There was a post on LinkedIn this week celebrating the work of eminent brand identity guru Michael Johnson and promoting an online course he was offering. Johnson is one of the few marketers that deserves that accolade. His reputation and client list spans decades of outstanding work.
Your humble columnist, on the other hand, is a dickhead. And when the post revealed the course was being offered for £9.90 thanks to an 83% discount, my dickheadishness had me furiously typing away a comment before I could stop myself.
“Needs help with pricing though,” I wrote.
The problem with price promotions
It was a cheap shot. Mais, je ne regrette rien. Any chance to demonise discounting among the marketing community must and should be taken. When I teach pricing, I go incredibly hard on any acceptance of price promotion as an appropriate or adequate tactical move.
According to Kantar, more than a quarter of all the products in British supermarkets are sold on promotion. It’s a lazy approach. Taken by marketers who either don’t believe in their brand or who are too addled by revenue targets and a myopic desire to please retail partners to find less eviscerating, sustainable ways to drive demand.
Let me make two early and important caveats. I attack price promotions because they truly are the crack cocaine of promotional activity. There are other less damaging, less addictive recreational promotions that can – in controlled and regulated application – do less damage and occasionally a lot of good.
I believe, for example, that value-added promotions like competitions can and often do drive purchase while building brand equity at the same time. And I am not necessarily arguing for premium prices in every instance either. Michael Johnson’s original £58 price point may well be the right one. That’s not my point. The target of my enmity is the promotional distance between the intended price and the one being offered. The damage exists in that delta.
Despite the inarguable damage that price promotions have on brand equity, customer loyalty and corporate profitability, I still get a lot of pushback from marketers who always preface their comments with “I understand where you are coming from,” but then go on to make some entirely unconvincing argument for their own current disembowelled pricing.
I attack price promotions because they truly are the crack cocaine of promotional activity.
And I am usually unable to persuade them of the folly of their ways. That’s a bittersweet feeling. Because I know that at some point down the line this arch defender of promotions will come to see the wisdom of my words and the foolishness of their agency. It just takes time. Time for the marketer to run price promotions. Time for these promotions to lead to more promotions – from them and their competitors. Time for customers and consumers to become accustomed to these promotions and withhold their purchase until they are present. And time for the marketer to see first gross margins, then overall profitability and – finally, as the promotions overwhelm the brand – the unit sales of the product decline as a result.
That’s in contrast to how a promotional addiction begins. When marketers run promotions for the first time, they usually witness an increase in unit sales. But while some of those sales often come from new customers or those who would have bought from competitors, much of them are ‘pulled forward’ from their own customers, who buy earlier or in bulk during the promotional period. This troubling proportion is invisible to many marketers, who simply look at the bullwhip shape of the sales line to justify their decision.
What’s missing from their approach is what happens next as the viciousness of the promotional cycle begins to whirr slowly in the background. Because the brand has pulled all short-term demand forward, it now experiences a sudden drop in demand. Worse, competitor brands that watched customers switch to your brand during the promotion now respond in kind with their own offers. The immediate, incredible high of promotion is over.
The addiction begins
And that’s where the real problem begins. Because your price promotion has done two things. It has created a demand problem and also taught you a dark lesson in running promotions to drive sales. So, you go again. And again.
Eventually, brands reach a rock bottom where promotional pricing becomes the norm. Selling at the recommended retail price becomes a minority activity. Many organisations then begin to cut quality, because their RRP is now nothing more than a bluff and their average selling price, many percentage points lower, now demands a lesser quality of construction for any profit to be possible. In an ultimate signal of trouble, retailers cordon off an ever-smaller section of their stores and signal a brand’s impending demise with a tragic two-word epitaph: ‘non-sale merchandise’.
There is a reason we talk about price promotions as an ‘addiction’, a ‘vicious cycle’ or a ‘curse’ that marketers need to ‘escape’, ‘kick’ or ‘survive’. It’s not just a sub-optimal approach, it is something that marketers do that hurts their brands now and which will lead to more hurt in the future. At first, this tactical self-harm happens within a protective envelope of ignorance. But, eventually, most marketers come to understand the true cost of price promotions, yet have no option other than to continue them. Their customers expect it. Their consumers wait for it. Hell, even their own organisation assumes they are essential.
And it’s at that moment that marketers, once so bullish in their defence of price promotions, ask a different question. How can we stop?
