Nov 27, 2023 | Branding, Customers
Every time I go through a supermarket checkout, I find myself surprised at the total of the bill. Should be used to it by now, but no, I’m not!
The two supermarket gorillas, Coles and Woolworths have both released their annual results in the last month, and shareholders, which via superannuation is most of us, should be very happy.
Woolworths pocketed $1.6 billion on significantly increased margins, and Coles managed $1.1 billion on similarly better margins. The percentages are way above those generated by peers in developed countries, for the simple reason that they are an oligopoly and leverage that power to generate profit. Aldi has made an impact and continues to do a good job of ‘keeping the bastards honest’ but the fact remains, profit comes from market power. It is also fair to acknowledge that both have done a pretty good job of optimising their current operations, which also contributes to those juicy profit numbers.
Supermarket retailers, and other retailers in a position to exercise market power, are in two businesses that together make a powerful business model:
The first is renting retail real estate to their suppliers.
The second is selling products to consumers.
Both are transactional, with constant negotiation between the retailers and their suppliers. Sadly, there is an unequal distribution of power between the retailer and the supplier, so the use of price on both sides of the equation by retailers has become ubiquitous.
They extract maximum ‘rental’ for the shelf space, while being relatively unconstrained at the checkout by competitive pressure.
As a result, suppliers are screwed down so hard that even the very best of them have trouble returning the cost of capital, and price competition that benefits the consumer is a myth.
The price-based promotion programs deeply embedded in the psyche of both retailers and their ever-decreasing pool of suppliers destroys brands. Over the time I have been watching, the supplier margins from which springs the innovation that keeps categories fresh and interesting to consumers, has disappeared.
Retailers are lousy marketers. Ask one to explain the drivers of purchase and they have only one answer: price. Anyone who has ever bought anything knows that is rubbish.
For long term commercial sustainability of both retailers and their pool of suppliers, there must be a balance between tactical promotion and the innovation investment that generates category and brand growth, and there must be serious competition.
That no longer exists. Marketing and behavioural research over many years is unequivocal. Healthy markets need both.
Retailers have used price as their only tool because they can. In the process they have killed off almost all proprietary brands, replacing them with house brands, which are no more than carbon copies. There is no longer category or product innovation, and no suppliers willing to invest in brands, just a conga line of copycats.
The cost-of-living crisis facing many consumers today will become a strategic crisis for the retail gorillas as they fail to evolve their business model.
Nov 17, 2023 | Customers, Innovation
Ideas are usually great because they do one of two things, sometimes both:
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- They focus on a deep and genuine need, obvious or not, to the casual observer.
- They remove a problem that causes irritation.
Great ideas have a common characteristic: they are focussed.
They do one thing exceptionally well. When you spread the impact, so they do more things less well, the utility of the original idea is diluted.
The ‘Penknife’ is a classic example. It evolved when writing was done with a gooses quill and ink. The quill required constant sharpening, so the small ‘penknife’ evolved. It folded, was small enough to be safely carried in a small pocket and did an admirable job of sharpening the quill.
As a kid, I had a penknife, it had a blade, corkscrew, a bottle opener, and something my dad told me was a tool for removing the stones from a horseshoe. Not all that useful for a kid living in Sydney in the 1960’s. One of my friends had a Swiss army knife that had a cutlery store contained in a body that was several times the size of my modest penknife. As a 10-year-old, I was envious of his Swiss army knife, and lusted after one until I recognised it did nothing well. It was also bulky, and the most used tool, the knife, was difficult to open.
So it is with many products, an innovative idea is ruined by added features that may be ‘sort of’ useful to a few, but just get in the way of the single function for which the tool was developed.
Ask yourself what is it that people are willing to pay for?
We needed that penknife; we do not need the horseshoe cleaner. There is a cost to adding it, which must be recovered in the price, but suddenly the knife is less useful for its primary purpose.
Sometimes, the feature laden penknife can hide the feature that if separated into a specific product might be extremely useful. My penknife had that corkscrew. It was not much value to me as a 10-year-old and did not work very well. My father had much better corkscrews that were designed for the job he wanted done and did it well.
Beware of feature-creep it might destroy your great idea.
