Tomorrow’s World – Where are markets heading?

I am writing this blog the day after British, American and French forces carried out raids over Syria to knock out chemical weapons facilities.  This is just the latest example of how our world has changed since the cold war.  I was listening to an expert on the middle east trying to explain the Syria situation, and even he was struggling to put coherent labels on the situation.  He basically said that Syria was part civil war, part proxy war, part tribal conflict; in short a complete and confusing mess.

And that, at least in the medium term is the state of our world, one of confusion and complexity.

JP Kapferer in his book The New Strategic Brand Management describes our world as one of disequilibrium.  The old certainties, the balance in the world, has suffered entropy and it is going to be a long time before a new set of equilibria are established.

After World War Two a number of equilibria developed which gave certainty to brand planners and marketers.  There was a political balance between the capitalist entrepreneurship of western nations and the planned economies of communist dictatorships.  However, even China is now trying to balance a Communist one party state with capitalist markets.  For a while, following the collapse of the Soviet bloc, the United States was seen as the world’s sole superpower.  It is arguable, particularly with the situations in Ukraine and Syria, that Russia is now trying to re-establish its former status.

For many years, America and its allies had a clear purpose, to defend democracy against dictatorship.  The collapse of the Warsaw Pact and the fracturing of the USSR means that purpose is less certain.  Trump’s ‘America First’ policy is seen as increasingly isolationist and as threatening the economic consensus of organisations such as the World Trade Organisation.  Trump’s election campaign also put pressure on the NATO treaty as he accused other members of not pulling their weight.

In recent years we have seen the rise of the BRIC economies and political commentators have talked of a new world order emerging.

There is also a financial disequilibrium.  China is now the USA’s banker.  The Chinese hold significant numbers of US government bonds.  Households are spending more than ever before but wages are stagnating.  Despite the 2008 credit crunch, consumer debt is rising.

There is an ecological disequilibrium.  For most of human existence, there have been enough natural resources for demand to meet supply and the main concern was variation of price.  Now because of the growing human population; soon there will be 9 billion of us; there will no longer be sufficient resources to go round.  China has been stockpiling resources such as diesel and mineral ores.  In Africa, and other parts of the developing world, China has embarked on a campaign of resources for infrastructure.  China is building Africa’s roads, railways, dams and schools.  In return it is paid in iron ore, copper and timber.

There is a demographic disequilibrium.  There are aging populations in developed western nations where birth rates have fallen.  The world population is increasing but the majority of this increase can be put down to two factors, a high birth rate in the developing world and people living longer as health services improve.

Our world has never been so connected, with the rise of the digital world, but continents are developing divergent socio-economic models.

Sociologists state that human mentalities do not change, they are added to.  Deep in our brains, the ape which climbed out of the trees still exists.  Sports psychologists talk of our ‘inner monkey’, the primitive part of our brain that takes over in times of stress and excitement.

Sociologists talk of four social mentalities:

  • Tradition:  This mentality has been dominant in humans for thousands of years.  It is our tribal instinct, our sense of belonging to a particular community.  It is still relevant in some parts of the developing world.  It means we are all what our parents were.  We inherit tastes, religion and cultural norms.
  • Material Success:  This mentality promotes individual success and breaking free from the tribe.  Existing as a person and not as part of the whole.  China is a primary example of this mentality where the uniformity of the cultural revolution has been replaced by a desire for a western lifestyle.  Many Chinese now see themselves by what they buy and consume.  Shopping is now the primary leisure activity in Shanghai as much as it is in Seoul.  A process described as the ‘malling of Asia’.  It is an attitude of ‘I buy therefore I am’.  An attitude of success through the material goods you own.
  • Individualism:  This is the mentality where the individual is the centre of their own life.  At its extreme this mentality is evidenced by an egotistical, self-centred vision of human relationships.  We can all remember Margaret Thatcher’s comment that, “There is no such thing as society”.  David Cameron’s attempt to build a ‘big society’ went down like a damp squib.  Individualism at its worst can be shown through the election of Donald Trump and to some extent, Brexit.
  • Re-alliance: Sometimes referred to as ‘Me-Us’.  This is an attitude of a deeper me through connection to a greater ‘us’.  It is mirrored by the rise of social media and networking.  It is a mentality of there being no individual benefit if it does not supply collective benefits too.  It is a re-alignment of the tradition mentality.

So what does all this sociopolitical uncertainty and different parts of the world exhibiting different sociological states mean for brands and marketers?

A brand is a name which symbolises long-term engagement, a crusade or a commitment to a unique set of values which is embedded in a product, service or behaviour.  The goal of a brand is to make your chosen name become a reference point, a landmark, of a category or territory it has itself created.  For example, people ask for a Coke, not a cola’ (who has not experienced the ‘will Pepsi be okay?’ response at some fast food restaurants’).  The aim of a brand is for people to make it their number one choice criterion.

One way to examine where branding is heading is to look at the attitudes of young consumers, many of whom exhibit a ‘Me-Us’ mentality.  When asked about the attributes of their favourite brands they point to the following specific characteristics:

  1. Being known by their peers.
  2. Being active in communication.
  3. Symbolising a unique and strong value proposition
  4. Holding a deep, authentic, long-term value
  5. Being flawlessly incarnated into products and services that change the lives of consumers.
  6. Being a brand you can meet, interact with and which provides experiences through people, places and in different modes (both physical bricks and mortar contact AND digitally).  Note that digital contact on its own is not sufficient.
  7. Being extremely ethical.

Many fans of the Apple brand see it as meeting these criteria.  They view the Apple brand as:

  • 35 years of unchanged, meaningful high goals;
  • Consistency in the delivery of brand promise;
  •  Producing disruptive innovations and creating new product categories and changing lives:
  • Optimism and peacefulness;
  • Holding strong values and not compromising on them; even when under pressure to do so.  For example Apple bans apps which have sexual content; a position which caused significant problems for the Playboy corporation.
  • Being charismatic. Often through the executives promoting the brand (e.g. before his death, Steve Jobs).  This is seen as making the brand’s high technology pleasurable and which epitomises the company spirit.  This results in the brand seemingly having a magic touch.  Steve Jobs was seen as performing magic, so Apple products are seen as magic.

