Wrestling with success

As Tesco discovered last week, being leader of the pack is not always plain sailing. Highlighting a brand’s position as market leader in its advertising has obvious advantages, but should a brand be toppled from the top spot it can lead to hum

Sainsbury’s claim last week that its Nectar loyalty scheme had attracted more users in eight weeks than Tesco’s Clubcard had in as many years came as telecoms operator T-Mobile was revelling in the fact that it had overtaken O2 as the UK’s third-most popular mobile phone network.

While brand leadership is fundamental for marketers, offering hugely increased margins and distribution advantages, some believe that the issue leaves customers cold. Who cares, apart from the marketers concerned, if one loyalty card is more popular than another, or if this brand of cola outsells its rival by two to one? Marketers promote leadership statistics as a way of reassuring customers that theirs is the superior brand in its sector. If more people use it, they argue, surely it must be the best.

Earlier this year, Lufthansa ran a campaign stating that “the world has a new favourite airline”, after figures from the International Air Transport Association released in July showed that the German airline carried more international passengers than British Airways. BA had long used “the world’s favourite airline” line in its advertising, though it dropped the tag two years ago. Some argue the airline had made itself a hostage to fortune by promoting its brand leadership claim since, when a brand loses the top position, the supposed advantages of leadership become

disadvantages in consumers minds. But observers accept that with airlines, being the most widely used carrier can be reassuring to consumers, concerned as they are about issues such as safety. Similarly in mobile telephony, customer numbers suggest that an operator has wider national coverage – always a concern when buying a mobile.

Round one?

It was Loyalty Management UK (LMUK) that fired the first shot in last week’s loyalty leadership war (MW last week). It claimed that its Nectar loyalty card – which offers points for shopping at Sainsbury’s, BP petrol stations, Debenhams and when paying with Barclaycard – had become the most-popular scheme in the UK after just eight weeks in operation, attracting 11.1 million active users. This made it bigger than Tesco’s Clubcard, said the Nectar operator, since Tesco had only ever talked about having 10 million users in its press releases.

But Tesco “corrected” this, referring to one of its recent press releases where marketing director Tim Mason was quoted as saying that “over 10 million households” were using Clubcard. Tesco’s number-crunchers set to work and quickly came back with a figure of 13.14 million users, who had been active over the previous 12 weeks, and who were residents of those 10 million households, some of which had more than one loyalty card. But hadn’t it referred to 10 million users in its press releases? Ah, said the chain, it was a “typo”, an inadvertent error. LMUK suggested Tesco was making it up as it went along. “It can change the numbers if it likes,” says LMUK chief executive Rob Gierkink.

To add to the confusion, Boots announced that there are 14 million holders of its Advantage loyalty card, though it admitted that only 10.5 million of these had used the card in the previous three months. It is surprising to hear Boots openly make this claim, as it shows clearly that it is not brand leader and it draws attention to the fact that 3.5 million card holders – more than a quarter of those who have signed up – have not even bothered to use the card actively.

And for the weigh-in

Gierkink explains the importance to Nectar of being number one. “It is important for us to be the most-used loyalty scheme in the UK; we have set out to become the best for the mass market. The only way to determine that is if we are the top loyalty scheme,” he says.

This is not a view shared by Tesco, however. A spokesman says: “Ultimately, I don’t think size does matter: people will vote with their feet.” The argument is a well-rehearsed battle between brand leader, Tesco Clubcard, clinging tightly to its position as it comes under threat from the challenger brand, in this case Nectar.

There are undoubted advantages for those brands that are leaders in their sector. Bates UK planning director Tim Broadbent says that for grocery products, a brand leader can expect average margins of about 18 per cent, while the number two brand must content itself with margins of five per cent. Meanwhile, the number three brand can find itself losing money. “It is a characteristic of brand leaders that they make more money,” he says. “It is a must-stock line and gets the best possible distribution. It is less reliant on discounting and has lower advertising costs because it is not trying so hard to grow. It can also help attract better-quality marketing people. There is a general halo effect to being the market leader – in the City and in the trade.”

