Monday 3 September 2007

Supping with the devil

The big multiple supermarket chains are a powerful bunch. In many areas of food and drink retailing they control three quarters of all items sold. Their success is based on the solid marketing principle of supplying products that their customers want, at prices they can afford.

This good value pricing policy is possible partly to the economies of scale created by buying in bulk. The competitive nature of retailing means that most of these savings are passed onto the consumer. However since the retailers have so much power they can exert a great deal of excessive pressure on the smaller suppliers.

Now the Competition Commission is demanding access to hundreds of e-mails sent by Tesco and Asda, purportedly demanding further retrospective discounts to fuel a price war between these two groups over the summer.

Why should such practices cause such surprise?

Supermarkets have been doing this for years. Suppliers have been asked to contribute to deals such as “Buy one, get one free”, and provide specially deep price cuts from time to time. Some supermarket groups insist that their own procurement experts advise suppliers how to remain solvent whilst discounting to a greater extent.

Supermarkets also demand contributions to their own marketing campaigns and many smaller companies forego their own branding needs in order to pay these levies.

This is always a mistake.

Do not let supermarkets do your marketing for you. All they are interested in is increased store traffic. They will use your money to increase footfalls but don’t care if customers buy your product as long as they buy something.

In the travel industry, tour operators acted just like supermarkets till the internet weakened the packaged holiday sector. Like supermarkets they offer customers a range of options and don’t really care if the customers choose your country or another, provided it’s bought from them. It still occurs today when overseas operators with strong airline links can offer the Tourist Boards of smaller countries the prospect of increased tourists.

But be warned, once you agree to this demand, you will have to offer all tour operators and airlines similar levels of support.

And when you stop, many will fold their tents and steal away.

Tuesday 28 August 2007

Can we stop the fat lady singing?

We have stopped laughing at the Germans. They used to be the fattest people in Europe. Now we are.

23% of women and 22% of men in Britain are now defined as clinically obese, according to the European Union’s statistical office. Obesity is defined by a formula called the Body Mass Index (BMI) composed of two simple factors - height and weight.

The formula is:

Ideal weight in kilograms divided by height in metres squared = 20% to 25%.

You are regarded as overweight if the BMI score is in excess of 25% and obese if it exceeds 30%.

Very fit weight lifters will fail this test, so perhaps a simpler measure would be waist size and its relation with the chest measurement for men and hips for women. The waist should be at least 8 inches less than their chest for men and for women about 8 inches less than their hips.

The British Government’s figures suggest that two out of three men are overweight and the figure for women is only slightly less.

This is a very worrying situation, since it means a greater incidence of heart disease, diabetes, high blood pressure, raised cholesterol levels and cancers of the prostate and womb.

One of the actions taken by the government body OFCOM is to ban the advertising of processed foods that are high in fat, sugar and salt in TV programmes where the majority of the audience is 14 years or younger. The reaction of the advertising industry has been less than considered. After all, we invented, or at least promoted, tasty products that were loaded with the most dangerous elements such as transfats, simple sugars and excessive salts.

And now it seems that some advertisers are trying to compensate from the absence from TV by using the internet to sell their unhealthy foods to children.

Skittles, the sweet brand has apparently spent more than £100,000 to set up a profile on the social networking site “Bebo” seeking young ambassadors for their brand. Other advertisers on the internet are McDonalds, Starburst and Haribo. They do this partly because the internet is outside OFCOM’s remit.

Obesity is linked with poverty and poor education. We cannot compel people to eat sensibly or exercise regularly, but neither should we give carte blanche to parts of the food industry who are concerned with the hitherto easy profits in unhealthy products.

Tuesday 31 July 2007

The property factor and the effects on tourism

Financial analysts are worried about the property sector and how a collapse here could trigger a mudslide affecting the economies of many European countries.

Take Ireland for instance which showed the greatest increase in house prices in the E.U. since 1995. Domestic property prices fell in April, the first decrease in five years.

In France, housing starts have declined for the first time in six years and in Spain where unfettered development over the years is being challenged by a crash in the value of shares in developers and builders.