Apple is very much a post-modern brand.  It creates passion through the championing of values which appears to change the lives of people for the better.  Contrast this with the current problems facing Google and Facebook.  Google uses the tagline ‘Don’t be evil’ yet there was shock at some of the less ethical investment decisions of the brand’s parent company.  Facebook may be in serious trouble following the theft of personal data and its failure to take seriously data protection issues.  Facebook’s failings may cause a significant backlash from its core ‘millennial’ demographic which has the ‘Me-Us’ mentality.

As consumers move to a ‘me-us’ mentality, brands need to offer both individual and collective benefits.  It is not longer sufficient just to offer individual pleasure.  Hybrid cars are an example.  These vehicles may actually, through their lifespan, be more polluting than a diesel car fitted with a particle filter.  For example, the disposal and recycling of heavy metals in batteries may be an environmental concern.  However, these vehicles offer a ‘Me-Us’ position.  I am individually expressive in my choices but I am also contributing to the greater good by being green.

We are entering a world where big is good but big also needs to be responsible.  Brands need to be leading on ethical values, not a follower.

Future brands need to be optimistic.  The complexity of the current world and the prevalent disequilibria means that consumers face two choices.

  1.  To escape into dreams and to forget realities; or,
  2. To work harder in confronting difficulties and negating them.

Disney is a brand exhibiting the first option.  It is a brand which promotes happiness and which encourages social ties through connectivity, interaction and by being experiential

Nike is a brand following the second option.  It’s ‘Just Do It’ slogan is a hymn to social willpower and the determination of the spirit to overcome adversity (in the sporting world).

We live in a world of rapid change and uncertainty.  We live in a world where social mentalities are fragmenting on continental lines.  We live in a world of increased connectivity but divergent social norms.

To exist in such a world marketers and brand managers need to offer flexibility beyond their traditional values.

Zipf, a Giraffe and the Demise of a Category Killer

The Oxford Dictionary of Marketing describes a Category Killer as:

“A retailer offering a huge range of products, centralised in a single outlet, which far exceeds that of smaller outlets who cannot such a range and such a depth, or with such price discounts, or with such efficiency and which has the ability to attract a large number of buyers.  Examples of category killers include large discount toy chains, sporting goods chains, home improvement stores and office supply stores”

You will note that the first example given is that of “large discount toy chains”.  Obviously, the dictionary is trying to avoid a direct reference to a particular company but when that term is used a single company comes to mind, Toys R Us.  Or at least it did, as in recent weeks, Toys R Us has been liquidated and all its stores closed.  The firm’s liquidation was closely followed by the death of the firm’s founder, George Lazarus.

Toys R Us was the perfect example of a category killer, it led the niche toy market for almost sixty years.  It had 8000 stores, predominantly in the North America, but there were also 800 stores in its international division.  The company was the market leading toy retailer identified by its cartoon mascot, Geoffrey the Giraffe.

The reasons behind the demise of Toys R Us are many.  Prominent is the retail environment in the United Stated since 2010.  This is a period industry leaders are calling ‘the retail apocalypse’, the mass closure of traditional bricks and mortar stores.

America’s middle class has suffered an income squeeze in that period, which may partly explain the election of Donald Trump as president.  They have seen big increases in the cost of healthcare, housing and education.  As a result, they have spent less on items such as clothing and furniture.  There is a big hangover from the credit crunch recession which started in 2008 and banks are less willing to offer consumers credit.

The incomes of moderately affluent consumers isn’t the only reason for the demise of America’s traditional retail model.  It is recognised that there are too many shopping malls in the USA.  There are currently around 1200 large shopping malls in the USA.  Half are expected to close by 2023.  That amounts to nearly 12,000 individual stores.

Many long existing retail chains in the US are heavily leveraged with debt.  This is the result of the bankruptcy of leveraged buyouts.  They are facing rising rents and property taxes which reduce margins and profit levels.

Traditional retailers have not dealt well with the changing shopping habits of consumers.  They have become reliant on consumers binge spending at holiday periods such as Christmas.  Sales outside these periods have collapsed.  They have also dealt badly with the changing attitude of younger consumers.  That demographic has become less interested in the purchase of physical goods.  Instead they have a desire to purchase experiences.  Then there is the rise of internet shopping.

It is these last two factors that have significantly affected Toys r Us.

Toys R Us developed a reputation for cluttered stores and poor customer service.  Rather that being a place children and their parents could enjoy the experience of buying toys, a visit to Toys R Us became a chore; a visit to a poorly laid out warehouse within which you wanted to spend as little time as possible.  It is recognised that the longer you can keep a consumer in your store, the more they will purchase.  You can up-sell and cross-sell.  If the consumer is only popping in, grabbing a pre-selected item and then leaving, the potential for those additional sales is missed.

Toys R Us also tried two brand extensions; Babies R Us, which sold push chairs, cots and other infant products; and Kids R Us, which sold children’s clothes.  Kids R Us failed relatively quickly, and as a result the parent brand took a financial hit.  Babies R Us prevailed but in most cases it was squeezed into one corner of an already cluttered store and left less room for the brand’s main focus, the sale of toys.  These expansions clearly harmed Toys R Us’ niche dominance.

The company also failed to deal adequately with the rise of electronic and computer games.  It’s focus remained with traditional physical toys.  Toys R Us also sold bicycles but this part of the business was affected by the rise of specialist cycle retailers.  As cycling as a hobby has become more popular, those wanting to buy a bicycle for their child look to buy a junior version of the bike they ride, not a specific children’s bike.

