After the gambling, we’re in need of some solid wealth creation skills

Now that the speculators’ bubble has burst, marketers’ traditional market alignment methods will come to the fore to make our businesses proposer

So how the heck are marketers supposed to rise to the new economic environment? As we return to our drawing boards to revisit sales forecasts, investment plans and brand and communication strategies, huge questions linger.

Seven years ago, the ratio of household debt to income was about 100%. Today, it’s closer to 175%. That’s a massive debt hangover that could take years to unwind. How will this painful process affect longer-term hopes and aspirations, markets for affordable luxuries and escape, and attitudes towards money and finance (will sections of the population return to traditional working class thrift – “never a borrower be”?).

And what about the broader context? Is this the end of a 30-year Reagan/Thatcher trajectory of free markets, deregulation and privatisation? If so, what will emerge to replace it and with what effects on economic prospects? As these doubts and questions swirl through the corridors of corporate decision-making, what contribution can marketers make? At one level – that of marketing as a beast of optimism and growth pushing and pandering to every passing consumer whim or aspiration – the picture looks bleak. At another level, however, it’s a huge opportunity for marketers to reclaim their roots and realise their true economic contribution.

Historically, there are only three ways to get rich. The first is plunder which has a long and venerable history but always ends in tears. The second is production. And the third is alignment. Of the three, alignment is both the Cinderella and the most important. Why? Because without alignment of supply to demand, production creates waste rather than wealth. The better organisations are at aligning themselves to their markets (no matter what the state of those markets might be) the more able they are to prosper: the better aligned they are, the more they can recycle waste into wealth, thereby creating more value at lower cost.

Marketing’s core alignment role works at many different levels. All of them are important. First level is what to make (and therefore what to invest in). If firms fail to align what they make to what the market wants, they end up not being able to sell it. Without such alignment production does not create wealth. It creates waste instead.

The next level of alignment is knowing how much to make (and therefore how much to invest). If you make too little you miss opportunities to meet needs and create wealth. And if you make too much you are back to wasting resources unproductively.

create wealth, not waste The next level is distribution: if you fail to distribute what you have made to the right places and people at the right times, then supply cannot connect with demand and (again) wealth creation turns into waste creation. Trade is one form of this alignment.

Finally, there is communication: if you fail to exchange the right information about the right things with the right people at the right times via the right channels, then even the best products and services won’t turn into revenue-generating sales.

Marketing’s job is to identify and deliver all these levels of alignment, upon which everything else depends. Ultimately everything marketing does is just a sub-set of (or alternatively a distraction from) this task.

Over the past few decades, however, lots of not-so-clever people began to believe they had discovered a fourth way to create wealth: by gambling on movements in the prices of assets.

This generated corruption at two levels. First, it corrupted our language and therefore our understanding. It dressed up gambling as a “market” like any other (when the Grand National comes round you don’t have a flutter, you take a position in the futures market for horse racing results). These people then declared these markets have to be “free” of regulation if they are to flourish, naming the ballooning sums allocated to these bets as “investments” (which makes them sound oh-so productive), and equating the risks of betting with the risks inherent in real wealth creation (therefore claiming equal rights to the rewards of risk).

The second corruption is that once you leave the world of production and alignment for gambling there are no limits to “growth” because you can bet on anything. It’s hard for a mature company in a mature market to increase real sales by 5% a year, but it’s very easy to double your bets year by year.

economic cancers In nature, activities which slough off natural limits to growth are called cancers. Today, notwithstanding bank nationalisations, every nook and cranny of our financial system is overrun by secondary cancers. We have cancer of the stock market, cancer of the currency markets, cancer of the commodities markets, cancer of the bond markets and most recently cancer of the mortgage market.

The scale of these cancers is breathtaking. Thirty years ago for example, 80% of all currency transactions were directly connected to real trade: to import oil, export food or machines, whatever. Today, 98% of all currency transactions are speculative. Currency bets equal the value of the entire US economy every few days.

Then there is the “market” for credit default swaps. Unheard of just ten years ago, CDS supposedly spread risk by letting you bet on the other party not being able to pay their bills. If they don’t pay their bills you win the bet, so your risk is reduced. (You can also bet on unrelated third parties not being able to pay their bills, which is a really cool way of profiting from their misfortune.) As of June 30, this “market” was worth $54.6tr (£31.3tr). In nominal terms, that’s bigger than the world’s economy (last year, the entire globe’s annual gross domestic product was $54.3tr).

It might be OK if these cancers were kept in economic quarantine and unable to infect the workings of the real economy. But that’s impossible. If you have multiplied your bets a hundred fold over the course of a year, why not multiply your salary a hundred fold too? City bonuses are part of the cancer.

More fundamentally, because the two modes of real wealth creation and cancerous betting use the same nominal counting unit (money) it’s impossible to stop them mixing. This makes it impossible to distinguish between sound growth and speculative bubbles, thereby fatally compromising the value signals we so desperately need to make proper alignment decisions – as we are finding out in housing.

So we have to return to alignment. Glamorous it may not be. But alignment lies at the heart of real wealth creation. In today’s climate, marketers who can help their organisations achieve this will be worth their weight in gold. v


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