Marketing in a crap economy

PANELISTS

PANELISTS

Scott Allison is VP sales and marketing for Marriott Hotels & Resorts of Canada. He has an extensive background in hospitality, airline and tourism marketing and consulting in Canada and the U.S.

Steve Allmen is GM, business development for Aeroplan, where he leads new business partnerships in the retail, CPG, financial, travel and B2B sectors. Steve has worked in the loyalty industry for over 10 years.

Tony Chapman is the founder and CEO of Capital C, and one of the youngest people to be inducted into the Marketing Hall of Legends.

Geoff Craig was until recently VP and GM brand building at Unilever Canada, working on brands like Dove, Becel, Axe and Knorr. Our 2007 Marketer of the Year, he is currently enjoying time off ‘between successes.’

Tony Matta is VP marketing for Frito Lay Canada. He has over 10 years of marketing and sales experience in the CPG industry, working on brands such as Lay’s, Doritos and Tostitos.

Alex Panousis is SVP at Starcom MediaVest, where she directs strategy on brands like Kellogg’s and Nintendo. She has experience in media, advertising and sales at the CBC, PHD Media and the National Post.

Ken Wong is associate professor of business and marketing strategy at Queen’s University. He has also taught at Carleton and Harvard, and is an inductee into the Canadian Marketing Hall of Legends.

MODERATOR

Joan McArthur is a partner at 27 Marbles Training, where she teaches advertising and marketing professionals. She also has 20 years of agency experience.

We all know the economic news isn’t good. Canada slipped into a recession in late 2008, with employment rates, housing starts, commodity prices and consumer confidence all sinking. In the U.S., despite the Olympics and a presidential election, media spend declined 2% in Q3 2008, per TNS Media data. This came on the heels of a 3.7% Q2 drop, the steepest decline since 2001.

In Canada, Scotia Capital predicted last month that overall advertising in Canada will drop by 4.6% this year, with conventional TV spending taking the biggest hit, followed by print and radio. And P&G in the U.S. said it planned to look at more aggressive media cost-cutting.

And yet many observers are optimistic, pointing out that history demonstrates the value of maintaining ad expenditures in a slow economy. Speaking to Media in Canada upon the release of Bensimon Byrne’s Consumerology Report last spring, for instance, agency president Jack Bensimon cited a Strategic Planning Institute study that revealed an average gain of 1.5 share points for brands that increased spending in a recession. And a McGraw-Hill study from 1987 found that companies that kept spending on advertising through the 1982 recession were rewarded by a sales hike of 275% over five years.

So how can Canadian marketers deal with the harsh realities and achieve a positive outcome? Strategy gathered together a roundtable of experts, facilitated by exec editor Mary Maddever, to provide marketing, agency and academic perspectives on the crisis – as well as on the opportunities that might lie ahead.

Joan McArthur: There is evidence that marketers who spend through a recession show an increase in market share.

Ken Wong: But you still see surveys in which 40% of companies plan to cut back on marketing, largely to support lower prices. It comes back to that myth that you’ve got to cut price to preserve market share. The reality is that for the average North American business, every time you cut price by 1% you’ve got to increase volume by 3.5 points just to get even.

Alex Panousis: I think it’s about how you maintain share voice at lower cost. Marketing is a cost that can be easily cut back, but how can you spend a dollar to get five – and really get five, as opposed to four plus value? That’s a legitimate concern. Our mantra is the U.K. slogan from World War II, ‘Keep calm and carry on.’ If you’re taking a price cut, the return on investment isn’t going to be as strong in ’09 as it was in ’08.

Wong: The scary part is that companies haven’t understood the notion of brand equity, that marketing is an investment that gives you something. The McGraw-Hill study, the one that shows 275% gain within five years, reveals that in the first three years, there’s only about a 25% gain. It really ratchets up, which reflects the momentum once the economy kicks back in. You have to see that a dollar spent today will pay you back four or five years from now.

Panousis: In the past 18 months it’s been all about short-term return on investment. If you put a dollar out there, you want to see that back in the first quarter. Unfortunately, brand equity measures are not as strong a lever anymore.