A ten-year contract between Toys R Us and Amazon was signed in 2002.  Toys R Us were to be the sole Toy supplier through the Amazon portal.  This contract followed an embarrassing and damaging Christmas for Toys R Us in 1999 when it failed to deliver thousands of toys in time for Christmas day.

Amazon reneged on their contract with Toys R us and allowed other toy retailers access to their site.  The reason given was that Toys R Us could not provide a sufficiently wide range of toys to satisfy Amazon’s customer base.  Toys R Us successfully sued and received damages of $53 million, half the sum initially asked for, but the damage was done.

In response to the collapse of the Amazon deal, Toys R Us began a strategy of buying out loss-making competitors such as FAO Swarz and two smaller internet toy retailers including e-Toy.  The purchase of these firms added to mounting debts.

Toys R Us continued to open traditional bricks and mortar stores.  In 2014 it opened 21 new large outlets.  It also started a chain of smaller outlets called Toys R Us Express.  This at a time when internet sales were rising and sales from traditional retail outlets were falling.  It can be argued that Toys R Us should have been reducing its high street presence and transferring more resources into internet sales.  It should have been consolidating, not expanding.

In 2014, it was clear that Toys R Us was in trouble and emergency remedial action was needed.  The response from consumers was that they perceived the quality of Toys R Us’s stores and service as poor.  Managers invested in measures to improve the shopping experience, to have better inventory management, to reduce clutter in stores and to develop a clearer pricing strategy with fewer complicated offers.  It was clear that this action was too little, too late.

In the early part of the twentieth century, the Harvard professor of logistics, George Kinsley Zipf, decided to examine the frequency of words in well-known English texts.  He suddenly found that there was a startling correlation between the popularity of words in a text and the frequency of their usage.  It seemed that the Kth popular word in a text was 1/K popularity of the most frequently used word.

This correlation became known as Zipf’s Law and it was soon found to apply to texts in languages other than English.

Other phenomena also appeared to comply with Zipf’s law.  For example, the population sizes of American cities.  New York has a population of roughly eight million; Los Angeles, the second largest city 4 million; Chicago the third largest, 2.7 million; and so on.

The size of objects in the solar system also correlated to Zipf’s Law.  It was clear that the long-tail concept went beyond words in books.  It was also noticed that Zipf’s law correlated to the continuous Pareto distribution.  As we know, the Pareto Principle is that 80% of the outcome of an activity comes from 20% of the effort.

Someone then had the bright idea of examining the comparative popularity of companies in a particular market segment.  It was found that the long-tail concept applied.  There was, particularly towards the centre of the distribution, a direct correlation with Zipf’s law.  There were some differences towards the extremes of the distribution which could be explained by competition and anti-monopoly laws.  In virtually every market there were one or two popular firms and lots of smaller, less popular companies.

Internet retailers, such as Amazon leverage the long-tail concept in two ways.  First they use their ability to stock a huge number of different individual items at lower overhead costs than traditional bricks and mortar retailers.  For example,  a small independent book store may stock up to 25,000 books; larger chain bookstores such as Waterstone’s or Barnes and Noble may stock up to 50,000 books in one of their outlets;  Amazon stocks 800,000 books and e-books (not including those supplied by affiliates through Amazon Marketplace).

Amazon monetize this ability to supply a wide range through micro-differentiation (personalisation of supply) and by offering varying margins.  Amazon is willing to take a lower profit element on a highly popular book and a higher level of profit on less popular items.  It is estimated that 40% of Amazon’s sales come from less popular items.  This means that items further along the long-tail distribution of Amazon’s stock provide a proportionally higher contribution to Amazon’s sales.

The second way in which Amazon benefits from the long-tail concept is its prominence on internet search engines.  It invests heavily in search engine optimisation, paid list prominence and PPC advertising.  Amazon’s size of operations means that it will nearly always have a high Page Ranking.

Zipf’s law is often used to describe the path of least resistance.  The concept that humans will always favour a route which means they need to exert a low-level of effort.  In short, if you are near the top of a list, you are more likely to be chosen than someone further down that list.  If you aren’t one of the first links on a search engine the probability that consumers will be taken to your site is minimal.

It is clear that with firms such as Amazon spending millions on SEO, smaller local firms will not have sufficient resources to achieve list prominence by digital marketing alone.  It is crucial that Search Engine Optimisation needs to be one part of a far wider multi-channel promotional strategy.  Search Engine Optimisation alone is unlikely to be a successful strategy.

Changing customer preferences and the ability of large internet retailers are having a major effect on retailing.  We may be moving to an end game where the scale and offer of large internet retailers is going to hit the activities of traditional bricks and mortar retailers.  In the UK we may be seeing the start of our own retail apocalypse.  Perhaps this can been seen in the increasing numbers of retail store closures and the financial difficulties of firms such as House of Fraser.

However, it is clear that the firms most affected by the long-tail effect are going to be medium-sized and large traditional bricks and mortar retailers.  Small retailers still have an opportunity to thrive through the targeting of specialist niche markets and by providing unique customer experiences not provided by larger retailers.

Designing and Delivering Customer Value

I have recently had the time to read the London School of Economics paper which gives a critique of the work of Professor Patrick Minford and the group Economists for Brexit.

Professor Minford’s work is regularly referred to by politicians who advocate a ‘hard’ Brexit where the UK cuts all ties to the European Union and looks to trade on World Trade organisation terms such as the General Agreement on Tariffs and Trade (GATT).