The European Central bank, preoccupied with Germany’s depressed economy reduced interest rates overall to 2%, far too low for the bubbling economies of France and Ireland. As a result, their property prices soared. Bank interest has since risen in seven rapid steps to 3.75% and expected to reach 4.25% soon. This has meant a doubling of mortgage payments with its inevitable consequences.

In Britain, the Chancellor has been more aware of the impact of low interest rates on inflation, and here a wholesale crash is unlikely. A number of factors will affect house prices in the next twelve months. One is the dampening effect of stamp duty. According to the Centre of Economic and Business Research, stamp duty will generate £7 billion for the Exchequer in this fiscal year. This has affected sales and currently only 7% of the housing stock is in transaction compared to 9% in the 1980s. Demand is been generated also by overseas buyers from Russia and India who see London as a particularly desirable place to live. In other areas it’s the “buy to let” market sector that has restricted house availability.

The new Prime Minister, Mr Gordon Brown, recognises the shortage in supply and promises to build 200,000 new “affordable” homes each year, but some of the land available is flood plains and the hazards they pose have been evident in recent days.

Britain will therefore avert an all out property crash but by 2008, prices will stagnate. The British and more seriously affected citizens of Ireland, France, Spain and Poland will feel less rich and that should affect their spending on other things such as retail goods and possibly travel. Home improvement may do well, because house owners who postpone a move to more expensive properties may choose to invest in their current homes with conservatories and the like.

However for countries that depend on tourism one way of boosting visitors is to make it easier for them to buy a home in your country. They will then visit more often, stay longer, spend more and encourage friends and relations to come too. Some enterprising owners will let their property to other people from their own country. All this will raise tourist numbers.

Since 1998, British visitors to Portugal have risen by 48%. Spain has enjoyed the same level of success, whilst trips to Italy have grown by 66%.

Much of this happened because of more cheaper flights by bargain airlines, an older and affluent UK population and a feeling of greater wealth caused by rapidly rising UK property prices. Your house is worth more, so you feel wealthier, save less and even borrow against your growing house assets.

Apparently more than 300,000 properties abroad are owned by the British. Political stability, warm climate, lots of inexpensive flights to convenient airports and affordable property have made Southern Europe so popular.

Judging by the advertisements on television and in the press, countries like Bulgaria, Egypt’s Red Sea Riviera and Dubai are also seeking the British house buyer.

However property abroad will have to grow in value and generate income from lets to offset initial purchase prices. With so many countries jumping the bandwagon there is an oversupply of such homes.

Selling houses to foreigners may help boost tourist numbers, but the basic laws of economics still apply.

Demand must match supply or there will be tears at suppertime.

Friday 6 July 2007

Advertising on the Internet - a threat to conventional advertising agencies?

The Internet as an advertising medium has been an amazing success. Last year it took over two billion pounds in advertising revenue in the UK and accounted for 10.6 % of all advertising spends.

Even more impressive was its relative speed of growth. In 2001 Internet ad spend was £166 million accounting for just 1 % of the total. Between 2005 and 2006 alone, Internet advertising grew by 48%.

This has panicked traditional service providers into jumping on the bandwagon without much understanding of how and where future returns on this new and large investment was to come from.

Consider where the Internet gets its advertising revenue.

77% of total revenue is classified advertising. Two-thirds of this is for search, an electronic and creatively more exciting version of the old directory advertising. Google dominates the search industry in the UK and elsewhere. None of its rivals have been anywhere near as successful.

Much of search advertising reaches people researchers describe as “engaged”. The distinction is between people who need to be “interrupted” from their usual preoccupations as when, seeing an advertisement for a chocolate bar, you stop at the local newsagent and buy the brand on impulse.

Engaged people are seeking, actively or casually, information about a specific category, product or service.

Advertising is not the only way to reach these people. Brands can raise their internet profile by clever web site design using more relevant copy, careful repetition and providing more information so that Googles web crawlers find it and push it higher up the rankings.

Advertisers can then also use search optimisation by buying specific keywords in an auction bid system. Actual keyword choices become important. Some advertisers use their competitors’ brand names to redirect their traffic. Knowing what price to bid is also very important.