Scott Allison: One of the challenges is that the marketing funds available are a function of the revenue, and if the amount of money available is less, you’ve got to find ways to spend smarter. We’ve been facing this in the U.S. since last January. In Canada, we haven’t seen nearly that impact, with the possible exception of Vancouver. But across the board, it’s about spending smarter, taking advantage of newer technologies and staying as close to your customer as possible. We’ve redeployed some dollars and protected the sales piece, although that’s a short-term approach. If we’re not close to those customers, we run a greater risk.

Geoff Craig: It’s oversimplified and perhaps pedantic to say, ‘Just keep spending and you will get the result that history is showing.’ Because I’m not sure history is a perfect predictor. Do I believe we should keep spending? Yes. But it’s more complex than that. We started talking with our clients five months ago and tried to lock them down three months ago, and they’re likely going to need retooling on a monthly basis as the severity increases. But I think it’s about an attitude and a mindset, having a clear assessment and strategy and acting very decisively.

Steve Allmen: We’re at the beck and call of our partners’ marketing budgets. And they’re concerned, so we have to keep generating marketing but also respect the fact that there is uncertainty. The bulk of our business is driven by two credit cards and an airline. So we have to be retooling, and every day is a new, interesting twist. There are no rules anymore, and it’s fascinating to watch our partners say, ‘Help us do it better, measure everything, predict everything but don’t ask us to spend a lot of money.’

Craig: There are a couple of contexts here. One is that Wall Street, Bay Street or whoever you answer to will still be driven by returns. The second is that the majority of media dollars in this country are still being spent on TV, which is an ever-declining value. In terms of the media buy, I think this is the opportunity to do a complete overhaul.

Panousis: I agree. It’s the tyranny of precedent. In the early ’90s, we were all talking about opportunities to reach. And if opportunity to reach is now engagement or return on investment or something more intangible, then the whole way we’re operating has to change. Now we’re forced to take action.

Wong: I’m hearing a different vocabulary in the field. It’s all about marketing productivity, and they’re saying it’s time to reengineer the relationships, to restructure around the core competencies. You’re seeing more pursuit of what they call ‘horizontal integration,’ in order to gain some scale. My fear is that someone is going to say, ‘What works in production will automatically work in marketing.’ What it really says is that marketers had better start paying attention to some of the literature in general management, because their boards are going to force them to adopt these protocols.

Craig: That’s a great point, because return on marketing investment is a very difficult thing to wrap your arms around. And if somebody has the model to measure the effectiveness of social media, I’d love to see it.

Allison: Because online is so measurable, people are redirecting more dollars into that, and there’s no accounting for all the brand creation and the traditional marketing that gets them to your site in the first place and creates the brand value. So you have to be careful. It’s easy to go to things that people take comfort from, but there’s a lot more behind it.

Wong: The problem is that expense reduction is 100% guaranteed. You fire somebody, their salary and benefits are gone. The promise of delivered sales down the line is less clear.

Tony Matta: I think the way to lead is to look at the times and think about the most strategic investments to make. Yes, there are going to be some cuts of the fat, the stuff we wanted to try because it was cool or we’d learn from it. But then you go out and make the most strategic investments for the long term. Frito Lay is very operation-focused, and that productivity finds its way into other parts of the organization and forces us to be very efficient. Maybe we don’t measure return on investment in a calculated ‘here’s the investment, here’s the return’ way, but the marketing team is looking for the feeling of five dollars for every one dollar spent, and the way to generate that is not by buying TV, it’s by long-term partnerships that deliver incremental value.

Allison: That’s an interesting point. We’ve had an incredible relationship with Pepsi since 1990, and we just restructured a new partnership that takes it to a whole other level. Because when it gets tough, as it is now, you know that with longstanding partners you can help each other in so many ways. We have a great relationship with Accenture, and we don’t sell Accenture room nights, we sell enhanced productivity and satisfaction on the road. It changes the rules, so that you’re not talking about whether it’s a $149 or $159 room rate. That’s a hard-to-get-to place.

Allmen: One of the things I see – and I deal across a number of industries, like CPG, hotel, travel, air, financial services – is that because people are scared, they’re open to new ideas. They might try it small, but they’re saying maybe it’s time to revisit things they’ve been doing for 20 years. Traditional media may not be where they want to spend because they don’t know what they’re getting for it. The other thing is that they’re open to sharing their ideas with non-competitive partners, in categories that maybe they were never in before. And if you can create that new alliance, you can open up new doors.