Escaping the addiction of price promotion
I am asked this question a dozen times a year. By good marketers who have either inherited the soiled bed linen of their predecessor, or who have woken up to their own shameful nocturnal ablutions. Either way, they are desperate. And I have, perhaps too frequently, brushed their impassioned appeals away with the cool observation that it is very difficult to escape the desperate, shitty lower levels that the vortex of price-promotional dependence eventually creates. They made their bed and must now lie there.
But there is hope. A few select case studies of brands that recognised the peril of price promotions, escaped the addiction that got them there, and lived not only to tell the tale, but to tell it with the clean linen of organic growth and climbing profitability. Their paths point to a seven-stage escape plan, which I call IGMFUCK.
I know, I know. It would be better if the acronym spelled something aspirational like ‘Success’ or ‘Fantastic’, or had a mnemonic in which all the letters were the same or were repeated. But I’m always suspicious of these kinds of textbook-hugging concepts. Something has to give to get an acronym to spell ‘Winners’ or become the ‘Seven Ls of digital performance’. So, I offer you IGMFUCK without embarrassment or apology. It is what it is.
And it is based on actual exemplars: my own client experience and a couple of public case studies. First, the heroic work of Arjun Deuskar, a marketing director at Dell, and his account to the Mi3 podcast of how Dell escaped the commodification of the Australian laptop market. Second, the extraordinarily effective work of Dan Winslet from KP Snacks, working alongside Charlotte Walters from St Luke’s on the Tyrrells brand of potato chips – as recently presented at Advertising Week Europe.
The seven steps of IGMFUCK
1. Ignore the sales line
You’ve seen this as much as me. Senior managers who study weekly and quarterly sales projections with the attention of a hawk. And yet, for all that corporate scrutiny, the little line chart with unit sales or pound projections tells most companies relatively little. If they were to follow the money to the source (consumers) and the manner in which it was achieved (with or without a price promotion) there would much more insight to be had. Indeed, there is a strong argument that an obsession with volume or unit sales ultimately leads organisations in the wrong direction, because it blinds them to profit and pushes them towards sales-generating price promotions.
Most organisations develop a promotional addiction because of an over-emphasis on sales and an ignorance of profit. That was the story over at Tyrrells, where an initially premium product had gradually seen prices decline over the years. Revenues remained flat, but by the time KP acquired the brand its profit had completely disappeared.
Dell followed a similar trajectory. “If we are talking about just growing units or shipping boxes, then we were doing okay,” explained Deuskar. “We were growing. But the question is growing profitably – and the signals told us that we may not be able to maintain growth profitably over a long period of time. We could keep dropping prices and still grow the share of the units. But that’s not where we want to go, because at some point in time, we will start losing money.”
No-one would argue that sales volumes should not be part of the corporate dashboard. But, alongside that data, there should be a keen focus on who is providing those sales and what price and profit have been achieved as a result. Too many companies exhibit a profound sales orientation in which volumes are seen as the lifeblood of the company. They are not. Profits are the lifeblood of every company. Sales are the broader delivery mechanism, but not the source itself.
2. Get the price right
Again, this is not a column about premium prices. It is a column about sticking to the price that the company intends to charge. Prior to any attempts to eradicate or reduce promotional activity, there should be a concerted attempt to check the veracity of the RRP.
That’s partly because it always makes sense to check your price with data. Partly because extended promotions might well have reduced brand equity and customer price insensitivity. And partly because you need good price data to show your organisation and retailers that the RRP is the correct price and the market will bear it.
An addiction to price promotions does nasty things to brand equity – it diminishes and commodifies a brand, thus creating the vicious cycle that then ensues.
In the case of Tyrrells, for example, the team at KP Snacks bought the brand in 2018 and, after conducting the appropriate research, reduced promotions to such a degree that a year later the brand’s average retail price soared by a whopping 29%. It would be lovely to tell you that removing these promotions instantly fixed everything. It didn’t.
Volume sales dropped immediately by a hair raising 27% as a result. A market weaned on promotion, bereft of brand equity and surrounded by competitors who continued to offer significant discounts turned its back on Tyrrells. Imagine a profitless brand now also staring at a 27% decline in sales. Panic would have instantly set in – were it not for the fact that the team at KP knew, with the correct strategy, their original price point would soon be seen as good value once again.