Other than search, of the rest of classified internet advertising, £202 million is accounted for by the online recruitment sector. That slice of the cake is dominated by online specialist operators who account for two-thirds of this spend. Newspapers are making a strong bid to retain their minority share.

Which brings us to the area of traditional “interruptive “and brand advertising. In the internet online display field, banners, buttons, skyscrapers and interstitials rule.

Few advertising agencies regard this as mainstream.
After all it is difficult to be creative in such a limited format. Yet many advertisers think that all advertising on the internet is waste free. I wonder if John Wanamaker who first said: "I know that half my advertising is wasteful, I just don’t know which half " would agree with this view of the internet

Monday 23 April 2007

Is Innovation potentially as destructive as planned obsolescence?

Brand obsolescence was a bogeyman word to describe the alleged strategy adopted by manufacturers of consumer durables who built a failure feature into the design of their product. That way, products with new features would be bought earlier than needed, keeping the factories busy and the retailer’s tills ringing.

In reality manufacturers were not that clever or consumers that stupid. David Ogilvy over forty years ago said it best:”The consumer is not a moron. She is your wife.”

Now competition and market saturation has spawned a new type of innovation that is destroying markets and brands. Take the digital camera business for instance.

The market is large, worth about £800 million and still growing. The problems however are quite serious. The technology allows new companies not previously in the field of cameras to enter. Companies like Hewlett Packard, Sony, Fuji and Kodak are all major players. These new players have been very innovative, but as far as the customer is concerned, no manufacturer appears to have a competitive edge in terms of technological features, pixel capacity, ease of use or price.

And as pixel capacity, anti shake and red eye features are introduced, prices are falling. In 2003, the average digital camera offered 2 million pixels and cost £160. Now 4 million pixels with newer features will cost £120.

So, why would you buy a camera which will be outdated very quickly and when the newer models with greater capacity and more features will be cheaper tomorrow?

Any why then will the manufacturer invest in large runs of specific models when a high number of unsold cameras will fill up depot space? Small runs generate low promotional budgets, further exacerbating the long term health of the brand.

Part of the pressure on prices is also accounted for by the increase in distribution points. Sales in specialist shops like Jessops have declined, while Boots, Tesco and Asda now are significant in terms of sales. These generalist retailers are not interested in offering a range of products or indeed of brands. The internet however can provide both.

Grey importers now offer products at prices cheaper than the official ones given to the managers of the very brands in the UK.

Convergence of technologies mean that quality digital cameras can also offer ipod music, downloaded TV and video, and mobile phone services too.

More likely it will be the other way around with mobile phones taking the lead. Will Ericsson and Nokia become the new leaders in the converged market?

Analysts have warned that falling prices have affected the profitability of all brands. This year will be a test of resolve. For some famous brands it’s already too late as Minolta’s exit from the digital market indicates.

Friday 13 April 2007

Brand Equity: Is it not worth thinking about?

Brands are not what they used to be. Once a brand was a symbol of reassurance. If a manufacturer put his brand on a product it indicated his confidence in the item to deliver if not quality at least consistency. The product delivered what it said on the package..

This appears not to be so as far as Ribena is concerned. Two Kiwi school girls discovered in their chemistry lab that Ribena, despite claims in its advertising contained virtually no Vitamin C. They took their findings to the company and were allegedly given short shrift. The New Zealand government took them more seriously and when their own tests revealed a similar lack of the vital vitamin, banned the said advertisement and imposed a hefty fine on top. The story was then reported on television stations and newspapers worldwide. You would have thought that adding some Vitamin C would have been inexpensive. I don’t know if Ribena in the rest of the world has the requisite amount of the vitamin but it should. That would be at least honest. Now much of the advertising investment of £5.7million in the UK in 2006 appears to be wasted and we‘ve played into the hands of those who think that advertisers and their agency advisers are all a bunch of charlatans. And grocery multiples, who take their own image seriously may refuse to stock the brand too.

Sadly its not only grocery brands that mismanage their brands franchise.