Craig: I agree with questioning everything at this point, but that’s against a mindset of processing information quickly, where planning cycles are no longer a year, they’re more like three months. So how do you invent a new model on the fly?

Panousis: One of the things we talk about with our clients is the difference between empirical data and practical intelligence. We don’t have a year to develop a media plan or a partnership, so necessity drives innovation, and you’ve got to have people who are smart and sharp enough to mine the best ideas.

McArthur: How important is mindset in these times?

Craig: Incredibly important. The first question everyone has to ask is, is this an opportunity or a problem? As soon as you find it’s an opportunity, you start having a different mindset, and that allows you to take a structured and strategic approach. It starts with betting on your winning ponies and goes down to maximizing the mix in all that you do, from shelf assortment to skew rationalization. Everything needs to be up in the air.

Wong: It’s like Revenge of the Nerds. The ability to be structured and strategic and think on the fly means you’ve got to have a model in your head of what’s driving your performance. One thing that amazes me is how few companies do. They’re still relying on some breakthrough piece of advertising that wins the day for them. But the great businesses have this almost mathematical formula. They know what the factors are, the levers they can pull when things go wrong.

Allison: That has a lot to do with culture. I’ve had the good fortune of working for companies that are owner-operated. Although Marriott is publicly traded, Bill Marriott at 75 years old is still involved in the day-to-day operations. He has a lot of credibility as somebody who can help people stay focused on what’s important. There’s a lot of data and we analyze everything, but the key value is: look after the associates and they’ll look after the business.

McArthur: Has anybody detected knee-jerk reactions that are dead wrong?

Allison: We had hotels under construction with Lehman Brothers, and when they went bankrupt construction stopped. When that stuff happens you get people reacting quickly. A large hotel gets a group cancellation and drops its rate by $100 a night, which can disrupt the market quickly. Providing calm in turbulent times is critical. I think Bob Crandall of American Airlines once said the airline industry is governed by its dumbest competitor, and in bad times everybody takes turns doing that.

Allmen: Some cost-cutting ideas have been on the back burner, and people are using the economy as an excuse to take advantage of that, whether or not it’s justified. The airlines got hit by the fuel crisis and did all kinds of crazy things, but when the fuel price drops they keep the crazy things. So there’s stuff you question now a bit more. Why are you doing it? Because it’s knee-jerk, or because you’re the jerk? A lot of it is people trying to save their own jobs.

Panousis: On the consumer packaged goods side, a lot of innovation feels like it’s dropping off. Where a year ago there were maybe 100 products being launched, some utterly useless, now the CEO is stepping in and saying, ‘I don’t know, is that really going to work?’ I think it makes it better. Now we’re spending more time scrutinizing consumer data and being more methodical about what the one big bet is, as opposed to a hundred small ones.

McArthur: How can you keep in mind long-term planning and deal with immediate issues at the same time?

Matta: I honestly believe it’s a time of opportunity. This is a natural thing that the economy goes through every seven to eight years. It sucks, but there are going to be winners coming out of it. And I think that forces you to make fewer, bigger bets and get focused as an organization. It can be very cleansing if you keep your head and know your business.

Price discounting is going to be the most consistent knee-jerk reaction. You’re hearing about all kinds of crazy stuff, like Starbucks in the U.S. offering dollar coffees with free refills. And it’s the dumbest thing you can do, because you’ll build it into your base and never recover from it. You diminish your brand equity, and whenever this thing ends, you’re in a much lower position. If you want to create value, create it with the things associated with your brands. The car guys did that. It’s not the car that’s cheaper, it’s the financing. Or giving gas with purchase. Or finding associated relevant discounts that don’t affect the value of your brand.

Wong: I ask every audience the definition of value, and they say it’s cutting prices. But value is supposed to be a ratio of quality to price. I can increase value by giving better quality at the same price, and if I do that, I protect my brand better.

Panousis: One thing I’ve noticed in the media is a sense of value chic. The number one wine at the liquor store this year is Fuzion $7.45 Argentine wine. It’s interesting.

