Marcel Corstjens debunks marketing myths
The author is none less than trade guru Marcel Corstjens, Emeritus Unilever Chaired Professor of Marketing at French business school INSEAD. The former non-executive board director of Jerónimo Martins and member of the advisory board of TrueStart is now also an entrepreneur and consultant.
Although the title may arouse expectations of a more erotic nature, the subtitle, The New Battle for Mind Space and Shelf Space, evokes the smash hit Storewars Corstjens co-authored with his wife Judy in the 1990s. In this context, penetration simply means what the Germans would call Käuferreichweite, i.e., the number of consumers who buy your product and the number of households shopping in a store at least once within a defined period of time.
In his latest literary provocation Corstjens examines a number of 'standard truths' in marketing that are still taken as gospel by most retailers & brand owners. The illustrious professor then proceeds to demolish them with caustic wit and palpable glee.
But, doubtless to the horror of all who prefer the mental laziness of clichés and the supposed safety of groupthink, 'Penetration.' goes far beyond entertaining polemics. The recalcitrant academic uses a broad range of empirical data to bury one generally accepted marketing myth after another.
Concentrate on your core clientele, create an emotional rapport between the customer and your fmcg brand, invest big bucks in R&D to gain competitive edge, advertise in digital rather than TV ads in the cyber age, buy shares in retailers because they are far bigger than suppliers and have the whip hand – all elementary, dear reader? Please think again...
Instead, our dashing professor favours the approach illustrated by Daniel Kahneman in his book Thinking, Fast and Slow. The psychologist and Nobel Prize winner for economics divides thought into two modes: 'system-1' thinking, which is fast, intuitive and virtually automatic, and 'system-2' thinking, which is slow and requires both focus and attention.
Both professors regard system-1 thinking as lazy thinking or what they would call 'cognitive ease'. Corstjens believes that it is prevalent in modern marketing. To illustrate his point, he identifies a number of common marketing myths and then unravels them using scientific evidence.
Corstjens admits that much of marketing people's 'system-1' thinking, which is often shaped by years of experience, is perfectly fine because, if they had to constantly switch to system-2 thinking, they would be exhausted. So, many, marketing intuitions are correct, the problem is that some are not.
These are the myths Corstjens addresses in his book, which he kindly précises below and which will doubtless serve to whet reader appetites.
After perusing them, one is tempted to quote good old Mark Twain: "It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so."
Marketing is relationships & loyalty
According to conventional marketing wisdom, brands should select a carefully defined target group of consumers and offer them a product or service that is perceived to be different from and sustainably superior to competing products or services. As a result, consumers will like the product and keep buying it.
Building deep relationships with people in the selected target market will further build more loyalty for the product. In the case of fmcg products, reality is not quite like that, partly because products are not that different – blind tests can prove this – and partly because consumers are not really that involved in these types of products.
Simply put: Big brands are bought by more people, more often. This is a fundamental law of marketing. There are few successful niche brands. Why? Because brands are subject to the double jeopardy phenomenon: Small brands are small because they have fewer buyers, who are less loyal and who buy the brand less frequently.
It's all about making your brand popular, as opposed to 'loved', with consumers that are active in the category. What brands really need is salience. In order to make sure your brand is activated, when consumers consider a purchase in your product category, invest in interesting, wide, consistent and frequent communication that gets noticed and talked about and when the consumer is at the point of sale, make sure that the brand is present and stands out.
Building penetration is essential because of the huge churn rates brands encounter – churn rates of 50 per cent are not uncommon, even for big brands. This is true across many categories.
Conventional wisdom has it that when you launch a new product, first you need to invest in building awareness and liking to get trial. At a second stage, you move to building repeat purchases, i.e., brand loyalty and purchase frequency. What is fundamentally flawed here is that the first stage is never-ending and that the second stage is massively difficult.
Huge churn rates keep household penetration on top of the agenda of successful marketing managers. Brands need to keep on building and rebuilding their penetration and to do that they need top of mind awareness through memorable, frequent and consistent communication and presence at every possible point of sale.
It is not that loyalty and purchase frequency are unimportant; it is that they are difficult to increase.
Firstly, if you increase penetration, you become more popular and that leads to more brand loyalty; building loyalty independently is very hard, consumers are polygamous with respect to consumer goods brands.