3. Manage senior expectations
To ensure that the Tyrrells team weren’t engulfed in a corporate crisis when they moved away from promotions, they had to convince the business of two things. First, the damage that sales promotions were doing to profitability. Second, the veracity of a non-promotional price point for the Tyrrells brand.
Once again, we need to talk about most marketers’ Achilles heel: their inability to earn senior management support and patience. You cannot earn this kind of support after decisions have been taken. Instead, it’s created on your past performance and on your ability to talk the language of the boardroom to make your case. To understand profitability. To make the link between brand and gross margin. And to have a strategy, a timeline and the ability to take your leadership team on the journey with you.
“The old adage says you spend 70% of your time convincing your own bosses and 30% convincing the customer,” Dell’s Deuskar explained on the Mi3 podcast. “Sometimes that’s true; it wasn’t easy. But when you can articulate what success will look like and tie that up with the fact that maybe we don’t have a choice and it’s going to pay dividends in the long run. Well, that’s the long and short of it.”
Too often marketers blame their dire situation on faceless CFOs and their short termism, or an anonymous leadership team who “don’t understand brands”. The fault lies not with them. It is a marketer’s job to explain these things. To manage up. And to gain the confidence of those in charge to back them as they take the company on a transformational journey that will be the making of the marketer in question. Lesson one for KP’s Dan Winslet, and his successful transformation of Tyrrell’s was simple. He had to “get the board aligned, not just about what branding can do, but what it takes”.
4. Focus on differentiation
An addiction to price promotions does nasty things to brand equity – it diminishes and commodifies a brand, thus creating the vicious cycle that then ensues. At some point in the journey back from the brink, a marketer must therefore return differentiation to their brand in order to justify the non-promotional price they now intend to ask for again.
Yes, differentiation. We have had to suffer 10 long years of Ehrenberg-Bass scientists telling us that differentiation is an old-world approach and that distinctiveness is now the new, superior way to grow brands. What utter horseshit. None of the arguments or data in Byron Sharp’s little red book, How Brands Grow, hold water here – and if you want a column on that topic alone I’d be happy to furnish you with one. There is simply no need to diminish differentiation to make the case for distinctiveness. Marketers should want both.
Along with all the incredible good that Ehrenberg-Bass has done for our industry on topics like mass marketing and distinctiveness, oversimplifying and undercutting the concept of differentiation stands as their biggest error. Thankfully, most marketers have ignored them on this point.
Clearly, unique differentiation does not, and has never, existed. Equally clearly, many marketers went mental and overstated what their brands could stand for and how many attributes they could lay claim to. But reasonable, experienced marketers can look at perceptual data and see where relative differentiation does exist, and could become a strategic advantage with focus and investment and time.
You aren’t going to be the only bank that is seen as ‘friendly’. But more customers, even controlling for brand size, perceive you to be friendly, and that attribute drives consideration. By saying it a lot. And not saying lots of other things. For a long time. With more money. And great ads. Plus clear distinctiveness. Allows relative differentiation to occur.
And that’s important, because while distinctiveness and salience are much bigger drivers of overall demand, differentiation is a much bigger driver of margin. The empirical work of Kantar should be instructive here. Again, I’m not saying one of these D-words is more important than the other. I am saying you want both differentiation and distinctiveness. To drive volumes. And to drive volumes at a better, sustainable price point.
That was clearly the case with Tyrrells. To justify their non-promotional price, the company had to find its position again. Not just the distinctive elements of the brand, but a personality that would allow the brand to project its premium status and offer consumers more than just another potato crisp. Tyrrell’s positioned its brand as having more intense flavour, tasting better and being more interesting.
The harder you work to irradicate most price promotions, the more attractive they become and the more damage they could do.
Note the adjectives here. They are super-important. Tyrrells isn’t claiming anything unique. Other rivals also have flavour, taste and some degree of interest. But the brand selected these three attributes (note: not 12) and positioned itself as being relatively different on each of them.
“That positioning,” St Luke’s Walters explained during Advertising Week Europe, “that personality is driving that difference. Driving that unreasonable desire through the personality actually can improve the memorability and make your product feel like it is worth paying more for.”