Allmen: It works for us. Where people before were hoarding their air miles to do a big trip, this year they bought Christmas presents using their miles because it’s not money out of their pockets. That’s a good news/bad news story for us, because where some of our retailers and business partners might cut back, consumers are accelerating what they’re doing with our program because they want something back.

The downside is the cutback on travel and entertainment, because that’s a big part of our business. So we have to work with our partners to drive our members into their locations. We just dropped $70 million into Air Canada to help it through a cash crunch. We were going to buy the seats anyway, we just accelerated the payments. Now we want something back from Air Canada.

Tony Chapman: This is the first time we’ve been in an economic downturn with 24-hour news media. We’ve seen the sharpest drop in consumer confidence in one month ever, down 38%. I look at the marketers who have populated the market with 3.3 million brands, and how many of them are really relevant? We’re going to see pricing at a level that we’ve never experienced before. There’s a massive inventory buildup that has to be cleared, and the consumer’s not spending.

Wong: All the more reason to be careful with cutting prices. In the ’70s we had the psychology of inflation: you bought as soon as you could because if you didn’t, tomorrow it was going to be 10% higher. Now you’ve got a consumer who’s constantly expecting a deal. I was in the States last week, and coming in from the airport I saw a guy with a sandwich board saying ‘Circuit City Warehouse Sale, 40% Off.’ The next day we went back to the airport and he was out there again: ‘Circuit City, 60% off.’ I’m convinced the consumer is sitting back and saying, ‘Let’s wait.’

Panousis: This is a market correction. For the longest time you had conspicuous consumption, 14-year-olds with $2,000 Louis Vuitton bags, and that makes no sense. Is it just that we finally are realizing it’s ridiculous to have 12 credit cards and not be able to pay your minimum every month? And then the green movement and this whole notion of hope and Obama. As much as there is doom and gloom, there are also consumers saying, ‘Now I need to live within my means and figure out what that is to give myself confidence.’

Matta: But that’s just the latest version of an old story. It’s the simple re-segmentation of that consumer base, with different proportions of consumers falling into new segments. The organizations or brands that can understand that new segmentation are the ones who are going to get out of this.

McArthur: Yankelovich published their latest monitor, and they’re talking about a trend that’s been coming for some time, a desire for life experiences over acquisitions. They’re calling it ‘hiving.’

Wong: I have a lot of trouble with the presumption that one movement is going to capture all consumers. It’s just wrong. Segmentation is what tells us whether we’re spending money on something that creates value or just spending because we’ve always spent that way. If you really want to enhance productivity, you get rid of bad costs and pass them onto the customer in the form of more of what they want or lower prices. That’s always been the key to process innovation, right? Segmentation has let us down – this notion of doing everything on the basis of demographics, like demographics is the only thing that tracks our behaviour.

Chapman: Multinationals work best with one-size-fits-all structures. But a lot of innovation is through entrepreneurs that plant seeds and grow them. They have to rely on new media because they can’t afford to shout like the big boys, and they plant enough seeds and get enough scale that a multinational comes along and buys them. But as the multinational digests them, it creates a one-size-fits-all so it’ll get its return on investment. And the world is moving toward personalization. Procter’s done a phenomenal job of being a curator of innovation around the world, and fast-tracking it, if it fits into a category. It’s a whole new method, and it’s the greatest opportunity.

Mary Maddever: What do you think is going to happen in terms of agency consolidation and media?

Matta: You’re going to have short-sighted marketing organizations saying, ‘Let’s go back to the most minimal approach,’ and forward-thinking agencies seeing an opportunity to break rules. Media sellers are breaking rules that they would never have broken before, like how much you can influence content. At Frito Lay we’re very optimistic about the opportunities today as opposed to a few years ago.

Craig: We need to blow the whole thing up, starting with television, because it still takes a significant amount of dollars. Bob Garfield wrote an article called ‘Chaos Scenario,’ and he talked about when the penetration of PVRs hits 40%, you’re going to see the deterioration of programming. And we’re not far from that. As an industry we need to band together and have a revolution right here, right now, because the value is shit, how you buy is shit, and we’ve got to turn it on its head. And not just about getting a better deal through partnerships. I don’t think that’s good enough.