Secondly, if you neglect to invest in penetration, it evaporates fast (churn rate). This is the beginning of a vicious circle: less penetration, less popular, less present in the consideration set, less frequently bought, less market share…
A key way to build penetration, in addition to continuously investing in memorable and consistent communication and ubiquity at the point of sales, is to think creatively about ways to get into more consideration sets. Rather than focusing on narrow target markets, expand target markets.
Red Bull, the energy drink, is amazing at addressing more consideration sets. The drink is an alternative not only to other energy/sports drinks but for many consumers it is also an option when they consider soft drinks as well as coffee or ice tea and it can even be an alternative to granola bars like Nutra Grain.
Retailers are oh so powerful…
Conventional wisdom has it that retailers are all-powerful while their suppliers, the brand owners, are being squeezed like lemons. Four important factors substantiate retailer power: increasing retailer concentration, POS control, retailer private label, and information (Big Data).
Not just today, but for many years, brand owners have significantly outperformed retailers on all standard financial parameters: sales growth, profits, market capitalization... What's more, over the last 25 years, retailers have been unable to close the gap, on the contrary.
If retailers are so powerful, how is it possible that their performance indicators do not reflect this superiority? The answer is, power is not a one dimensional concept, so we must distinguish between two forms of power: vertical and horizontal.
Vertical power is the power that retailers have over their suppliers, which does allow them to demand and obtain substantial benefits. Horizontal power, however, is the power retailers have relative to their retail competitors. This is what retailers lack. For shoppers, the cost of switching between retailers is perceived to be low. This destroys the retailers' hard fought rents from their vertical power.
A large proportion of what they manage to extract from their suppliers, they pass on to the shopper. The problem is that the retailer business model is characterized by high fixed costs and low margins, which forces retailers to address the broadest possible population of shoppers in the trading area of each of their stores and to quickly counteract initiatives by their competitors.
This inevitably leads to price competition because it is faster and cheaper than other forms of differentiation. Retailers are the victims of their own business model. They are Robin Hoods.
Retailers should also understand they shouldn't be envious of brand owners. Instead, they should develop a better non-price offer and an organization that puts more power in the hands of those people that can win locally (store managers). It is obvious, but very few retailers do this. Why? They want central control because they don't trust their store managers.
There are three ways for retailers to create switching costs for shoppers: the Aldi/Lidl way (low prices), the Waitrose way (service etc.), and giving more control to store managers so that they can adapt to the specifics of their store's trading area. After all, customers in Frankfurt are not much concerned with what is going on in Dusseldorf. Obviously, however, there are limits to this flexibility as a retailer needs economies of scale in buying and logistics.
Finally, brand owners need to understand that offering more margins to the retailer is like offering more drugs to drug addicts. This is the point made above. However, we obviously need to make a distinction here between brand owners operating in 'expanding' categories and those who operate in 'non-expandable' categories.
Brands need 'bigger, better, faster' innovation
Many CEOs of fmcg companies pontificate about the importance of Research & Development to create 'good' growth. But when you try to think of a major new product in the industry that was the result of a breakthrough R&D project, what do you get?
Unilever's mega success with Dove, for example, had very little to do with R&D. Its breakthrough did not come from a revolutionary moisturizing technology – even though it was a credible, skin friendly soap brand from the beginning
RQ estimates the effectiveness of R&D investments by estimating the R&D elasticity (by how much does the output of companies increase if R&D investments are increased by 1 per cent). Compared to other sectors, the fmcg industry performs towards the bottom.
Given the statistical evidence pointing to the fact that the performance of fmcg companies in terms of R&D output has been poor, we obviously need to ask why. After all, most of them do find this important and have R&D high on the agenda and spend a lot of money on R&D.
Of course, if you measure the effectiveness of R&D by looking at market success (sales) and are disappointed at the result, then R&D managers could argue that the product was great but that the marketing was poor.
Maybe talent is an issue. If top researchers have job offers from Genentech, Google or Procter & Gamble, how many would choose P&G?
Or is it a question of budgets? The big fmcg players spend between $1bn and $2bn a year, which is less than most big pharma players, but Genentech in its top years didn't spend much more, and they created top cancer drugs such as Herceptin, Tarceva and Avastin. So, clearly, fmcg manufacturers' poor R&D output is not about critical mass in spending, but rather about how they spend the money.