5. Use brand tracking to diagnose, benchmark and predict
Clearly there will be a lag between removing promotions and the restored premium demand that a focus on differentiation can eventually deliver. To manage this gap, it is essential that brands use their customer data. This data can help make the initial case for managing price promotions. It can then provide the benchmarks upon which improvement will then be assessed. And then it can demonstrate and predict the improved financial performance that is ultimately taking place but is yet to materialise at the bottom of the funnel in the form of non-promotional demand and sales volumes.
Marketing and sales aren’t different things, they are just different sequences on your funnel, and by showing them together you can remove a lot of the stupid binary tensions that exist between them inside most companies.
Both Dell and Tyrrells had purchase funnels in place to benchmark, predict and then prove the validity of their new strategies. Dell could point to “anywhere between five to seven points across consideration or familiarity” as a result of its strategic change, said Deuskar. Tyrrells saw significant jumps against its main competitor for consideration, usage and repurchase once its price promotions were removed and brand building had begun.
The lesson should be clear. Build a custom funnel. Populate it before you do anything. Use that data to diagnose the issues and then set the benchmarks. Then return to it to show senior management that changes are happening and good things are coming. Funnels have many advantages – perhaps the biggest of all in times of transformation is their ability to buy time and allow a strategy to play out in peace.
6. Change the focus from promotions to advertising
With clear positioning and funnel measurement in place, the other piece needed is a shift in marketing investment. It’s not enough to simply pull back from promotional investment; brands must rebuild long-term salience and perceived differentiation with a renewed focus and investment in communications.
“We decided to change where our investment sat in the P&L,” KP’s Winslet told the Advertising Week Europe audience. “We moved it from the bottom of the P&L to the top of the P&L. And we decided to invest in marketing rather than promotions.”
That investment took the form of new advertising that stretched across TV, print and digital media. The ‘Tyrrellbly Tyrrellbly Tasty’ campaign from St Luke’s captured the premium flavours of the brand with a clear tone of voice and distinctive creative.
“While you have to reach everyone, that does not necessarily mean that your brand has to appeal to absolutely everyone,” explained Walters. “That’s why we see so much ‘blandvertising’ in the industry at the moment. Brands that try to appeal to too many people just don’t stand out. We knew we needed an emotional connection to stand out.”
It was a similar story with Dell. “We always knew that investing in brand communications can be daunting – we were essentially investing in something that won’t pay back right away. Like all businesses with a bottom line, this is always a leap of faith,” Deuskar told Mi3.
His “hero piece” was a content series run with Australian TV channel Ten. The series highlighted Dell’s user base of small companies and the impact they were having on their respective industries. When Covid hit, Deuskar continued the series with a focus on ‘business as usual when nothing is usual’ showing small businesses still effecting change despite the pandemic.
7. Keep the focus on profit
With everything achieved and the shitty promotional period put behind your brand, it is still crucial to maintain a focus on profit and not just sales. Every brand must endure some degree of off-list pricing. It’s simply not realistic to suggest zero price promotions. The harder you work to eradicate price promotions, the more alluring they become and the more damage they can do. So once a brand has achieved the resurrection of RRP, it must continue to put profit ahead of volume sales. And maintain a vigilant focus on the proportion of its sales conducted at promotional levels. For the profits and growth to continue the prioritisation of brand over promotion must never end.
In the case of both Tyrrells and Dell, the brands are enjoying spectacular improvement in both gross margins and improved unit sales. The good news is that just as an overuse of price promotions hurts profits and then volumes, the reverse is also true. As you rebuild the brand, profitability returns and then volume sales also begin to grow too.
Tyrrells’ new profitability is bolstered by a 40% increase in volume sales since the removal of price promotions. And it’s a similar story at Dell where the brand’s growth in Australia has continued at both the revenue and margin level.
“Our sequential year-on-year growth was phenomenal – and I mean truly phenomenal,” added Deuskar. “They were 100% double-digit and that gave us the confidence that something was working. We used econometric models like media mix modelling, our internal financial metrics and also indicators from this brand research. And when we put all of that into the mix, it told us it was definitely working – and in some cases working better than we had planned.
“And that continues. So it was not a ‘one and done’. It was consistent growth that we saw every single quarter – and we continue to see that even up to today.”
The message for marketers is one of hope. You can escape the addiction to price promotions. You need skill. You need patience. You need IGMFUCK.
I know. I know. I wish I’d called it ‘Superb’ or ‘Impact’. Too late now.