The LSE critique is damning.  It accuses Professor Minford of using out of date methodology and that he has ignored modern evidence based practices.  The LES also accuse Professor Minford of making massive assumptions as to the UK’s trading arrangements post-Brexit.  In particular they point to:

  1. Minford’s assumption that the UK can develop an economy based almost entirely on services with little or no manufacturing.
  2. That Professor Minford incorrectly assumes extensive levels of deregulation which would leave consumers and businesses with little protection other than the concept of caveat emptor.  Minford assumes that all regulation does is create cost for business and he ignores the concept that sensible regulation provides a framework for effective competition.
  3. That Minford assumes the UK can drop all external tariffs unilaterally.  In doing so he ignores the destructive impact such a move would have e.g. the mass importation of cheap New Zealand lamb on UK hill farming or the effect dumping of cheap Chinese steel would have on what is left of the UK steel industry.
  4. That Minford’s Liverpool model of the UK economy ignores the concept of economic gravity.  This is the evidence based concept that, regardless of tariffs and other trade barriers, countries generally do the majority of their export trade to which they are geographically close.  For the UK, this means Europe.

The LSE accuse Professor Minford of placing political bias ahead of data.  That he has decided what outcome he would like to see and structured his models to obtain that outcome.  A position which is contrary to scientific method.

From a marketer’s point of view there is one startling assumption in Professor Minford’s work.  It is that he assumes perfect competition.

Perfect competition assumes that all competing firms in a market sector make identical goods, they have the same cost base, they operate in identical environments and that the only determinant consumers use when deciding what goods to purchase is the price.

Given that price is a crucial element of the marketing mix, and that the concepts of psychological and brand pricing are well understood, to base economic forecasts on perfect competition is a ludicrous position. It is preposterous.

In Minford’s modelling, BMW make identical products to those of Kia and Fiat.  Anyone who drives will tell you such a position is nonsense.  As would anyone who favours Nike trainers or Levi’s jeans.

Minford is clearly ignoring the high elements of Maslow’s hierarchy of needs such as esteem and self actualisation.

Marketers know that consumers buy for a variety of reasons and that, given the correct marketing mix, price premiums can be achieved.

It is extremely worrying that UK government policy is in part being driven by the work of Professor Minford which the vast majority of economists (at least 90%) see as pure bunkum.

Michael Porter of Harvard Business School described three generic marketing strategies, Differentiation, Niche and Cost Focus ( often referred to as price leadership).  Porter says that a firm attempting the compete on more than one of these strategies simultaneously enters a ‘piggy in the middle’ death zone; a position where they cannot effectively compete.

For most small firms, the initial option is that of niche marketing.  They lack the economies of scale to compete directly against larger firms on price and they lack the resources to offer a significant number of diversifications to meet all market segments.  Often SME’s have to choose specific target market segments to serve.

As firms grow, they may expand beyond their initial niche through the use of market expansion strategies or through the riskier strategy of diversification.  Such expansions often involve transferring strategy to one of either differentiation or price leadership.

Many firms operate on the basis of price leadership for example the airline Ryanair or the supermarket chain Lidl.

Some markets are driven by price.  These are often referred to as commodity markets.  These usually contain undifferentiated products on a business to business basis.  for example, the wholesale market for milk or the market for natural gas.  But in consumer markets there are clear examples of firms being able to build price premiums.  For example Starbuck’s can achieve a 20% mark up on its coffee and Evian obtains a 10% price premium on their bottled water.

Under Professor Minford’s model, such price premiums should not be possible as consumers will always go for a cheaper alternative, the base priced product in the market.  IN the mind of Professor Minford, Starbuck’s should not exist or succeed, yet they are the market-leading coffee shop chain.

But professional marketers don’t just sell products, they also sell the product surround.  They are selling value propositions and part of their job is to put the value of a products intangible benefits into the minds of consumers.  Through this process, they augment base products.  The selling of value goes further than the physical and now requires the development of value propositions beyond price alone.

Philip Kotler argues that there are three ways to offer value:

  1.  To charge a lower price than your competitors and to be the discount competitor in the market.  (this fits Minford’s view although he expects all firms to do this)
  2. To help the consumer to lower other costs
  3. To offer the consumer additional tangible and intangible benefits.  This could include a More for More strategy where you are not the lowest priced product in the market but the additional attributes of a product offer additional value.

Aggressive pricing policies can be dangerous as they often mean operating on very low margins.  Carillion, the construction and public service outsourcing firm is an example of a company which operated on a cost focus/low margin basis, collapsed spectacularly when costs rose due to project delays.  The company’s margins disappeared and it developed ever-increasing losses.

H & M, the high street fashion chain, which operates on a high volume, low-cost model, recently suffered significant losses as shop rents rose and the cold spring meant sales were lower than expected.

Toys R Us was a firm described as a category killer.  Its business model was reliant having the largest range of toys but on keeping costs down.  Again this was a low margin, high volume business.  Again, it was unable to compete with internet retailers and the changing focus onto downloadable electronic games.  As the rents of its stores rose and sales volumes of traditional toys fell, Toys R Us went into liquidation.

To be a price leader can also lead to disruptive price wars.  If you price in an overly aggressively, so might your competitors and your market will enter a downward pricing spiral that damages all competitors.

A better cost focus strategy is to help lower your customers other costs.  For example, low energy light bulbs are not as cheap as the traditional filament bulbs but they are sold on the basis that their long lifespan and ability to lower electricity bills gives them a lower lifetime cost.

Caterpillar market their excavators and construction machinery not by being the cheapest on the market but on the basis that customers will enjoy efficiency of operation which lowers the overall costs of construction projects.  These include:

  • Fewer mechanical breakdowns
  • Faster repair cycles
  • Longer equipment lifespans, and
  • Higher second-hand resale prices.

Other B2B suppliers help to lower processing and ordering costs by promising to improve process efficiency, e.g.

  • Helping improve yields
  • Reducing waste and rework costs
  • reducing labour costs
  • reducing accident rates
  • reducing energy costs

Porter’s third price leadership option is to offer increased value by offering more benefits to target customers.  This can be achieved through:

  1. Product customisation (or in digital markets, personalisation)
  2. Increased product convenience
  3. Faster service times
  4. More and better service
  5. Coaching, training or consultancy services in addition to core product
  6. Guarantees
  7. Hardware and software tools
  8. Membership benefit programmes.