The Sunday Times reported the case of Charlotte Maltese. a young woman murdered in 2005.She had an insurance policy with the Norwich Union. who refused to pay out because she failed to disclose in her application form that she had had a smear test. Prior to this excuse they had claimed the beneficiary should be her boyfriend, but dropped this pathetic excuse when it was pointed out that as her murderer, he could not benefit from a criminal act. Incidentally, the smear test showed some abnormal cells, but nothing wrong with her health. Close friend Agostina Murgia said: ”Norwich Union seems to be trying every cynical trick to avoid paying up “

Last night on BBC1s Watchdog programme, its millions of viewers were warned that critical illness policies were the worst in paying up. Insurers apparently trawl through medical records, not just of the insured person but also of other family members. Over 1 in 5 claims are rejected. The programme warned that people who think they are covered against the onset of a dread disease should check their policies carefully

Imagine on top of the bad news about your health you are told that the money you were counting on to pay the mortgage and keep the family while you were treated will not be forthcoming.

Now no intelligent Marketing Director responsible for marketing and advertising budgets of several million pounds will deliberately let his brand equity be damaged by such callous behaviour. It follows therefore that company policy may be dictated to a greater degree by the financial people.
Some of them don’t appreciate the fragile nature of brands.

Friday 9 March 2007

The Television Wars

Television is once again hot stuff. Two media barons are fighting a very public war for dominance of the airwaves.

Richard Branson, the people’s champion, is contesting big, bad Rupert Murdoch’s right to a swingeing increase in costs for Virgin Media, a cable operator, to carry Sky TV programmes. Sky apparently want a 75% increase and Virgin are allegedly prepared to pay 30% more. The result, an impasse, and Virgin now do not offer popular programmes like 'The Simpsons'.

Sky will lose up to £60 million a year income which it stood to earn from Virgin who now have a diminished portfolio of channels and programmes to offer its customer base. Both have taken their case to the public via press and television advertising.

Virgin, playing little David, complains of bullying, and Goliath in the form of young James Murdoch offers Virgin customers an opportunity to switch.

In reality the battle is much more than a negotiation hurdle. It is about control of the biggest commercial broadcaster in the country. ITV is the real prize. Branson wanted a stake in ITV but a surprise move by Sky resulted in them owning 17.9% of ITV. Mr Murdoch is now the biggest media owner in Britain with significant interests in newspapers in the form of the Times/Sunday Times and at the Sun/News of the World. His ownership of Fox in the States provides programme material and he also has rights to broadcast a number of key sporting events in the UK. So could it be a battle fought at Mr Murdoch’s convenience?

In the past his opponents have been complacent and underestimated the skill and energy this Australian outsider brought to the battlefield. Richard Branson will not make this mistake. His longer term objective now must be to acquire Channel 5 and invest in programme production and in the acquisition of broadcasting rights for sporting programmes, all of which will be very expensive.

The interesting thing is the money that funds Sky and Virgin Media as apart from the terrestrial broadcasters like ITV comes from different sources. Sky and Virgin get 90% of their income from customer subscription whilst ITV get almost all their income from advertisers. The advent of Freeview, set top boxes, satellite transmissions and cable delivery mean that viewers have more choice than ever before. The result is smaller audiences per channel. ITV has suffered particularly.

Despite what they think, ITV is not a strong brand. Popular programmes are the strong brands and these are increasingly being showcased on a variety of channels. If ITV is to regain some of its lost ground, it has to go back to its strong programming heritage. Michael Grade knows this. He may carp about the government’s lack of support and be rightly apprehensive of Mr Murdoch’s ambitions, but he knows that the glory days of monopoly and captive audiences have gone forever. Survival will depend on a strong franchise of popular programmes created by his own team of producers.

Like the Chinese curse: these are interesting times for the companies involved. However, when the dust has settled and digital television sets are in every home, will the prize be worth the effort?

Wednesday 14 February 2007

The big hello and its effect on tourist numbers

Visitors to the United States of America have declined quite dramatically.

Even people in countries which ally themselves to the USA are finding other destinations more attractive. British visitors were 10% fewer compared to 2005,a surprising fact when one takes into account the value generated by an attractive rate of exchange.

One explanation is the problems of the new entry conditions and many of these could have been handled better. Another may be the real and growing unpopularity of the President.

Perhaps the overwhelming concern is the perceived unfriendliness of the American people.

