Are there macro conditions facing the broad marketing ecosystem which are contributing to an overall diminishment in brand market power and values?
The news from the marketing front this week brings another interesting headline from CPG powerhouse Procter & Gamble. During the firm’s Q2 2018 earnings call on January 23, 2018, CFO Bob Moeller summarized the impact of P&G’s new focus on marketing cost containment, and provided some insight into what the future holds:
"The number of (marketing services) agencies P&G uses has been slashed by 60%, from 6,000 to 2,500, with resulting savings of $750m in agency and production costs (as well as improving cash flow by over $400m additional through 75 day payment terms). In the next phase, we’re targeting to save another $400m reducing the number of agencies by another 50% and implementing new advertising and media agency models,” Mr. Moeller stated.
Obviously, P&G’s tight-fisted pecuniary policy spells bad news for ad agencies. Famously known as the “industry’s largest advertiser,” P&G for decades has been long-regarded as the leading marketing-focused company in the world. But, for at least the past half-decade P&G has been enduring a slow/no growth purgatory, despite spending $9 - $10 billion on marketing annually. That slow growth has exacted a price: a new activist Board member (Nelson Peltz of Trian) demanding better cost management has arrived in Cincinnati, and the magic that marketing formerly exerted on revenue growth has faded.
What’s different? Let’s focus on two changes which are occurring on the macro level about which marketers, and business in general, can do very little. We call these circumstances “alpha risks” to marketing and brands, and they can’t be solved by the usual go-to tactics and approaches because the scale of these challenges is vast, societal in scope, and ingrained.
First, the socio-economic tragedy of a vanishing middle class brings with it more than political hand-wringing and controversial election outcomes. There are serious economic and financial realities associated with damaged markets that lose purchasing power in a cascade of compounding lower wages over decades. More and more, that Tide Detergent at $14.99/bottle becomes increasingly out-of-reach, and that value-priced store brand is just a short reach away. This small example plays out millions of times every week across the nation, and beyond.
Second, there’s this from marketing maestro Scott Galloway in his current best-seller “the Four:”
“The sun has passed midday on the brand era…Consumer packaged goods like Tide and Coke have spent billions and decades building brand via messaging, packaging, store placement, price, and merchandizing efforts. But when shopping habits migrate on-line, the design and feel of a product matter much less. There is no visual merchandising, no endcaps with carefully displayed products…Amazon, armed with infinite capital provided by eager investors, is leading a war on brands to starch the margin from brands and return it back to the consumer…”
These alpha risks -- a financially-strapped and shrinking middle class combined with less-expensive and more convenient on-line shopping environments like Amazon -- threaten the great mass markets of the American and European economies, and call into question many of our assumptions about marketing. Before we can begin the long process of restoration and reconstruction, we need to implement the economic and social policy measures which underpin a new economic and marketing growth cycle: for example, policies rewarding broader labor participation in the positive financial outcomes of productivity gains. But this will require a political alignment and agreement consensus that so far remains elusive.
While addressing these types of alpha risks is overwhelmingly challenging for companies, and even countries, there are more manageable brand risks which should be aggressively managed to help sustain brand values. These types of more manageable risks include: economic and pay inequities, gender and racial inclusion practices, some political speech and issues management, and many more emerging challenges.
Better management through measurement of these brand risks can put companies in a more sustainable business position, despite the dominating alpha risks which are generally unavoidable and affect all companies. And, this needs to be Job #1 for corporate boards and executive managers.