Australian brands need a marketing masterclass

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Think about a market where the global financial crisis had little impact, annual inflation remains low and economic growth is consistent. A place where the banks are strong and the International Monetary Fund expects growth to outstrip every other advanced economy. Unemployment is so low there are skill shortages in key professions. And the sun is, metaphorically and literally, always shining.

Welcome to Australia. While the northern hemisphere has struggled through one economic winter after another, life has been good in Oz. Buoyed by a population half the size of the UK living on a land mass almost as big as America that possesses unimaginable natural deposits of almost every variety, Australia has emerged as a powerful and relatively stable economic force.

One might expect such a positive economic climate to breed successful brands. But the harsh reality for Australia is that for all its economic strength, its marketing and branding abilities are low to non-existent.

Can you name one strong Australian-run brand that has international success? You can’t count Foster’s or Ugg boots because, while both rely on Aussie provenance, both brands are owned and operated by overseas companies.

Despite a “country brand” that is continually rated as the most aspirational and desired on the planet, Australian marketers have singularly failed to achieve any international branding impact.

As 2012 progresses, it’s also becoming clearer that its major branded companies are struggling to even survive domestically. The likes of Pacific Brands, Billabong, Goodman Fielder and Treasury Wine, which own and operate the last vestiges of Australian brands, are all struggling with massive debt, sinking share price and major interest from overseas private equity.

The reason for Australia’s branding weakness can be traced back to one of the country’s former advantages – its isolation. Two supermarket brands held 80% of the grocery trade, two major news companies ran 75% of the newspapers, four banks accounted for 80% of the retail savings and loans, two beverage companies controlled two-thirds of all beer consumption and two airlines operated 90% of domestic travel. Australia became an oligopoly.

Other than a few brands dominating the market, oligopolies have some very distinct characteristics. First, they tend to result in very profitable businesses. But with low competitive forces, those profits are earned by companies operating at relatively low levels of strategic capability. Customer orientation is weak; product innovation is slow and infrequent; brand differentiation is low to non-existent; and the ability to react and respond to new competitors is extremely poor.

None of these strategic deficits should trouble a company operating successfully within an oligopoly. It is, after all, a market where big firms can achieve much by doing relatively little.

The problem comes when the oligopolistic nature of the market begins to break down.

As Australia’s economic wealth has grown, more and more international brands have looked to Australia for market growth. Big brands like Aldi, Zara, Costco, Next and Gap have all recently made entries into Australia.

And each new entrant has cut through the local competition like a hot knife through butter and enjoyed record annual results. Imagine a shipload of hungry lions washing up on the shore of an island filled with dodos. You get the picture.

The standard Australian response thus far has been to drop prices and run repeated sales promotions. Unschooled in brand management, most Aussie executives are unaware of the damage that sales promotion will have on their brand equity.

An alternative approach has been to seek out non-Australian talent forged from more competitive environments. Coles, the number two Australian supermarket brand, has enjoyed a remarkable recent turnaround thanks to a crack team of 30 British retailing executives head-hunted from Tesco and Sainsbury’s over the past five years.

The only other alternative open to Aussie brands is to sell up to companies better suited to brand management. If ever there was a damning indictment of the state of branding down under, it was the acquisition strategy of SAB Miller after buying Foster’s Group for £8bn. Having studied its new portfolio, SAB Miller laid out a three-point plan focusing on better marketing, brand differentiation and better relationships with retailers. When pushed on the apparent simplicity of the approach, Gary Leibowitz, head of investor relations at SAB, responded: “All of this might sound pretty obvious but in our view none had been done for any significant length of time at Foster’s.”

The sun might be shining and the economy robust, but the oligopoly is breaking down and Australian brands are unprepared for the decade of international competition that now threatens their cosy, inefficient marketing world.

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