On Sunday February 11th, a primetime BBC show “Top Gear” featured a journey by the show’s three idiosyncratic presenters, by road, from Miami to New Orleans. They behaved in the provocative way they always do, and were met by a great deal of aggression. Jeremy Clarkson ended the show by pointing out that the richest nation in the world had done very little to repair the damage done to New Orleans one year after Hurricane Katrina. To the Americans he said, " Shame on you", and advised British viewers not to go to the USA.

Over 4 million visits were made to the States in 2006 by the British and. this kind of publicity will make the task of the people responsible for tourism much harder.

Is it possible to brand a country?

Some countries have attempted to, and it is a very complex task. A country’s image is composed of its geography, history, economy, culture and position. Its brand identity involves foreign and domestic policy, business, trading patterns, religion, heritage as well as tourism.

It may not be possible to brand the USA in all its complexity, but it needs to address the problem posed by falling tourist numbers. My own experience in Boston suggests that most Americans are courteous and friendly. The perception of a lot of British people is, however, very different.

This perception needs to be addressed urgently.

Thursday 8 February 2007

Stupid cupidity and the exploiters

The credit card business thrives on the cupidity and stupidity of some of their customers who spend more than they can afford and delude themselves into believing that the minimum repayment makes the debt manageable.

What the borrower fails to appreciate is that not only is the level of interest much higher than a normal bank loan, but the fine print hides a far greater cost penalty.

Assume you owe £7821.00 and repay £6753.00 on the appointed day. At 1.385% a month interest, you would expect to pay £14.79 in interest based on the unpaid sum of £1068.00.
In fact you would be asked to pay £166.92. That represents an interest rate of 15.62% per month or close to 200% per annum.


Because you are charged for the entire outstanding debt - in this case the whole £7821.00, despite the bulk of it being repaid on the due date, and because the interest is charged from the moments the purchases were made. In this example three weeks before the credit card bill arrived.

The financial behemoths eagerness to lend money to people in existing financial difficulties is well documented. They thrive on Micawber type misery.

Banks also operate in the “sub prime” loans market. The HSBC, one of the top three banks in the world sensed an opportunity in lending money for house purchases, to people who wouldn’t otherwise qualify. In the United States, this has already backfired with fraud and defaults rising to record levels. Over here, the number of sub prime lenders tout their wares on television with offers to “consolidate” debts, or by remortaging their homes, allow borrowers to spend their own money on whatever they choose. The cost? More than their existing mortgage provider would charge.

And new predators are advertising their helpful services. They offer people with unmanageable debt a way out by exploiting a voluntary scheme whereby only a proportion of the sums owed needs to be repaid. Inevitably this service comes at a cost.

There really isn’t such a thing as a free lunch.

Tuesday 6 February 2007

Can the last person to leave, please switch off the lights?

You have to admire someone like Gordon Sato. A successful scientist in the United States of America, he now helps the government of Eritrea to grow mangroves.

In six years, 700,000 mangroves now grow on what was once a barren and treeless coast of Hergigo. Camels are fed the leaves, fish flourish in the sheltered shallows and a new eco-system is being created. Mr Sato is 79.

Indonesia has also embraced the benefits of mangroves. Their protection against the power of tsunamis is well documented. Over a thousand acres in Bali have been replanted with, on average, 1300 saplings per acre. And if you visit Mauritius, look out for the new mangroves growing in the south.

Countries currently benefiting from the tourism induistry need to do more to secure their future because many of them could be adversely affected by rising seawater levels. Planting forests including mangroves is one option. Reducing their own consumption of imported fuel is another.

Travel to New Delhi and you will be pleasantly surprised by the reduction in smog levels. They know that air pollution contributes to incidence of heart disease.

All tourist destinations must be seen to be doing something to counteract the effects of airline travel. Richard Branson's team is working to develop butanol as an alternative aircraft fuel, but that will take years to be adopted by airlines.

Even President Bush, perhaps for other legitimate reasons, has plans to reduce his country's dependence on fossil fuels. Ethanol type alternatives will produce less harmful emissions.

Scientists are examining ways of extracting energy from sand and making our most abundant fossil fuel - coal - more eco-friendly. And solar power is already making a difference in India.