The company spends only a modest budget on R&D, compared to its main competitors Procter & Gamble, L'Oréal and Unilever. Still, Reckitt Benckiser has shown remarkable profitable growth over the last few decades, outperforming its peers by wide margins.
Part of Reckitt Benckiser's success is due to their R&D approach of focussing on continuous, small product improvements, based on incremental insights about consumer needs, instead of pursuing big breakthrough innovations.
Starting from their star brands the company constantly searches for small improvements the consumer would like to have and for which he or she would be willing to pay a premium. Each of these apparently small improvements has the ability to grow volume as well as margin. It is worthwhile to observe that Reckitt Benckiser's approach has worked for many years – and still does.
There are only two consequences that can be drawn from this. Firstly, stop wasting resources by trying to imitate world-class R&D industries like pharma. Use these investments to buy patents and employ your considerable competence in development to generate great new products protected by those patents.
Secondly, become more humble in your R&D objectives and go for smaller improvements in your existing mega brands. This approach is characterized by less R&D uncertainty. Furthermore, if you choose the right ones, the consumer is willing to pay a premium when these megabrands offer better attributes and/or improve some of the inconveniences that were in the 'old' version.
TV is history, the future is digital
The hype is on: TV is obsolete, social media is where it's at. Younger viewers are ditching traditional TV faster than anyone could have anticipated, so the story goes. Marketers seem obsessed with reaching this so-called millennial generation, perceived to be always connected – digital, social, mobile… But are they really?
Market Share's analysis found that TV advertising effectiveness has remained steady from 2009 to 2014. In fact, it has consistently outperformed digital and offline channels at driving key performance metrics like sales and new accounts.
Despite all the hype on social media, it seems that digital can't make up the reach that TV delivers. The agency therefore advises advertisers to use digital in a way that is complementary to TV.
In AdAge (15 October 2015), Sean Cunningham, President & CEO of the Video Advertising Bureau, points to the actual numbers in 2015 for the US: TV reaches 88 per cent of millennials (adults 18 to 34) every month, and 77 per cent every week (Nielsen, May 2015).
He says: "The bigger truth is this: On a monthly basis, millennials watch 64 hours of TV (on a TV set), while they spend 23 hours on Facebook. Consider the full spectrum of media (TV, PC, tablet, smartphone), and the score is 101 to 23 in TV's favour."
The consequences for marketers are clear. Given the availability of an abundance of data and statistical tools, media investments should be guided by objective analysis, rather than by hype-driven guidelines which dictate that resources should be ploughed into new media because of the growing number of millennial consumers.
Furthermore, the problem with digital is that it mainly targets existing users, betting on loyalty instead of penetration, which is a fundamental marketing fault.
Instead, brands should try to reach a broad audience of people who are not in their traditional target market. Today, TV is still the best medium to achieve this.
Light buyers, who represent the vast majority of a brand's consumers, have no reason whatsoever to 'engage' with these brands on social media. The lion's share just doesn't care.
Copyright © 2015 by M Corstjens. All rights reserved.
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Don't Miss Our Seminar:
The English-language event, entitled 'Marketing Myths!?' (Mythos Marketing!?), will be held on the afternoon of June 2 on the 12th floor of our publishing company dfv Media Group in Frankfurt am Main.
The venue will be organised by our sister company dfv Conference Group and supported by a number of Lebensmittel Zeitung's fellow trade publications, including Horizont, TextilWirtschaft, Der Handel and food-service.
In addition to Professor Corstjens himself, we have also invited at least three other high-profile speakers from German retailing & the fmcg industry. All of these individuals have achieved sustained success by breaking with standard marketing practices and rival even Corstjens as entertaining speakers.
The retailer side will be ably represented by ex-Hornbach board member Jürgen Schröcker and mymuesli co-founder Max Wittrock. Want to know more about the speakers?
Jürgen Schröcker, management coach
His striking ad campaigns dynamised sales for more than ten years at the Neustadt-based family company who posted net revenues of around €3.6bn in 2014/15. Schröcker's creative ideas also earned him numerous international awards, including a golden Effie for no less than three times.
Prior to Hornbach, Schröcker was also Head of Marketing at furniture group Möbel Walter and a member of the advisory council at furniture discount chain Poco-Einrichtungsmärkte. This in-depth experience of the trade has made him one of Germany's leading experts in marketing and retailing.