But while some consumers are attracted to the biggest brands, others are put off by them as they seek exclusivity, he says. And he questions the validity of the proposition that the most widely used products are necessarily the best: “You have to look at the sector. The Sun is the most widely read newspaper, but is it necessarily the best?”

The logic of quality according to the number of users should mean that the food sold at McDonald’s is superior to that served up at The Ivy, that Coca-Cola is a better drink than Moët & Chandon Champagne and that the dramatic heights of Coronation Street outstrip those achieved by the Royal Shakespeare Company performing Hamlet at Stratford-upon-Avon. Just because most people adopt one type of behaviour does not make that behaviour superior. What about all those who joined the ill-fated Equitable Life with-profits insurance scheme? Or those who lost out on the dot-com boom?

While many financial benefits accrue to a market leader – in economies of scale, distribution muscle and bigger margins – it is the psychology of leadership that is of interest when running a brand.

The knock-out blow?

“Being number one gives a big boost to the int

ernal psychology of a business,” says Gary Duckworth, chairman of agency DFGW. “It is definitive. It shows you can’t be bigger; it helps build the internal identity of the business.” But he adds that when a market leader loses that all-important top position, its consumers and staff can feel cheated and let down. This may have exacerbated the demise of Marks & Spencer in the late Nineties, although Duckworth says the strapline “Exclusively for everyone” is a clever way around the dichotomy of marketing to consumers who are attracted to brand leaders and those who are put off by them.

Dr Joan Harvey, a consumer psychologist at the University of Newcastle, warns of the dangers of shouting about brand leadership. “It is tied up with status and prestige. You can boost the brand’s status by claiming leadership, but you can’t guarantee being able to sustain it. It attracts a following, but the downside is that it is OK when you are at the top, a limited number of people will follow you by association. When you are no longer number one, they may shift away from you,” she says.

Tim Ambler of the London Business School sees this as a “typically British attitude”: since you may suffer by being knocked off the top slot, you may as well not bother trying to get there. But it is not so much being number one that creates problems, quite the reverse, it is drawing attention to the fact and making it a part of the marketing strategy.

Another spat was initiated last week by T-Mobile, which claimed that it had overtaken O2 as the number-three mobile phone operator moving ahead of incumbent O2’s subscriber numbers: by adding 659,000 new customers in the last quarter to reach a total of 11,758,000 and nudging ahead of O2’s 11,449,000 customers. But an O2 spokesman dismisses this as irrelevant: “The main thing is we are not looking down at the bottom picking up customers, we are picking up post-pay customers on long-term contracts. The UK division has just reported the best quarter for four years.”

Leadership claims abound in mobile marketing – Orange claims it is the UK’s “most popular” network as it has the most active users. But the O2 spokesman does not believe that consumers care about how many users a network has.

Another advantage of being the top brand is that you can make generic claims about products in your advertising and assume you will benefit from them more than your trailing rivals. This was, in part, the thinking behind Tetley’s campaign pointing to the health-giving properties of tea. Predictably enough, rival PG questioned Tetley’s claim to be the number-one selling tea in the UK – Tetley is leader by volume, but PG leads on value sales.

Nor is being brand leader always a positive. Brand leaders can also attract generic criticisms, such as the campaigns waged by anti-globalisation protesters against Gap, McDonald’s and Nike. Nike was criticised for using cheap Asian labour to make its trainers, but curiously this criticism was not levied at Adidas, even though it did the same. McDonald’s is seen as a justifiable target for window-smashing protesters, though Burger King attracts much less ire.

The loyalty row last week demonstrates the real problem with brand leadership claims made to consumers: unless the leadership is large and indisputable, rivals will always find another way of claiming to be top. It may claim to be the fastest-selling, or have the highest value sales.

It is often hard for consumers to judge who is really ahead and brands risk being perceived as making misleading statements. But this will not deter them from making strident claims about leadership in the future.

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