Often these form parts of More for More pricing strategies.  With such strategies goods may be more expensive than those of competitors but in the minds of consumers additional value can be seen.  The key to a more for more strategy is to offer additional attributes which are highly valued by your consumers but which can be provided at relatively low-cost to the producer.

As Porter’s generic strategies show, Professor Minford is wrong.  Market competition is not perfect.  Consumers see value beyond price and he most successful and profitable firms develop market offers where consumers see worth in both the product and its surround.

 

Brand Placement

Advertisers are always looking for ways to provide difference and to cut through the noise created by competing brands.  To do this, they look for methods of promotion which provide additional resources and which are communications which can be integrated with the wider marketing mix.  They also want to ensure that brands are in the consumers field of vision right up to the point where they are ready to make decisions.

One such method is product (or more accurately, brand) placement.

Placement is the seeding of films and television programmes with branded goods.  One of the earliest forms of product placement was to provide branded goods as prizes on game shows.  Today, most major cinema blockbusters are filled with branded goods from cars and computers to drinks brands and clothes.

Brand placement is a highly competitive field and there are several specialist agencies who approach film producers to obtain contracts for brand placement.

Product placement provides income for the film or television programmes producers whilst brand owners gain increased prominence for their products.  Product placement is a commercial agreement and it is rare for goods to be placed in a film or show without commercial payment.

Placement can provide brand authenticity and it gives viewers relief from the strict formatting of traditional advertising.

Some brand placement becomes iconic.  A prime example is the James Bond film franchise.  If you ask any consumer what car Bond drives their reaction will be instantaneous.  Bond drives an Aston Martin.  This is a direct result of brand placement.

In the Bond novels, Ian Fleming had his super spy drive a Bentley, not an Aston Martin.  In fact the silver Aston Martin seen in several of the Bond films made its debut in the third film of the series, Goldfinger.

In fact Bond has driven a wide range of car models in the films as manufacturers competed to have their cars involved in the films.  For instance, in the late 1970s, Roger Moore’s Bond drove a Lotus Esprit and infamously, for GoldenEye and Tomorrow Never Dies, Eon productions, the company behind the Bond franchise did a deal with BMW to provide Bond’s car.

It has been shown that brand placement is most effective when products are associated with characters who exhibit positive traits.  If you are looking to place your brand within a film, you’re far better to have your products used by the hero as opposed the villain!

Often, Brand placement is tied into a wider advertising campaign featuring both the film and the placed product.  The lead actors in films are also signed up as brand advocates and asked to promote the products at events and in interviews.  Brand placement is often only part of a wider integrated promotional campaign.

There are too levels of brand placement, implicit and explicit.  Implicit placement is where the brand appears as background dressing.  For example on a billboard advertisement or as a product in the lead character’s home.  Explicit brand placement is where the brand plays an integral part in the storyline.  Explicit brand placement is seen as more powerful than implicit brand placement.

James Bond’s car is a clear example of explicit brand placement and it features prominently in the action of the film being driven through the exotic locations visited by 007 or in fast car chases.  However, the Bond films are filled with implicit brand placement, from the holiday locations and hotels bond visits, to the gin in his whisky and the airlines he flies with.  In Quantum of Solace, Virgin Atlantic paid a significant sum to be Bond’s airline (Prior to that he had always flown British Airways).  Richard Branson has a cameo in the film as a tourist being frisked at airport security.

Brand placement can be oral as well as visual.  In the film Rain Man, Dustin Hoffman’s character, and autistic savant, will only fly Qantas as the Australian flag carrier has never had a crash.  This is a critical plot point in the film.  Qantas do not provide internal flights within the USA.  The fact Hoffman’s character won’t fly with any other airline means his gambling brother, played by Tom Cruise, is forced to go on a road trip to Las Vegas and to get to know his brother.  A Qantas plane never appears in the film but the brand is repeatedly mentioned in the first act of the film.  Qantas then used the clip of Hoffman’s character extolling their safety record in their advertising.

Brand placement can build awareness with consumers in a way which improves source credibility.  It can reinforce brand images in the minds of consumers.  Being associated with Bond is to be associated with excitement and luxury.  The audience is assisted to associate itself with the brand through the environment depicted in the film or its association with the film’s star.  Brand placement carries social information and can feed into consumers’ self expression.

Brand placement in cinema has a high level of impact.  The large screen and surround sound of modern cinemas make the experience of viewing a film immersive.  Films are widely distributed over a long time period.  After its cinema run, a film will be widely available for download or for sale by DVD.  It will be shown on cable and satellite TV.  Every TV station also wants a blockbuster to be the highlight of its holiday entertainment.  A film will remain in circulation for years after its first showing.

Brand placement can be an integral part of international marketing campaigns and can lead to a brand gaining traction in new geographic markets.  Films are shown across cultural boundaries.  It is estimated that 80% of the world’s population has seen at least one James Bond film.  However, such use of brand placement ignores cultural differences and in some markets may breach cultural norms.  It is a one size fits all type of campaign and great care must be taken especially if you differentiate your marketing strategy for different international markets.

It is also shown that the majority of audiences approve of brand promotion as a form of advertising.  The feel it to be less intrusive than traditional advertising and that it makes a film’s storyline more realistic.  A natural depiction of a brand reinforces the integrity of fictional storylines and can reflect the real life experiences of the audience.

However, brand placement also has weaknesses.  There is no guarantee that your products will be noticed in a film by the audience, particularly if the placement is during high-tempo action such as a fight or car chase.  Although there is much talk of the subliminal effect of brand placement in entertainment, there is little proof that this has an effect on the buying behaviour of consumers.

Some consumers see brand placement as unethical or they may rail against the placement.  That is what happened when it was announced that Bond would drive a BMW saloon in Tomorrow Never Dies.  How can the quintessential British hero drive a German car?  How dare the film’s producers consider such a move?

