Brand Strength, And/ OR Margin? We Say And.
Three Key Levers From The Worlds Best RGM Playbooks; How Marketing Must Be A PROFIT vs COST Centre to Succeed NOW & NEXT
In times of uncertainty, strong brands are more important than ever. How do you pursue ambitious strategic goals while keeping the budget in check? At such times, be it a global crisis like the coronavirus pandemic, supply chain disruptions, staff shortages, competitive dynamics, and political turmoil – it is precisely in times of uncertainty that consumers reach out to strong brands.
Strong brands create trust and accountability, especially where vacuums exist in the social and political landscape. They reduce the risk of wrong decisions. In food industries, they provide an extra layer of reassurance over and above regulatory bodies, telling us that our food is safe to eat. As new unicorns enter and disruptions dominate the media every day, the familiar, trusted brand becomes even more important than usual as a source of security and comfort.
Behavioural Delta
Many consumers have adapted their purchasing behaviour during this pandemic. European consumer data based on survey data collected in Germany from February 23–27, 2021, suggests that the pandemic has resulted in new distinct consumer behaviours that will have a lasting impact. Germany is less optimistic than non-European countries, except Japan, but more optimistic than other European countries. (slide 2) Engagement in normal ‘out-of-home’ activities is at an all time low.
Switching
A majority of consumers (62 percent) have switched stores and brands to save money during the pandemic alone. Consumers switch their supply sources so they can continue to afford their favourite brands; German consumers, in particular, are more likely to change a retailer or channel than a brand. In the US, E-commerce sales continue to experience outsized growth, with online penetration remaining approximately 35 percent above pre-COVID-19 levels, and e-commerce showing more than 40 percent growth over the past 12 months. At the same time, brick-and-mortar spending on retail categories has stayed relatively consistent during this whole period.
A strong brand is still the best defensibility against loss of market share. Consumer-goods manufacturers have no choice but to invest in their brands as they transition to the next normal. allocation and control of the marketing budget is becoming an increasingly complicated science. Numerous manufacturers have set up their own direct-to-consumer (DTC) sales as an alternative to brick-and-mortar retail, which has been closed for months in some cases, and in response to the growing importance of e-commerce. Many companies are striving to increase online sales anyway—a goal that requires marketing support. Large multi-brand providers are also faced with the dilemma of how to allocate the budget among the various brands in their portfolio and among the countries and cities in which they are present.
Margins
The problem is that many of the approaches consumer-goods companies have traditionally adopted to manage their marketing budgets (for example, “ad to sales” or “share of voice”) are outmoded. And although organisations have the data for fact-based budget management, it is often not used consistently enough. This is common knowledge among practically all marketing decision makers—many of whom long for simple solutions to navigate these new, complex times. Chief financial officers, supervisory boards, and investors are putting the screws to marketing leaders. “Our company has clear profitability goals. It’s my job to help reach those goals. If I fall short, the perception is that I’m part of the problem,” the CMO of one global consumer-goods company told us, for example. But is it really possible to do both? Can the brand be strengthened and margins be improved by systematically addressing demand, transactions, and loyalty?
HOW CAN MARKETING BECOME A PROFIT CENTRE, NOT A COST CENTRE: NOW & NEXT.
Successful companies, ie those at the top of the food chain, have managed to leap-frog the competition by investing in optimisation and spend analytics to help generate profits. This generates profits which in turn will pay for future growth. They also do well at combining three elements in their marketing and revenue growth strategy to meet the basic coherence tests for growth: strategic allocation, optimisation, and an adaptive ecosystem.
1. Strategy: Aligning budget with goals
Aligning budgets with organisational goals and economic value drivers needs to be at the top of the to-do list. Our work at Fifth P, working with global Tier 1 brand manufacturers, revealed a key need (and opportunity) for prioritising investments and spend against a profit (not a cost) centre. For marketing to make it to the top table we need to demonstrate that we are a profit, not a cost, centre. This requires an alignment and focus across functional specialisms in the organisation. With support from the C'suite, marketing and revenue growth teams must ensure that goals are not vague ie reach more women, or improve awarness, or perception of brand sustainability. Gearing must take into account budget and allocation towards strategic value drivers e.g. coverage of important sales channels (brick-and-mortar footprints or e-commerce shares) or the influence of key purchase drivers such as a reputation for being “innovative” or “reliable.”