Nov 13, 2023 | Branding, Customers
The best place to start this discussion is some sort of definition of ‘Brand Salience’. To me it is the extent to which your brand comes to mind. This might be unprompted, as in ‘what brands of beer can you name? That first question may be followed with a prompt such as ‘which of these brands are you familiar with? A brand with strong salience will be identified quickly, those with none will remain anonymous.
A common phrase in marketing is ‘build a brand’. The actions taken by marketers to address this often-mouthed objective differ. There is no template to build a brand, but there are well established principals.
Most young marketers would struggle to think past Instagram and Tick Tock, believing the way to build a brand is to do stuff that gains attention and eyeballs. The reality is that doing so barely scratches the surface of what is required.
Building a brand is a long-term proposition, inconsistent with the very highly targeted digital capability we now have. Building a brand requires that you create and leverage distinctive visual, verbal, and aural assets. On encountering one of these assets, a current or potential customer has the brand immediately brought to mind.
The first task is to identify any distinctive assets your brand might have on which to build. In most cases this is after years of zigzagging and bouncing around. The potentially distinctive assets of most brands are a bit like the jumble in the bottom of a kids toy box. Lots there, bits and pieces, but nothing that has been picked out and made really distinctive.
As a marketer it is your task to pick those pieces and build them into a distinctive asset of the brand.
The Ehrenberg-Bass institute has developed by grid that captures the essence of all the above by reflecting two factors: Fame and Uniqueness.
- Fame quantifies the percentage of category buyers brains where the brand has an immediate and salient link to the brand asset being tracked.
- Uniqueness quantifies the brands level of ownership of that asset versus competitor brands.
The challenge for marketers is that to build such a matrix that has real relevance can cost a lot of money. It is one thing to do an audit of an existing brand, entirely another to audit a market category to identify holes in the competitive profiles which can be leveraged.
Understanding the factors that will drive distinctiveness that are relevant to the consumer is the first point of call. There is often the debate about the role of creativity in determining what is distinctive and relevant, and how that distinctiveness is captured by the combination of visual, aural, and verbal characteristics.
For example, what I regard as being a truly great example of Australian brand building is Meadow Lea margarine. While it is now relegated to the discount bins through stupidity and poor brand management, the tagline ‘You ought to be congratulated’ would bring ‘Meadow Lea’ straight into the mind of most Australian women over 50. Early in the process of building Meadow Lea, qualitative research identified that women were still doing most cooking and housework while increasingly holding down a job and managing the family. They were sensitive to criticism in all these areas, and were looking for acknowledgement. Meadow Lea acknowledged the emotional need and addressed it by telling them they deserved to be recognised and congratulated. The advertising captured the essence of that acknowledgement, visually, aurally, and verbally. Over the course of a couple of years Meadow Lea went from being one of many brands of margarine, to being absolutely dominant. I would suggest that the remnants of that brand salience remains. 30 years after the idiots who inherited Meadow Lea after the usual multinational financial engineering occurred and the advertising stopped, most still correctly associate ‘you ought to be congratulated’ with Meadow Lea.
Typically, the steps to build a brand cost a lot of money in advertising, and importantly in the initial stage of identifying those elements that can be built into distinctive brand assets. Most small businesses do not have the resources to even begin. However, two points are relevant:
- If you are a local plumber, accountant, architect, whatever you may be, you need only be distinctive in your local market, however you define that market.
- AI is throwing up tools that locals can use that promise to deliver at a relatively modest cost, and with some marginally compromised accuracy, the sort of understanding previously only possible after big investments. Mark Ritson, Marketing Prof at large recently wrote a very useful post in which he labels this data as: ‘synthetic data’.
Thinking strategically and acting creatively is the foundation of identifying, building and leveraging distinctive brand assets. You should try it!
My thanks for the catalyst of this post, and the outline for the header graphic goes to the Ehrenberg-Bass Institute for marketing science.
Oct 31, 2023 | Change, Marketing, Strategy
When I was a boy in this business, back in the seventies, having a brand was table stakes to be in the game. At that time, there were a number of supermarket chains, and every one was stocked with a suppliers proprietary branded product.