As an aside, Tomorrow Never Dies is as film named by typo.  The original title was to be Tomorrow Never Lies (which makes sense as the plot concerns a media mogul who decides to make the news before he publishes it and who sees a nice little war in the South China Sea as a way of selling his newspapers).

The absolute cost of product placement can be high.  Film produces may expect to gain royalties from a brand placed in their movie every time the film is shown or downloaded.  For the latest Bond film, the Aston Martin used was a concept car which had not entered production.  Aston martin had to make a number of cars for the production and several of these were destroyed in the shooting of the film’s car chase.

Brand placement can also be superficial.  It is often impossible to provide product explanation or detailed information about product features in a brand placement.  The situation in Rain Man, where Qantas’s safety record was discussed in some detail, is a very rare occurrence.

The effectiveness of brand placement depends on a number of key variables, from the form of media used to the consumers attitude to the brand placement.  It exists on a spectrum of integration, from the brand as a passive presence to active integration where the brand is woven into the storyline (what is sometimes referred to as ‘branded entertainment’ e.g. the Transformers film franchise of Teenage Mutant Ninja Turtles.  In fact those are two examples where the movies are derived directly from the product; in both cases toys; rather than a simple placement of goods in an otherwise unrelated film.

Brand placement will often depend on the products use in a film’s story, which characters use it and the way it is used.  For example, most alcoholic drink manufacturers would prefer their brand to be used by the film’s star in a plush nightclub than it being the favourite tipple of the down and out alcoholic in the alley outside.

 

Drivers for Change

Change is inevitable and in marketing it is a constant.  Strategic marketing plans are not static documents, they live and need to be refined and amended constantly.   Too many organisations see business planning as an annual chore, something that takes place at the start of the financial year.  In previous blog posts, I have discussed the fact that many small businesses have no forward plan – and those that do probably only look forward for no longer than twelve months.

For a business to grow and to thrive in the long-term, you need, at least, to have widely defined long-term goals.  A strategic marketing plan should look forward three or five years.  There should be set aims for the end of that period.  Within the plan there should be incremental SMART objectives which must be met.  These are stepping-stones to the achievement of the long-term goals.  Incremental objectives should reflect the speed of the industry or sector within which the business operates.  For many businesses an annual goal will be the norm.  However, consider H & M, the fashion retailer, they have short-term strategic goals counted in weeks.  They can turn around their stock inventory in eight weeks, a fraction of the time of other high street fashion retailers.

Here are some prominent drivers of change:

  1.  Customer Expectations:  Do you find that ‘customers are demanding the impossible with increasing regularity’?  Consumers have become used to their needs and wants being at the forefront of highly competitive markets such as fast-moving consumer goods (FMCGs), groceries and fashion.  Now they expect the same of services and non-commercial organisations e.g. local government.  As consumer expectations intensify, concepts such as brand loyalty and retention may appear less effective.  You have to work harder to hold onto existing consumers as they become less loyal to your brand.  You certainly cannot take their loyalty for granted.  Consumers are facing an explosion of choice.  So if a consumer feels a brand is falling behind its competitors or that they are being taken for granted, they will switch to a competitor.  If you are perceived as not giving them what they want, when they want it, and at what they see as a reasonable price, they will switch.  Consumers no longer have to put up with second choice.  Loyalty has to be earned, it is not a right.  Astute managers will use customer demand for their products to drive through organisational change.   The ability to investigate and understand market changes is crucial to an organisation’s survival into the future.  It isn’t just knowledge of the factors behind change which is required.  You must have the ability to communicate those factors to all the stakeholders of the organisation.
  2. Revenues:  Cash, profits and turnover are the lifeblood of an organisation.  All to often they are the primary focus of senior management and investors.  If there is a recession, cuts will be made.  If there is a bull market, firms will expand and market manoeuvres (playing with the gears).  In downturns cost-cutting takes place (hitting the brakes) and there can be financial manoeuvring.  Such activity can quickly exhaust an organisations financial reserves.  When things start to pick up, and business sees the potential for further income and growth from their target consumers they increase activity (hitting the accelerator).  But again, customer have to be top of the agenda and marketing managers must push that agenda.  Long-term revenues come through product quality and customer retention, not price.  If you don’t build a customer-focused top line, there won’t be a bottom line to count.
  3. Competition:   It isn’t just technology that is driving increased competition and breaking down market barriers.  We discuss technological change next.  Markets are fragmenting.  Competition is increasing in every market.  It is an ever intensifying battle to gain new customers and to retain customers.  There are also an increasing number of new market entrants looking to disrupt market norms.  As consumers have more choice than ever before, it is crucial that a clear and differentiated position is developed.  You must give consumers good, simple and relevant reasons to choose your product over that of your competitors.  Customer value and customer orientation are crucial to surviving white-hot competition.  Increasing competition is a high-profile driver for change.
  4. Innovation:  There is much discussion and promotion of market disruptors; businesses which use new technological solutions to overturn market norms and ways of operation e.g. Uber, AirBnB.  There are also many column inches being devoted to automation; the use of artificial intelligence and new electronic technologies to replace jobs in service industries currently carried out by people.  For example, Associated Press have developed an application that can produce 4000 thousand short news stories per second with little or no input from journalists.  It is estimated that 40% of all jobs in the USA will be replace by artificial intelligence over the next two decades.  Priority areas for automation are the likes of customer services and routine sales.  However, innovation shouldn’t be for innovation’s sake.  Innovation should be targeted at product innovations which provide customer value, increased market share and profitability.  The innovation must produce solutions which were more relevant to consumers.  It must also be remembered that uncontrolled or excessive innovation can be a business risk.
  5. Cheap Imports:  The world is filled with cheap products made in China, India and other developing countries.  These countries often have huge levels of available human and other resources.  Labour is cheap and regulatory enforcement is low.  Does your firm want to fight these countries bargain basement costs?  Surely it is better to develop a customer focused, added value, option?