In his current role as management coach Schröcker helps companies of all sizes who wish to boost their sales in a sustained way. He has recently published the thinking behind his work in the trade bestseller 'Fit & Sexy'.
Max Wittrock, co-founder mymuesli
In 2007 Max started mymuesli together with two friends, Hubertus Bessau and Philipp Krais. They began as innovative makers of organic muesli (granola) but quickly developed into online retailers who offer their customers the chance to mix their favorite muesli from 80 ingredients, which enables a theoretical combination of "566 quadrillion" possible mixes.
Mymuesli has since embarked upon the conquest of supermarket shelves and has even started to open a chain of its own stores. One of these bright and colourful outlets can be viewed at the Skyline Plaza shopping centre, a stone's throw from the conference venue in Frankfurt.
The company is now active in five countries and has won numerous awards, including the German Gründerpreis in 2013, Germany's most prestigious award for entrepreneurial achievement. Mymuesli currently employs more than 285 people.
Max Wittrock says he is driven by two passions: food and e-commerce – so he is surely both a very happy and a contented man to be able to combine them. His attributes as a speaker are very similar to those which make his business so successful: colourful, innovative and entertaining.
Jürgen Kohnen, Director Retail Innovation, P&G
His current responsibilities include category management, business intelligence, and trend research in the field of in-store and digital media in retailing.
Jürgen Kohnen is therefore also an expert on retailer-supplier relationships, one of the main areas of research covered by Professor Corstjens.
Parent company Procter & Gamble in the US, whose marketing skills are legendary, hardly needs to be introduced to our readers. P&G serves consumers around the world with a formidably strong brand portfolio.
These include Always, Ambi Pur, Ariel, Bounty, Charmin, Crest, Dawn, Downy, Fairy, Febreze, Gain, Gillette, Head & Shoulders, Lenor, Olay, Oral-B, Pampers, Pantene, SK-II, Tide, Vicks, and Whisper.
The Cincinnati-based giant employs more than 110,000 people and has operations in approximately 70 countries. Germany, where staff number around 10,000, has been a major market for the Americans since 1960.
Local head office, just around the corner from Frankfurt in Schwalbach, also houses P&G's largest research centre outside the US. Over 900 scientists work there in the fields of baby care, feminine care, hair care, oral care and grooming. This is particularly relevant as Professor Corstjens also has strong views on the best use of R&D investment.
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Philosophically, the seminar is divided into three sections where the speakers will try to identify the most dangerous myths currently prevalent in retailing, fmcg manufacturing, and retailer-supplier relations.
There will also be a general discussion part so that delegates can challenge or elaborate on the views held by the speakers. Regardless of whether they agree or disagree with Corstjens' views, it will be fascinating to hear the reaction of all who attend.
Readers wishing to register online, should refer to the dfv Conference Group website. Alternatively, please contact Frau Svenja Wieck at dfv Conference Group (email: email@example.com; telephone: +49-(0)69-7595-3027). See you there...
International editor, Mike Dawson, Lebensmittel Zeitung
ENROL NOW FOR "MARKETING MYTHS" WITH PROFESSOR MARCEL CORSTJENS IN FRANKFURT, JUNE 2CONFERENCE PROGRAMME:
Mike Dawson, International Desk, Lebensmittel Zeitung
12:40-13:10: Part I:
"Marketing Myths & the Retailer"
Professor Marcel Corstjens
13:10-13:35: "Fit & Sexy –
Inspiring Consumers in a 4.0 World"
Jürgen Schröcker, consultant & management coach
13:35-14:00: "Insights into the Vollkorn economy"
Max Wittrock, co-founder mymuesli
14:00-14:05: Q & A
14:05-14:30: Networking & Caffeine
14:30-15:00: Part II: "Marketing Myths & the Brand Manufacturer"
15:00-15:25: "Store Wa(r)s and is and is to come"
Jürgen Kohnen, Director CM & Retail Innovation, Procter & Gamble Germany
15:25-15:30: Q & A
15:30-15:50: Networking & Caffeine
15:50-16:20: Part III: "Marketing Myths & Retailer-Supplier Relationships"
16:20-16:30: General Discussion
16:30-16.35: Closing Remarks
16:35-17:00: Marcel Corstjens signs his new book
17:00: Conference ends
To register online:
For more information about the venue:
Frau Svenja Wieck