Consider re-staging investments using trusted processes for committing investments across short, medium and longer horizons—for example, re-balancing the price, portfolio and promotional architectures (short and medium term) with longer term investments such as sponsorship contracts in the sporting goods sector or toward the engagement of prominent brand ambassadors in categories such as fashion and cosmetics. It is important to keep in mind that such commitments must also be sufficiently actuated by the media for them to achieve their full impact.
(for more on our accelerated Revenue & Profit Growth models, pls send an InMail for specific case studies where our teams built first-mover models to prioritise these elements of strategy using proprietary algorithms that enabled knowledge sharing across functions, for £10bn players such as Coca Cola, Mars, Unilever, Carlsberg, etc al, across the US & Europe)
2. Tactics: Testing is key
Build, test, learn. On the ground experience in global RGM and price, promotion and marketing transformations within the global top 50 revealed a lack of ‘Review’ and Testing (POST) vs an over-reliance on ‘Planning’ and ‘Doing' (PRE). An imbalance of top-down vs bottom-up testing leads to increased initiatives in the PLAN and DO phases but very little in REVIEW. High performance 'growth marketing' budgets need the right media and assortment mix. Complexity is rising and cut-through is becoming increasingly hard to do. Above-the-line media such as TV and out-of-home advertising can be supplemented by digital channels and tools such as search engines and social media, as well as with ever-newer platforms—for instance, Instagram, TikTok, Discord, and Clubhouse. Currently, almost all the growth in global media spend is attributable to increasing investment in digital media.
In some sectors, marketing expenditure has begun to outpace sales growth, a phenomenon that hasn’t been seen for quite a while. A recent McKinsey survey found that 78 percent of CEOs are now banking on CMOs to contribute to growth, which means CMOs must translate full funnel marketing into a budget allocation for brand and margin.
3. Ecosystem: Brand Marketing and Revenue Growth Management ‘SWAT teams’ with aligned strategy and tactics across sales, marketing, finance and supply.
A start-up with just one brand doesn’t need an agency network. A group with a large portfolio, on the other hand, will not be able to manage media on its own. The marketing ecosystem has to match the complexity of the task. Adjustments to a marketing strategy should not be taboo. The prerequisite for the optimal use of resources is, above all, the efficiency of the media. To verify its reliability, an audit by an independent service provider is recommended. The latter verifies that the agency fulfils the agreed conditions. Many brands are increasingly moving away from paid advertising and focusing on developing their own content, which is then also broadcast via their own channels, such as on the brand’s website, on its social media profiles, and in newsletters. This move is not motivated primarily by savings but more so by fit and credibility.
The Future: NOW & NEXT
Dotcom step change is sticking. Leading companies increasingly deploy mixed Revenue Growth Management teams with brand management and financial expertise, set clear responsibilities, and use modern sophisticated analytical planning tools with advancements in personalised marketing, the relevance of smart data use for budget control, campaign management and strategic planning becoming increasingly critical.
In uncertain times, strong brands offer consumers security and protect companies from market share losses and becoming irrelevant. Investing in the brand does not have to compromise profitability; leading companies see the revenue growth and marketing department not as a cost centre but as a profit centre. Modernising strategic and tactical management with marketing mix models and A/B testing is essential for increased optimisation and efficiency.
For more please reach out to me in person. Thank you for reading. All comments and inputs most welcomed.
Sources:
https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/survey-us-consumer-sentiment-during-the-coronavirus-crisis
https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/survey-german-consumer-sentiment-during-the-coronavirus-crisis
https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/survey-german-consumer-sentiment-during-the-coronavirus-crisis
About The Author:
Andrew Soteriou, Founder & CEO at FlowLabs, fmr COO at Fifth P (Europe's Disruptor Revenue Growth Strategy Consultancy), Strategic Advisor at PWC/ Strategy&, Global Revenue Growth Director at UpClear (New York & London) and CMO at Strategy & Consumer Tech Scaleups, Expert in Price, Marketing & Advanced Revenue Growth Strategy & Capability and Host of FlowLabs 🎧 podcast.
Speaker: US Consumer Goods And Technology Events, Webinars, Keynotes and User Groups in London & New York, speaker at the Price Optimisation Institute (Geneva and Budapest), and panel member and keynote at the AI/ Big Data and Smart Cities Expo (Amsterdam)
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