Change has to be managed but the reasons behind that change must be communicated.  I used to work in local government and can point to several examples where change was initiated terribly.  One example was the merging of two services due to local government reorganisation.  The following factors were in evidence:

  • The management tried to force a new culture onto staff from different organisations.  It must be remembered that culture belongs to all stakeholders within an organisation not to the management of that organisation.  Management controls process not culture.
  • The management initiated change which was a copy of the activities of other organisations.  They did not research whether these changes were a suitable solution for their organisation.  The local authority in question was a large rural council yet the changes to be applied came from small urban councils with staff based in a single office.  In applying the changes, the managers of the authority ignored the environment in which they worked.
  • The management of the council stated that they wanted to consult staff on the changes.  Members of staff, including me, responded to the consultation giving alternative, and in my opinion, better, and cheaper, solutions to the reasons behind the change.  These were ignored.  All management achieved was the complete alienation of the staff tasked with service provision.  they also ignored crucial factors such as economies of scale.
  • The change process became increasingly secretive and when staff questioned management decisions, all communication was shut down.  Rather than a goals down, solutions up process, the organisational change became a wholly top down dictatorial exercise.
  • As management began to realise their plans were increasingly unworkable, they began to lie.  For example, they claimed that they were creating a matrix organisational structure but all organisation charts were traditionally hierarchies.  Some staff pointed out that the new structure meant the authority was in danger of breaching its statutory obligations, in particular the law relating to staff qualifications.  These warnings were dismissed as ‘a little local difficulty’.  No solutions to these intractable issues was ever found.
  • Most importantly, the changes implemented by management were inward-looking. They were all about internal organisation and managerial power games.  The group of stakeholders who were completely ignored were the service users; the council’s customers.  Massive changes were implemented without reference to the needs and wants of the council’s customers.  There was a complete absence of customer-focus.

ODR, ADR and Regulatory Divergence

Online and Alternative Dispute Resolution

As a member of the Federation of Small Businesses Philmus Consulting meet numerous online retailers. Much of the talk amongst these firms currently involves the General Data Protection Regulations. However EU directives relating to Online and Alternative Dispute Resolution are often ignored. It is anticipated that EU rules on ODR and ADR will continue in the UK if a Brexit transition agreement is initiated in 2019.

Many of the small businesses I meet operate solely on the internet. They have no retail premises and are often based in their proprietors home. Many of these businesses are unaware of their legal responsibilities in relation to dispute resolution.

In 2016, the EU created an Online Dispute Resolution portal. This links consumers with an appropriate dispute resolution provider. The portal operates across the EU and applies to both domestic and cross-border electronic contracts for the sale of goods and services. The EU has an ever-growing list of approved alternative dispute resolution providers.

The aim of online and alternative dispute resolution is to make it simpler and cheaper for consumers to achieve restorative justice without the need for costly civil court proceedings.

The EU ODR portal allows documentation and information to be shared electronically. Consumers and traders can agree on a suitable independent arbiter to resolve disputes.

In some industries, such as financial services, legislation prescribes an official arbiter. Membership of certain trade associations requires acceptance of their arbitration service. Consumers can choose to accept the arbitration role of the trade association or agree with the trader to use a separate independent arbiter. If a consumer and trader cannot agree on an independent arbiter within 30 days, the complaint cannot be proceeded with and more formal resolution processes, such as the small claims court must be used.

Depending on the industry, alternative dispute resolution can result in a range of judgements, from formal advice through to legally binding decisions. ADR providers have to be registered with an appropriate certification body such as the Financial conduct authority.

If you are an internet trader please ensure that your systems are ODR and ADR compliant and that your website contains the above, legally required links and information.

Failure to comply with ODR and ADR protocols is a criminal offence enforceable under the Enterprise Act 2003.

The following questions and answers will help you decide on what action you need to take in relation to ODR and ADR compliance:

  •  Do you sell goods and services through a website?   If the answer is no, you do not need to put details of ODR on your website.  If you do, go to the next question.
  • Are you operating in a sector where an approved ADR scheme is
    mandatory under legislation?   If the answer is yes, you need to:
  • You need to inform consumers of the existence of the EU ODR platform and their opportunity to use it. You are required by law to provide:
    A link to the ODR platform on your website
    Emails to consumers must include a link to the ODR platform as first point of contact for dispute resolution
    Information on the ODR platform including terms and conditions relating to online contracts
    This information is in addition to giving details of your approved ADR provider.  If the answer is no, go to the next question.
  • Are you required by your trade association to participate in an approved ADR scheme?  If your answer is no, you need to provide a link to the EU ODR platform on your website. You also need to provide an email address on your website so that customers have a first point of contact for dispute resolution.  If the answer is yes, you are required to:  Place a link to the ODR platform on your website;
    Emails to consumers must include a link to the ODR platform as first point of contact for dispute resolution; You must include information on the ODR platform including terms and conditions relating to online contracts.

Regulatory Divergence

In recent months there has been significant attention paid to regulatory change by marketing industry commentators.

Much of this has focused on GDPR (The General Data Protection Regulations). However the prospect of Brexit could mean regulatory change which makes the changes to consumer protection law look like the proverbial drop in the ocean.

UK firms currently benefit from our EU membership. They can sell goods and services across the block without tariff and non-tariff barriers such as regulatory divergence.
The UK government is proposing a new trade agreement with the EU but it is highly likely that Theresa may’s red lines, in particular her opposition to the European Court of Justice precedent applying in the UK may make such an agreement impossible.
Some hard-line Brexit supports are keen to see mass deregulation within the UK which will put us at odds with our biggest trading partner. All trustworthy forecasts show that the potential increase in trade from non-EU countries will not match the trade we will lose with the EU. Rather than having one set of regulations to follow, UK firms may have to apply multiple sets of divergent regulations to their production. This is potentially a lengthy, complicated and expensive process.