One hundred years ago, the problem of a burgeoning population of horse drawn carriages caused concern in London. The petrol engine eradicated that problem, but left another, bigger, mess that cannot be fed to rose bushes. Human ingenuity should not be underestimated, and especially now there are financial incentives.

If we do not believe that something can be done to make this small planet survive a bit longer, then like the dolphins in Douglas Adams' "The Hitchhiker's Guide to the Galaxy", we should all fly off saying, "Thanks for the fish".

But we cannot fly off or be so selfish as to ignore a future of hazards for our grandchildren.

Friday 2 February 2007

The dangers of sponsoring reality television

Television reality shows are today’s equivalent of ancient Rome’s circuses. Instead of Christians being fed to hungry lions, naive and ill-prepared wannabees are exposed in all their frailty by so called expert judges. Many of them have monstrous egos.

Sometimes the contestants themselves are allowed to blunder into exposing their ignorance and lack of judgement, All this in the name of entertainment.

Why any right thinking person should want to see these embarrassing displays is something best left to psychologists. Much more interesting is why Advertisers would want to sponsor such shows. It cannot be for the quality of the audience. Lowest common denominator shows attract lowest common denominator viewers. So association by brand values isn’t the reason either.

Perhaps it’s the exaggerated reporting of the death of the 30 second commercial or persuasive selling by the sponsorship team that makes advertisers clamour to get on board. The dangers of supporting such high risk “entertainment” is now very clear and Charles Dunstone must be glad there was a get out clause in his contract with Channel 4.

Brands are such fragile things.

AXA Equity and Law do their sponsorship promotions very well. They support the nostalgic strand of programming on ITV 3,with specially written lines in programmes such as Rumpole of the Bailey: “I want to make sure my affairs are in order, order.” So successful is this campaign that it has been adopted by their sister company in India.

The lesson?

Make sure your brand really benefits with the programme by association, write clever strap lines, don’t rely exclusively on sponsorship and have a damage limitation campaign in place.

Wednesday 17 January 2007

Concern for a world that may soon be lost

There’s no escaping it. Concern for the environment will attract more government intervention and much more interest from the media.

Awareness of the damage done by aircraft emission may have already prompted small, but significant changes in holiday patterns. According to research done by AXA Insurance, more than 22.4 million Britons will holiday in Britain and Ireland. Many of them will also travel abroad, but home destinations will take up more of the short break market.

Scotland will promote itself as the world’s first carbon neutral destination and has set up a Green tourism business scheme and sustainable tourism partnership.

In Wales, William McNamara is building a holiday village in Narberth West Wales which he hopes will benefit from the surge of interest in the ecological balance. It will include a sub tropical water world with water rides and wave pools. He also plans to do a ‘Dubai’ with a ski centre and indoor ski slopes.

Business travellers are also embracing green travel policies.

Airlines will try to reduce their emissions, by flying aircraft made from lighter composite materials such as the ones used in the Boeing Dreamliner. Richard Branson has pledged future profits in a bid to create an environmentally friendly fuel – an equivalent of ethanol for the air. Additionally, Virgin has started testing the effects of towing its aircrafts to take-off positions in Gatwick and Heathrow. They hope to save 2 tonnes of aviation fuel per aircraft by this single decision. Other airlines are examining ways of offsetting their emissions by buying forests which otherwise may be susceptible to felling. All will be involved in carbon trading.

Overseas destinations have the potential to make a significant contribution as well. They can do a lot to prevent smog and pollution damaging their tourist business. Some will follow Brazil’s lead in the substitution of imported oil with Ethanol from sugar cane or other natural material such as corn husks. Other countries will re-green their countries with new forests including mangroves.

For most of them however, the biggest and most rapid response would be to embrace solar energy. The faster countries that import oil and have lots of sunshine do this, the sooner technology will bring prices of solar panels down to more affordable levels.

The countries that promote their green policies will definitely do better in attracting tourists than the ones who bury their heads in the deserts to come. Despite what the cynics claim, the British travelling public will make adjustments to their holiday habits, if they can see a benefit for the world which doesn’t overly hurt them financially. Enlightened altruism is the new mantra.