remunera-tion (especially media) which have usually beengrossly neglected, poorly managed and can pro-vide a very rich return in comparison to theeffort required to unlock their potential value.

In contrast, the intimidating areas of advertis-ing production and the range of marketingmaterials from POS to ‘trinkets and trash’ willprovide a ripe target for swift efficiency gains,particularly when third parties (primarily agencypartners) are involved in the supply chain

It is important to keep front-of-mind thatthese are non-creative activities and the costs

incurred will be highly sensitive to both volume(through cross-brand and ideally cross-marketaggregation) and origin (through low-cost coun-tries which are often the ultimate source formore local intermediaries).

As a general rule it is possible to free 5–8% ofthe overall marketing budget through streamlin-ing these ‘non-working’ operational elements. Inrecessionary times, re-deploying these finds canmake a very real difference to the fortunes of abrand, particularly when competitors are throt-tling back on their support programmes.

The reduction of marketing headcount is stilloften a taboo subject for marketers. But market-ing is a people-intensive business, particularlywhen direct (employed) resources are added tothe agency and consultancy resources. Soremoving unnecessary cost in this area will alsoprovide a significant boost to sustaining brandperformance during hard times.

Finally, in the operational arena, marketersand agencies alike have been reluctant adoptersof proven and easy to operate technology solu-tions, geared to both speeding up laborious andtime-consuming manual processes, as well asreducing the necessity to reinvent wheels.

Five simple rulesIn summary some simple tips may be helpful toguide the willing marketer who has so farenjoyed the summer days of operating in a non-recessionary environment.

The last recession indicated that marketing isnot exempt from a wintry economic climate.This time around, it will be better to anticipateand actively manage controllable operationalvariables rather than passively reacting to eventsand watching the inevitable budget cuts arrive.❦

[email protected]


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 (bothto 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 towerbetter than anything

In the operational arenamarketers and agencies alikehave been slow and reluctant adopters of provenand technology solutions,geared to both speeding uplaborious and time consuming manual processesas well as facilitating bestpractice sharing and reducing the futile necessityto reinvent wheels


jeremy bullmore

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