McArthur: The division between sales and marketing is another long-standing issue, and I’m wondering if these times are going to provide the challenge to make them work together.

Matta: I don’t think that division is everywhere. I don’t know how many are still out there with the old school of silos of sales and marketing.

Wong: There’s no role definition right now. I can’t put sales and marketing in a room and have a discussion among equals. They’re not equals. Short term is driven by field sales; they have to produce the numbers to impress the investors. My notion is let them do their job, but run it by marketing to make certain they’re not impairing the brand. Let marketing take the medium-term view, because that’s how long it takes to develop some brand equity. And then have them filter it through the sales guys. So you can have this changing power depending on the scenario.

Chapman: Yet it’s the sales guys who drive the media channels in terms of how much money I pay to get my products on shelves, off shelves, and through the shelf.

McArthur: How will this climate affect your expectation of your agency?

Allison: This is a time to be opportunistic. If you’ve got an agency that pushes you, the challenge is having the courage to stay in it, because it’s going to be a tough time. If you don’t deliver on a sustainable basis, it’ll fall flat. Understand your story and how you get it out, and sustain it over a period of time.

Our business is different from packaged goods, but we still have this huge volume of people we’ve got to sell to every day, whether it’s business travel or leisure travel, and our agencies have to have a clear understanding of all the segments and the different things that motivate people. We’ve done a lot of things differently than Bill Marriott would have. We did a thing where he was in a bathrobe in the middle of Times Square when we rolled out our new room product. He was way outside his comfort zone, but an agency had the courage to suggest that, and that’s what you need.

Wong: To me, an ad agency is an outsourcer. What can the agency do for me that I couldn’t do for myself? What is there about their specialization, about the breadth of their client base and so on? There has to be that case made, otherwise there’s no value add other than co-ordination.

Craig: As to what the client is asking of the agencies, I think it’s more for less. I know that sounds simplistic, but at the end of the day you’re going to have set resources. I get the outsourcing analogy, but when you have a strong relationship with an agency, they’re contributing beyond their mandate. And I think you’re going to demand greater involvement, better ideas, better service and greater partnerships between that agency and others, because you’re all going through this together and whether you come out as winners depends on how strong that model is.

Chapman: The way you guys are organized and the way we’re organized has to change. If you say you want more for less, you’ll get it. With this volatility in the market, people will be willing to do anything for you. If you want better results, you’ve got to have your marketing, sales and customer marketing working in harmony and you’ve got to have fewer, bigger, better suppliers on your team. And you’ve got to give lead status to one agency because you’re going to get better results. That’s a model change that a lot of multinationals are just starting to go through.

Panousis: It’s true that media agencies are hiring people that are not traditionally media oriented, and creative agencies are hiring media people. They’re going to do more of that, because they want blank slate evaluations of everything, and they want someone who can sit in front of the CEO and talk about advertising as a holistic connection point as opposed to a silo.

Allison: It’s about the big idea, and finding the people who can execute it. If you go at it from a traditional perspective, people will come back with the solutions they’re most comfortable with. We hired a company out of California called Ideo to do design work for us, and we got other people to help pull it through because they didn’t have that capability.

One thing that’s helped us is people who can work faster. When I started at Marriott, it could take years to get a campaign out, because we had to get all the owners and franchisees to agree. Now we do it in weeks, sometimes faster. We’re a different kind of organization, from the ground up as opposed to the brand down, and we’ve got to be faster than we’ve ever been.

Wong: I don’t think you can have speed without direction. I’m seeing two responses: the company that says this is what I’ve got to do today and then stops; and the company that says this is what I’ve got to do today, and this is what I’ve got to do tomorrow when I get done what I’m doing today. If you have that sense of your medium and long term, you can empower your people to do things faster and more autonomously. If you don’t have that built into your planning, then you’re developing your strategy every operating cycle, and you can’t do that and be effective.

Chapman: I agree. First, you need consumer insight, then you put a platform in place. In the old model I do one big old operating plan, and if it’s not working I cut, do research and make another plan. Think of it as Gen Y coming into the Gen X marketplace. Their whole world’s about instant affirmation. Are we trading Gen Y in our marketplace? Are we taking advantage of that brainpower? The new model is ‘my insight, my platform.’ So I don’t know if it’s speed. Multinationals? Silo driven. A lot of agencies? Silos. We have to change this model. And Canada’s the perfect place because it’s small enough. If we don’t change it, you’re going to see head offices disappear.