Most commentators agree that it is in the interest of British Industry to have as little regulatory framework divergence as possible. This is unlikely as EU agencies which coordinate regulatory enforcement and conformity will have to be replicated within the UK. There is real concern about a reduction in economies of scale which will make it harder for UK firms to compete.

If the UK regulatory framework does diverge from that of the EU, British businesses will find it harder to sell into the EU as existing standards require compliance throughout the supply chain. They may also find that they face double or treble the regulatory burden than at present. This could be incredibly costly and seriously harm the competitiveness of the UK.

 

The differentiation trap

Marketing professionals, including this author, will advise firms to differentiate their offers to meet the needs of particular target customer groups.  This is the strategy of most household brands who will produce goods and services to meet the needs of different customers.  For instance, a supermarket chain will produce basic goods at discounted prices and they will produce premier goods such as Tesco’s finest range.  They will differentiate their offer to capture as many demographic groups as the can.

Differentiation is, after all, one of Porter’s generic marketing strategies.

Niche marketing is also one of Porter’s generic strategies and it his favoured option for small firms who may lack the resources required to undertake a differentiated strategy and who require higher margins than those available to firms offering a cost focus strategy.

If you are following a niche strategy, it is even more important to segment your market and to identify your niche customer.  A niche product, by its very nature, is different from those aimed at the mass market.  A niche product is different to those provided by potential competitors.  Differentiation is the practice of being different.

However, creating difference should not be viewed in terms of internal brand strengths.  Difference is created by finding out what the market thinks.

Too many firms believe all they need to do to be different is to put a name or logo on a product.  Their offering is otherwise undifferentiated from those of competitors.  To truly differentiate, you must create difference not only in terms of your offer but also in relation to the benefits perceived by your target customers.

The Chartered Institute of Marketing carried out research in 2003.  It found that:

  1.  97% of CEOs believed their priority was to create long-term value for their shareholders.
  2. There were two ways that value could be created; by cost advantage, and; by superior differentiation that supports a price premium.
  3. On average, differentiation was three times more influential than cost advantage in creating value.
  4. Differentiation provides three times the payback for the same (but differently directed) effort.

So what makes a good differentiated brand?

In his book Strategic Marketing, Paul Fifield describes four forms of differentiation based on the relevance of the differentiation to consumers and the level of differentiation from the market average.

You can make your offer different in two ways:

  1. Differentiated: Your products are different to those of your competitors in the minds of consumers. Those differences must be offered in terms consumers understand (not just clever technology they don’t understand). There is also the concept of substituted competition where a solution to a consumer’s problem can be found by radically different technologies. For example, I can choose to travel to London by rail, in my car or by bus. My family who live in Scotland have a further option, they can go to the airport and take a plane.
  2. Relevance: Your offer must be relevant to the needs and wants of consumers.  Technology of scientific knowledge is unlikely to be enough.

This provides four potential options:

  1.  Hygienes: These are products where differentiation is of high relevance to consumers but the product offered has low differentiation from others in the market.  The product features offered are important to customers but all suppliers in the market offer those features.
  2. Neutrals:  These products are in the market but their differentiated features are irrelevant to the consumer.
  3. Drivers: These products have differentiated features from those of competitors which are highly desirable to the targeted consumer group.
  4. Fool’s Gold: These products have highly differentiated features but those features do not drive target customers to the brand.

As you can see being different isn’t enough.  Too many brands fall into the fool’s gold category.  You must be different in ways which are valued by the target consumer.

Ideally, you want your products to be drivers.  These provide the real money!

Increasingly, the mass market is dead.  In fact many marketers no longer talk of differentiation into defined groups but of personalised goods and services targeted at individual consumers.  This is moving away from same, towards different and aspiring to be unique.  The further you move away from same, the more differentiated value you need to include.  Differentiation strategies are the practice of choosing segments where you know what consumers value and what they do not.

Differentiation is knowing where your customers see most value.  You need to differentiate to support the needs of the chosen segment and in the market position you want to own.

To differentiate you need to know where your competition sit in the market.  You need to undertake research and perceptual mapping to identify gaps in the market.  You also have to calculate the market value of those gaps.  They must be sustainable and produce sufficient earnings.

You need to understand where your offer is most and least credible.  There is no point adding features or aspects to a product if your target consumers do not see value in them.

You may need to differentiate into a market position that you can most easily maintain.  For instance, following the cataclysmic casino banking strategy introduced by Fred Goodwin, Royal bank of Scotland is retreating to the position of being a retail bank, its core competency.  Shifting to a new market position may be so costly it can destroy a firm.  Take the specialist retailer Maplin.  Its management have blamed the rising cost of raw materials but part of that firm’s failure may be its attempt to move its specialist products into prominent high street locations (at a time when most other specialist retailers have gone online).

You must defend your position where differentiation is most easily achieved.  This can be through the use of intellectual property such as trademarks, copyright and patents.  If your product is easily copied your differentiated advantage may not last very long.  Take couture fashion.  Within days of new designs appearing on the catwalk, features of those designs will begin to appear in high street fashion chains such as H&M.  The couture brands differential advantage will be eroded.

You must also protect against technological leapfrog.  This is where there are opportunities for differentiation through new technology which falls outside your expertise.  Kodak persevered in the 35mm film camera market and ignored the rise of digital camera technology.  The result, Kodak filed for bankruptcy protection.

For many years, I was responsible for the inspection of farm diversification businesses.  Amongst the most popular diversification was jam making.  Every farmer’s wife believed her jam was the best, after all it had won a prize at the Women’s Institute meeting and friends said good things about it.

The problem was that every farmer’s wife wanted to market their jams in the same way.  They were all competing in the same market segment and offering the same differentiations. The result was a market niche overflowing with homemade farmhouse jam where all products were undistinguishable and few of these businesses survived in the long-term or generated sufficient earnings.