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Don't Promote Your Brands To Oblivion

Advertising and Promotion

The consequence of these two considerations operating in tandem is weak brand equity, which in turn leads to too many product categories that should be brand-moderated becoming price-moderated, quasi-commodity sectors.

Price elasticity and compulsive promotion
Where you have a relatively poor consumer base, you can be almost certain you're going to find a market riddled with price promotions because, in poorer countries, you typically find massive price elasticity. This is precisely the situation in South Africa, where brands react very differently when priced promotionally, compared to many other countries in the world.

For example, in the United States, if a price drops by 10% in a grocery store, you can expect sales to go up by 17%. In most of Europe, the lift will be around 20%. In South Africa, the figure is closer to 24%, and that's just for high-end consumers. For lower LSMs (Living Standard Measurement Segments), I would expect this reaction to price to be even greater.

In South Africa, manufacturers and retailers have created a very particular example of this phenomenon through their week-at-the-end-of-the-month (and to a lesser extent, day-at-the-end-of-the-week) promotions.

 Nothing like these peak shopping events are seen in the US - or, indeed, in the United Kingdom or rest of Europe. They appear to happen because everybody is convinced, (though based on very little evidence, as far as we can tell), that all South Africans are paid in the week at the end of the month. So the chains load all their promotions into that week, which causes a tremendous boost in foot-traffic.

In South Africa, ACNielsen data shows the average grocery product gets a 40% kick in volume during this period. When you get into more expensive, less impulse fmcg purchases such as health products and beauty aids, the kick gets even bigger. In shampoos it's about 120%, and with conditioner it's around 160%, which is truly astonishing.

What local marketers have unwittingly done is to teach the South African consumer to shop in that week because then they'll find expensive items at reduced prices.

But in reality, these promotions aren't really buying the manufacturers anything. When you promote, some of the boosted sales would have been made anyway at the previous everyday prices. They therefore become subsidised incremental volume, where the discount goes to waste.

 Even the "true" incremental volume - the actual boost in sales due to the discount - is largely at the expense of future sales volume, because it's mostly pantry-loading, and so the peak will turn into a trough once the promotion has ended.

Unfortunately, price promotions have become almost unavoidable, because the trade demands them, and because manufacturers have to show short-term incremental sales to maintain their shelf space allocations. So marketers have little choice but to make the most of a bad situation and at least try to lose as little money as possible.

(Often, my advice to a marketer is to stop discounting so heavily. In many cases, a manufacturer could give a far smaller discount and still see the same results. I also advise spreading out the promotions. And with incredibly price-elastic products like moulded chocolate slabs, or pilchards, it's a waste of money buying displays and hiring demonstrators because you can obtain all the kick you're ever going to get just by dropping the price.)

Yet although the South African market has lower income levels and shows higher inflation and unemployment than the United States and the UK/Europe, promotional activity, with the exception of in-store demonstrators, is generally far less prevalent than in those markets.

 In many ways, this can be seen as a lifeline thrown to local manufacturers, for as I have explained, heavy levels of promotion progressively diminish brand equity as measured in baseline sales. With promotional activity not yet at saturation, there remains hope of salvaging brand equity in many cases.

Brand Equity
Such extreme price elasticity as I have described for South Africa is one indicator of weak brand equity. I often hear people tell me there's a lot of brand equity in South Africa, but I suspect their perception arises from the results of survey research.

 What they're not taking account of is the large overstatement that you get from survey respondents. If you don't make the necessary adjustments for over-claiming and for the limitations of questionnaire design, you get research results telling you that people are always going to buy your brand - but a lot of those claims are just hot air.

 Scanning data, on the other hand, paints an entirely different picture, and it's one that a lot of people are going to get very upset and defensive about.

Put simply, the ACNielsen scanning and panel data I've analysed for over a year show that this country has not done a good job of brand building. The evidence for this is a very high level of cross-elasticity, consumers' extreme sensitivity to promotions, and the constant back-and-forth switching of brands by our panel members.

I have found there are less brand loyalty and much less brand equity in South Africa than in numerous other countries. I've heard experts who've come to SA and who, by the end of their stay, have concluded that there isn't a real brand in existence here. I tend to agree. I have no axe to grind: it's simply what my analysis of the data shows.

I believe it is manufacturers' reliance on price promotions, over and above the promotions demanded by the trade that is eroding this brand equity. They are taking the wrong route. Procter & Gamble, for example, know how to build brands. Instead of promoting Pantene into oblivion when they launched it here, they put heavy advertising weight behind the product. That's the long-term solution.

Advertising builds the brand - promotion exploits it
I'm a great believer in advertising. Advertising impacts massively on brand equity, and it really works, building brands over the long-term.

Promotions on the other hand, are really customer retention vehicles that bolster short-term sales. Any new first-time buyers they manage to retain into repeat cycles will build the baseline but this impact is generally minimal and largely unmeasurable. Promotions are not to be judged by long term effects, but valued for their impact on trade and customer relations.