McArthur: The agencies getting it in the U.S. are not based in New York. It is that regional and more containable kind of test tube area where things can really happen.

Chapman: They attract a certain kind of clients, too, the Davids rather than the Goliaths. They have to do something different. When you’re a multinational, you’re less likely to change the strategy that got you there.

Wong: The rules are simple. You cut the fat to give yourself room to manoeuvre. You resist cutting price for the longest possible time, and when you do, you do it in a temporary way so you can bump it back. And maybe that means you’ve got to work on brand equity, to live off what you’ve built up. It’s not going to be business as usual.

Maddever: What can you put on pause with the least long-term impact?

Allison: We’re not cutting sales. What we are cutting in the short term is more of the historic brand. We have a strong culture and know we can deliver the brand every time somebody consumes the product. We will be strong in anything on the web, because our businesses continue to grow. We’ve been working with our media-buying company because they’ve been very innovative and have helped get our message out to the customer. One thing that’s critical is customer insight. We have to understand what the customer is doing and how they’re changing, why Gen Y is buying hotels differently than Gen X.

Allmen: We’re looking at not cutting, but tweaking. Do we need four issues of one magazine, or can we do three? Some of it’s also driven by green strategy, moving toward the web and away from direct mail. We are making adjustments that are reactionary to the economy, and we haven’t heard all the things from our partners because they’re still planning.

Wong: Do you hear about spending to collect information now, before making plans?

Allison: We are. There’s a number of channels and products that we need more information on. And our partners are asking us to go out and talk to our members about what they’re thinking. We’ve also got partnerships with Asking Canadians and Harris/Decima. Our partners are hoping to get ahead of the curve by asking customers, but sometimes they don’t want to ask them directly, they want to be more subtle about it.

Wong: That’s kind of contrarian. You’ve got to spend in order to know where to save so that you win, and you’ve got to win in order to have more money to spend. It’s a difficult story for a board of directors to accept, especially since most boards don’t have marketers on them.

Maddever: Does this win-to-spend idea put the focus on mass while smaller programs take a back seat?

Craig: It can tip the scale away from brand-building, but not necessarily. There’s no one-size-fits-all. But you can’t have platitudes about consumer understanding and use two-year-old data. I can’t believe the shifts in Canadian attitudes and consumer confidence in the past month. So you need to spend the money, which hopefully will result in better return on investment in the long run.

Chapman: We can leverage media like never before. The chief technology expert at Hewlett-Packard worldwide uses Canada as a petri dish. He has a concept called ‘the Rembrandts in the attic.’ HP puts seven new tactics out every day in the world, and they’ll be lucky if they use one.

Why aren’t we the country that can take those Rembrandts in the attic and test them here? Typically we don’t even get on the radar screen of a big company like Pepsico because we don’t have the scale.

Wong: The small opportunities get put on the back burner if you equate success with volume. But if you equate success with margin, small opportunities become attractive. And what’s more fun to sell, something mass marketed to a gazillion people or a niche product? I’d always rather work on that small product. So if the recession draws us away from a focus on volume and gets us to think about market potential, that’s great.

Craig: I’m the last one to put Canadian innovation on the back burner. But it makes sense to focus on your big winners in a recession, because you do not have the money to take a lot of side bets.

Wong: I get what you’re saying, you’ve got to be selective with problem children and protective of the stars. And I guess what Tony’s saying is that once you’ve decided to make some bets, come and make them in Canada.

Chapman: My point is, if we’re just focusing on the shooting stars, how long are they going to justify head office’s attention here? If Texas and California, which has a bigger GDP than Canada, are focusing on the shooting stars, what is our role? It needs to evolve. There’s no way the U.S. will smash together marketing, sales and customer marketing. But they might do it in Canada. They might find a new model.

Craig: There’s nothing like a strong foundation to build the other pieces on. It’s not an either/or situation. But there will be selectivity; that is the reality of a recession. If we go for it, fantastic.