With marketing it is never just one thing

Marketing Gurus have simple and universal solution to your business problems. Perhaps, too simple. There is always one simple answer that broadly applies to all businesses. Whether the business is small or a large enterprise, whether it is a startup or a well established player and regardless of market conditions they recommend their one solution.

Based on the guru you pick or the point in time we get many such simple one size fits all edicts

  1. Tell better stories, because all marketers are liars storytellers
  2. Increase your price by 1%
  3. Keep your existing customers because 5% increase in loyalty increases profits by 75%
  4. Enchant your customers
  5. Generate remarkable content and just do inbound marketing
  6. Launch products like Apple does
  7. Give your product away, because free is free marketing
  8. Streamline user experience across all touch points
  9. Appoint women board members because organizations that have women board members saw 46% growth on return on equity
  10. To be fair I should add – Have two (or three) prices because if one price is good two are better (that is me indeed)

But in the real world, when you are facing declining revenue, changing market conditions, ever changing competitive field, technology disruptions and changing customer needs these one size fits all simple solutions woefully fall flat.

There is never just one thing any brand can do that can magically turn the business around.There is no glass to break to deploy the emergency solution.

You wouldn’t take the same prescription from your doctor because he recommended it to previous 100 patients, would you? In fact we do not even know what the problem really is before we can start to talk about solutions.

Take for example this struggling winery featured in The Washington Post case study:

Clos Du Val, a maker of fine Bordeaux wines found itself in troubled waters despite thirty years of success in the market. While the market was growing their sales fell. Analysts (Gurus) blamed the company for clinging to status quo and not changing when the customers’ taste changed. They were stuck in the middle between brands with bigger marketing budget and the nimbler boutique wineries.

Try applying any one of the popular solutions. Nothing fits.

Where would you start?  The marketer hired to fix Clus Du Val, Ms. Brooke Correll started with analysis and data collection to understand what the real problem was.

Correll set out to determine whether the “California wine with a French accent” had what it took to get back in the game.

It is the starting point of understanding the strengths and weaknesses and testing hypotheses.

She canvassed all constituents. She talked with distributors, retailers, restaurateurs, wine reviewers and consumers to assess the health of the brand.

You can’t test a hypothesis with made up data, by wishful thinking or by selective evidence seeking based on availability and convenience. You need to seek data from all stakeholders in the value chain, easy to access or not.

She conducted a quantitative pricing survey among peer Napa wines. She held interviews with its directors, management and sales force.

You can’t just worry about your products and your customers. Customers have choices. There is competition for customer’s wallet. It is not as simple as raising prices by just 1%. It requires quantitative studies to understand customer segmentation, their buying behavior and prices they are willing to pay – not just for your products in isolation but in the presence of all other choices they have.

Only after this data collection and analysis phase does a solution begin to emerge.

Clos Du Val simplified the product portfolio and took a long overdue price hike on the top tier. It unified the look of its labels to an updated version of the widely recognized terra cotta original. It created consistent brand imagery at every consumer touch point: a new Web site, a renovated tasting room, upscale branded merchandise and revamped wine clubs. Added PR component with product placements in shows like The Sopranos.

These actions would not have been possible without the initial diagnosis phase. No one action by itself would have been enough as well.

The results? With any turnaround, the results are not going to materialize overnight. It took them 18 months to turn around.

Still in love with simple solutions from Gurus for your difficult business challenges?

Note: I must note that we still do not know what other factors were at play in the turnaround. It is still likely we ignored other shifts in the marketplace or just plain luck in the Clos Du Val turnaround. After all any success story is laden with hindsight and narrative biases. But the recommendation to start with a clear understanding of your problem then define a comprehensive set of solutions remains true.

Multi Version Pricing Now Playing In Luxury Segment

In a down economy how do you keep price sensitive customers from switching away from your brand without losing price premium? The answer is anything but groundbreaking, multi-version pricing. Offer products at multiple price ranges so you can move customers within your brand family. Price sensitive customers will self-select themselves and buy lower priced products while you keep the price premium of your top of the line products. Nestle, the CPG leader, clearly stated and follows this rule

And you see how we through the brands are allowing the consumer to have different price points.  These are all Purina products.  You see it in dog food; you see it in cat food how we have spread over different price points the product portfolio and yet using the Purina brands there rightfully. Even small businesses like salons practice effective multi-version pricing.

Now the luxury segment, which have just one price, is gearing up for multi-version pricing. As the book Richistan noted, “pricing for this segment was like pushing an open door – no resistance”. Not anymore. The downturn is starting to impact the rich, who are becoming price sensitive in their own level (which is quite different from price sensitivity of a supermarket shopper switching to private label). Financial Time’s segment on Business of Luxury profiled how the down economy is hurting the  price insensitive luxury segment. What do analysts recommend?

most analysts say companies with products spanning price points are more protected than those, like the French silk and leatherware group, that are more tightly focused. A broader portfolio means manufacturers can cater to consumers trading down, and can provide muscle with third-party wholesalers and retailers.

From small businesses like salons to large corporations like Nestle, from canned goods to luxruy goods the business principle is simple, “Keep the customers in your brand family by offering them products across a wide price range!”

Listening To Your Customers – Not For Luxuries

I do not understand luxury products and services but I understand the market and consumer behavior. In the spectrum of consumption, these fall in the hedonistic end and are more of conspicuous consumptions.  Do the rules of marketing – segmentation, market research, customer preference, willingness to pay. etc – apply to marketing luxuries?  No says Jean-Noel Kapferer and Vincent Bastien, co-authors of  “Luxury Strategy – Break the Rules of Marketing to Build Luxury Brands”  in their article in Financial Times.

Listening to the consumer is the best route to a lack of differentiation, and failure to inspire the dream – the two levers of desire that are the only paths out of the recession in the luxury world.

Safeway Moving Up The Value Chain

In February, CEO of Safeway Mr.Steve Burd expressed his dissatisfaction with the CPG brands over their price increases. Almost all major CPG companies increased their prices since last fall when the commodities and fuel prices shot up. Since then their costs have come down but prices stayed up.

As I wrote before, the price increases enabled companies like Cadburys, Nestle, Unilever, Del Monte  and others to deliver 10-14% increase in their quarterly income despite  very small growth and in some cases even fall in their revenues. The brands were able to grow their profits because of the change in customer mix. As more and more of their price sensitive consumers switch to cheaper and private labels all they are left with are the price insensitive and brand conscious loyal customers.

Safeway is a distribution channel with high fixed costs and low single digit operating margin (around 3%). It saw its gross margins fall over the past five years. It was not happy with price increases because for two main reasons, it further cuts into its gross margin as Safeway and relies on these brands to draw in customers to the stores that help drive its revenues. The single metric of retail is monthly same store sales growth. Any stagnation or fall in this number sends bad signal to the stock market.

Safeway then said that it “will chew up the brands” if they did not reduce prices. I questioned this claim then but I admit  Safeway has followed through with its claim by aggressively developing its private label brands.  CPG companies had not had much to worry about a single retailer pushing its private label as the labels are, until now, limited to just that retailer. Now Safeway is moving up the value chain by becoming a CPG company. As a clear competition to major CPG brands, Safeway has signed deals to distribute its O organics brand and Eating Right brand at other regional retailers and at Albertsons.

The additional channels are not much compared to the rest of the market but Safeway has clearly established that it has a clear strategy and can execute on the strategy. The next round of price negotiations between Safeway and CPG brands is going to be much different from the previous rounds.