Advertising, and to a large extent everyday pricing, impact baseline sales. In the US, baselines are falling because promotions are cannibalizing them for short-term volume gains. This is fine only if building immediate volume is the goal rather than building a long-term franchise.

Advertising also builds trade relations - for new products. Indeed, distinctions between advertising and promotion blur in this context. Promotions can have valuable long-term effects as they generate awareness and hence trial and first repeat. Thus both advertising and promotions can be used to create a baseline for new products.

The problem in this country is that there isn't enough brand-building advertising. You need to build a brand identity and tell consumers why your brand is different. I've looked at some local margarine brands where less than a third of sales are at everyday price. These aren't brands. They're giving the stuff away. There's simply no equity there.

Let me say that I don't think the sorry state of such brands is always the fault of the agencies. I see consistently high quality work. There are great agencies here in South Africa, but they need bigger budgets and better quality ad testing.

 In all fairness, too, I think brand managers would be more than happy to redirect promotional spend into their advertising budgets. But the trade drives a lot of promotions, and even their own sales people push them for promotions to boost their short-term sales records.

In short, manufacturers need to concentrate more on everyday price and only promote when the trade demands it, and not just because it's become a habit. They should place a far greater focus on advertising and give their advertising agencies space to do their job. Adverts should be targeted and then tested properly. (This is a truly unique country; demanding advertising that is true to South Africa's many cultures).

The advertising must be flighted appropriately, remembering that advertising vehicles should be mixed: it never works so well to use just one medium. A classic example is the Milk Board in the US, which first tried just TV advertising, then magazine advertising, and finally achieved success when they tried a mix. All the evidence points to the fact that you get much more bang for your advertising buck if you mix media.

If there could be a perfect world for brands, it would be one of everyday low prices and no promotions. P&G tried to create this world in the US, but there's always somebody who'll go out and start a promotion war, even though nobody can win it.

However, if trends in the US are anything to go by though, South Africa might eventually be able to say good-bye to indiscriminate price promotions. In the US, the Everyday Low Price (ELP) retailers who hardly promote at all are getting bigger and bigger at the expense of the High/Low chains which charge high everyday prices and promote like crazy. Consumers are figuring out that in the long term promotions don't benefit anyone.

To advertise or promote?
I have found that some marketers persist in trying to work out whether advertising or promotion moves more products off the shelves. This is a question that often sees retailers and marketers in opposing camps. As I hope will be clear by now, I believe the debate originates in a misunderstanding about what these two marketing tools are designed to achieve.

The issue arises because while the advertising community has long maintained that advertising is effective in the long term and must be evaluated over the long term, those supporting promotions are able to point to huge lift factors arising from in-store demonstrators, displays, and temporary price reductions. No advertising campaign could ever match these boosts, they claim. Advertisers counter-claim that advertising does out-perform promotions in the long term.

And yet, the impacts of these two vehicles should probably not even be compared. They each address a different set of objectives. Advertising is a long-term franchise - or brand building vehicle. Its impact is seen in elevated baseline sales - the sales that are ultimately what keep a franchise going.

 The objective of promotions on the other hand is to generate short-term volume, improve trade relations, and interdict competitive efforts to erode a manufacturer's sales. As I have discussed, they have little or no positive impact on baseline sales except in the special case of new products where they do help to build and define baseline sales.

To those who claim promotions are so effective I would ask why, given the promotional mania that rages in the US, promotion has never ever grown a single category in that country?

In my view, there are two reasons (which I briefly referred to earlier on):

  • Promotions shorten the purchase cycle and load future purchases into the promotional period. Thus they subsidise the purchases of consumers who would otherwise have bought later on at the everyday price.

    Analysts only rarely examine sales decay after promotion. Partly this is because it is virtually impossible to identify the decay curve of products with long purchase cycles, and partly because, in the case of faster moving goods post-promotion sales patterns are soon obscured by further marketing activity, both own and competitive.

  • Consumer panel data has shown that new buyers captured by a promotion for an existing product (for new products the situation is somewhat different) are often less desirable recruits. They tend to be cherry pickers, buying whatever is on promotion. They take the discount, but then don't buy again until enticed back by the next promotion. In the interim they move in and out of the market according to the availability of promotions, irrespective of which brand is featured.

In the end it is unproductive to maintain that advertising is always preferable to trade/consumer promotions, or vice-versa. Marketers need to be clear about their objectives before making their choice between these two sales vehicles, and must carefully evaluate their respective impacts. But it is not often an either/or situation.

What marketers should rather be asking themselves is how best to mix the tactical advantages of promotions with the strategic advantages of advertising. Just as advertising works best when a spread of media is used, so too does using a variety of marketing tools help move more products.

By Dr John Carefoot: Data Applications Director: ACNielsen

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