There were many types and scale of brands. From the small producers hoping for a modest segment in the market that would provide a living and employment in their modest factories, to the multi-national, mass market giants. There were no ‘House brands’, until Franklins as an experiment ranged ‘No Frills’ margarine, packed by my then employer Vegetable Oils Ltd, which later became Meadow Lea foods.
Over time, the number of supermarkets reduced to the two gorillas and Aldi that we have today, and the number of brands reduced from the many hundreds down to the few MNC brands, with a very few exceptions, which are slowly being squeezed of life today.
If the trends of those 40 years continue, a brand extinction event is getting closer every day.
The latest victim is Sara Lee.
Originally the brand came from the US, and at its height had diversified into a wide range of products from the initial frozen cakes to clothing, and real estate. The Australian business has been through several owners, the most recent being a Dutch company nobody outside the industry would have heard of.
Manufacturers have been their own worst enemies.
They have failed to recognise the long-term impact on their profitability of the increasing power of Woolies and Coles, with the recent addition of Aldi. Retailers do not care about proprietary brands; their goal is their own profitability. If they cannot have your product on shelf, they are just as happy to have an alternative.
Increasingly over the past 30 years that alternative has been a house brand.
When retailers own the shelf space from which consumers pick products, and also ‘own’ the sales margins from half the products for sale, guess who wins. Retailers have used their muscle to squeeze out proprietary brands, taking the proprietary margin for themselves. The stupidity is that manufacturers have aided and abetted this quest to destroy them, by supplying the products and stopping the long-term brand building that made them successful. The funds have been redirected by manufacturers from advertising and brand building back into price promotion. Selling with price being the only differentiator is a sure way to destroy a brand.
To explain the resilience of a few brands, and some that resisted the retailer pressure for years before succumbing, you need look no further than effective, long term brand building advertising. The Vegemite jingle is in the brains of most Australians over 40, and Vegemite persists. Aeroplane jelly is also there, and I would guess the brand could be rejuvenated by a return. Similarly, Meadow Lea is a shadow of its former self, but 30 years after the great ‘you ought to be congratulated’ advertising finished, the positioning of Meadow Lea remains viable, and could be revived with investment.
To explain the failure of FMCG management to continue to invest in their proprietary brands over the years, allowing house brands to take over, you need look no further than the lack of understanding of the contrary dynamics at work.
Advertising is a long term investment, over numbers of years. Advertising is treated as an expense, one that is accounted for on an annual basis in the accounts of businesses. These two contrary forces, when allied to executive KPI’s dominated by accounting thinking, and the increasing power of the retailers to demand discounts as a necessity for distribution has drained the capital necessary for brand investment. The retailers are happy, they have the margin. The short term executive profitability goals of a few executives may be reached, so they are happy individuals. However, the brands have been destroyed, and the long term viability of their manufacturing operations been compromised, in most cases, terminally.
That in a nutshell, leaving aside questions of the operational efficiency of the Sara Lee business, is why it is now on the discount block itself.
Oct 27, 2023 | Collaboration, Communication
Throughout human evolution, we have existed in small groups, tribes and clans. Individuals have worked together for the common good of the small tribe, and often, perhaps most often, been at odds with the tribe across the river.
British anthropologist Robin Dunbar introduced his theory that humans can maintain stable social relationships with no more than 150 people. This is a theory now so well accepted that ‘Dunbar’s number‘ has almost become a cliché.
The phrase ‘Stable Social Relationships’ has particular relevance in the age of social media platforms. How many friends do you have on Facebook, connections on LinkedIn, followers on Instagram?? For many, it is way beyond 150.
Question: How do you maintain ‘Stable Social Relationships’ with that number of people?
Answer: You cannot.
Social media gets the blame for all sorts of things, rightly so, but it is not the fault of the platforms, it is the fault of evolution.
Our application of technology has run well ahead of our evolutionally capacity to manage it and retain the relationships that made us the most successful species ever.
It seems to me that the growth of private messaging, reversion to personalised even handwritten notes, and emotional engagement of ‘Local’ things is a response to the ‘platformisation’ of our social relationships.
I think it is a trend that will continue and grow.
Now we have the relative unknown of AI coming at us like a train, changing again the basis on which we interact.
Dr Dunbar has little advice on that score.
I wonder if ‘friends’ will ever include Robbie the Robot?
