Wha’s Like Us?

Over the Christmas period, I took my usual trip to my parents in Scotland.  It was there that I noticed three linked news stories.  The first related to a medical research project aimed at the reduction of type 2 diabetes.  Patients diagnosed with type two diabetes were placed on a strict diet rather than being prescribed drugs.  The results of the survey were startling with the vast majority of patients reversing their diabetes symptoms.

Type 2 diabetes is often the result of obesity and poor diet.  It appears that if a patient sticks to the diet they are given, there is a good chance that they will not require a lifetime on prescribed drugs.

Scotland, particularly the west of Scotland has horrific statistics for obesity, poor diet and early death.  This has a direct impact on the health service and if the incidence of type 2 diabetes can be reduced it will have a direct implication on health service budgets.

The second two stories related to the sugar tax which was introduced in the 2016 budget. The tax is aimed at soft drinks containing high levels of sugar.  As a marketer what interested me was the way two soft drinks producers reacted to the new tax, Coca Cola and A.G. Barr.

Barr’s produce Irn Bru, famously “Made in Scotland from Girders”; in truth, made in Scotland using a staggering amount of sugar.  In response to the new tax, Barr’s announced that they would changing the secret recipe of Irn Bru to reduce the sugar content.  This announcement has led to Irn Bru addicts stockpiling cans and bottles of the beverage.  A petition has received thousands of signatures and asks that Barr’s increase the price of Irn Bru to cover the tax rather than reduce the sugar content.    One comment on the petitions states that the recipe shouldn’t be changed as it is only the high sugar content of Irn Bru that cures an individual consumers hangover.  Wha’s like us indeed!

Coca Cola, in reaction to the sugar tax, have announced that they will not be changing their recipe but that Classic Coke would be sold in smaller bottles and at a higher price.  A 1.75 litre bottle of Coke will be reduced to 1.5 litres and will cost 20p more.

It must be noted that, in Scotland, Irn Bru outsells both Coca Cola and Pepsi.

The sugar tax is an attempt by government to ‘nudge’ consumers into making healthier choices.  One of the first acts of David Cameron as Prime Minister was to set up a cabinet office team (now a semi-privatised business called Behavioural Insights) to apply nudge theory to public policy.  The team’s work is based on the work of Richard Thaler, a behavioural economist whose nudge theory won last years Nobel prize for economics.  The aim of nudge theory is to use economic and other factors to achieve the unforced compliance of political and economic aims.  rather than banning high sugar content in soft drinks, the sugar tax makes them more expensive.  Consumers, hopefully, will balk at the high price of the drinks and select cheaper, healthier options instead.  That, or fearing lower sales revenue, manufacturers will change their formulations.  Another example of behavioural economics are the plastic bag levy.

When preparing a strategic marketing plan, it is important that businesses undertake an analysis of the market environment.  This takes in two levels of interaction, with the macro-environment and the micro-environment.  The micro environment, often expressed in terms of Porter’s five forces, includes stakeholders such as consumers.  The macro-environment, often expressed in terms of the acronym PESTEL, includes wider political, sociological and economic factors.

The sugar tax should be included in such an environmental analysis.  Clearly it is politically motivated, it is aimed at changing societal norms, it has an economic impact and there will be a reaction from consumers (such as the petition).  It will also have an impact on those firms supplying sugar to the soft drinks trade.  A significant quantity of the sugar in soft drinks is corn syrup.

Clearly, faced with the same problem, Coca Cola and A.G. Barr have come up with different strategic solutions.

Coca Cola is a worldwide brand and he classic Coke recipe is the same in every country.  A.G. Barr is a regional soft drink manufacturer.  Barr’s market is predominantly the UK and the vast majority of sales of Irn Bru take place in Scotland.  It is unlikely that Coca Cola would want to produce one recipe of Classic Coke for the UK market and a different recipe elsewhere in the world.  Coca Cola’s reaction to the sugar tax is to reduce the quantity in bottles and to raise their price.

Barr’s have taken another route to compliance, rather than raise the price of Irn Bru, affecting sales in their main market, they have chosen to alter their secret recipe.

What must be taken from these two different positions is that marketing strategy may be different for firms operating in the same market and facing the same issue.  When deciding on strategy, you must consider a wide range of individual factors impacting your business.  Just because one of your competitors takes a particular course of action, that does not mean such a strategy is right for your business