Marcel Corstjens talks brands & retailing
As a cauldron of investigative journalism, our newspaper can now reveal the identity of at least one resident in the form of Marcel Corstjens, emeritus professor for marketing at the elite French business school INSEAD.
In his sylish condominium, which can only be reached via a security gate with an electronic code and a concierge, Corstjens and his brilliant business wife Judy have made coffee for their visitors from Germany on a smart-looking capsule machine.
Corstjens (66) holds court in a radiantly bright sitting room with a broad bay window overlooking the River and the City, which Picasso would have immediately requisitioned for an atelier. The sprightly Belgian academic, with a faint American accent and a large dose of animal magnetism, soon entrances his interviewers.
They have come to learn more about Corstjens' new book Penetration and what this bestselling author wants to say to his trade readers...
But first one must not forget to praise their cute-looking dog, with floppy ears, an unpronounceable pedigree, and apparently also a tendency to bite strangers, who is kept carefully away in another room.
However, man's best friend politely refrains from woofing even when photographer Mark Mackenzie arrives lugging heavyweight lighting stands etc.
"A clear case of cognitive ease"
Marketing is generally seen as an art rather than a science, I feel that marketers all too often stress the importance of 'gut feeling' and creativity, of originality and intuition. They love the idea of performing magic.
This is what the psychologist and winner of the Nobel Prize in economics Daniel Kahneman would call a clear case of 'cognitive ease'. As long as a story seems consistent and familiar, it is easily accepted. But just because an idea is intuitively reasonable doesn't mean that it is correct. Remember how our ancestors thought that the earth was flat!
My new book is simply a reaction to current groupthink and aims to guide managers towards better decision-making. To do this, I found it necessary to identify and unravel a number of common marketing myths, by building on scientific evidence.
One of the numerous sacred cows in modern marketing you seem intent on slaughtering in Penetration is the generally accepted notion that brands should carefully segment the customer base they wish to sell to. Why do you challenge something so self-evident?
The idea behind targeting is to make customers loyal. So marketers generally believe that the better they target, the better results they will get. But in my opinion one shouldn't target too much in fmcg.
Excessive targeting in marketing has led to brand proliferation via hyper-segmentation. I would argue instead for 'focussing on the core' and finding new consideration sets for which the brand might be relevant. Narrowing your target market down from the beginning for segmentation purposes will only limit how big you can become in the future.
Then how does one become a big brand?
Brand success depends on getting the right answer to three basic questions: How many people actually use it? How often do they use it? How loyal are they to the brand? As one might expect, studies have shown that big brands are better on all three. But the biggest difference between a big and a small brand is how many people actually buy it.
This is what the statistician Andrew Ehrenberg called 'double jeopardy'. Small brands have several things going against them. Fewer people buy them; people buy them less often; and there are lots more of them to choose from. This is also why there are few successful niche brands, i.e., ones that only a small number of people buy often and are totally loyal to.
Are you also challenging the importance of brand loyalty?
Presumably this why your new book also takes issue with the emotionalisation of fmcg brands? Many in the industry, however, wouldn't agree with you. Saatchi & Saatchi CEO Kevin Roberts, for instance, thinks that brands should even be replaced by lovemarks.
Sorry, but that's just another marketing myth. It's simply not true that people are in love with fmcg brands. This is not a marriage! A chocolate, a coffee or a beer is, at the end of the day, only a very minor thing in an average person's life, however important they may be to brand and advertising managers. People don't even really have emotional links with Coca-Cola.
So what would you suggest as a better alternative to emotion?
It is far more important to be memorable for consumers, so you need to have a long story that you can tell which is both interesting and expandable in many ways. They don't even necessarily have to believe it, but it must be an interesting one. This will enable a brand to knock on their door again, again, and again and build back-of-mind and top-of-mind brand awareness.
Could you give our readers an example?
Take Dove, for instance, whose success, incidentally, was not created by massive investment in R&D. But Unilever turned it from a reasonable product with annual revenues of $400m in the US to one with a current brand value of around $6bn worldwide.
This stunning success was based on the story that 98 per cent of women are frustrated because they think they are overweight and feel manipulated by the media. So a brilliant Unilever marketer from Brazil called Silvia Lagnado had this idea of inner beauty and of showing women who were a bit rounder than the usual redigitalised stick insects most male marketers seem to believe women want to see in advertising.
What made the same company that produces macho, testosterone-fuelled ads for Axe so sensitive to the deeper feelings of women consumers?
Then Unilever had tremendous luck when Oprah Winfrey endorsed the product on her famous TV show in the US, which gave Dove a lot of free publicity.
So Unilever simply had the right idea at the right time?
It was more than that. The internal beauty story to which Dove was connected is a great example of what I call a 'long' story, or, if you prefer a story with legs. First, Unilever did a campaign called Dove Evolution in which they showed how the picture of beautiful women on a billboard ad is constructed. Over time they then did different takes on this type of ad.
Dove Real Beauty Sketches, which your readers should check out on YouTube, is a recent example of how Dove is using the internal beauty message in many different ways. So, if you have a good story, it gives you the opportunity to be memorable with the consumer and create top-of-mindness, i.e., win the battle for 'mind space' at the point and time of purchase.
So, in order to achieve 'top-of-mindness' with consumers and to enter into as many mental consideration sets as possible, brands should obviously tell interesting stories rather than boring ones.
But surely there is also at least some emotion in Dove advertising?
Yes, but the women who buy Dove don't really think that it will make them more beautiful either inside or outside than any other brand. They simply hear the story and are open to it. They clearly think that it is a meaningful and original idea relative to the stories told by Dove's competitors and so there will be top-of-mindness for the brand when these women are at the point of sale.
But that is very different from a love affair. Maybe brand managers have to think about brands day and night, but consumers don't.
Meanwhile, German discounters Aldi and Lidl seem to be falling increasingly in love with brands, otherwise they would not be continually adding them to their own label assortments. Are they wrong or right to do so?
Let's take Lidl in the UK as an example. They are doing a wonderful job at increasing customer penetration without having to dramatically expand their store base. Lidl achieve this by getting into new shopper consideration sets.
So where they used to be only mostly in the customer consideration set for bulk things to buy, they are gradually getting into the consideration set of the weekly shopper. And the way to do this is by expanding the assortment a little bit. Lidl still has the same-sized stores, but they now offer more fresh produce and have slightly more choice.
This should be contrasted with Asda, for instance, who have got themselves into the reverse situation. They have traded down in such a way that many middle-class English people are reluctant to shop with them because of the down-market social connotations of doing so. So Asda are losing penetration even with the same number of stores because some people feel less comfortable going there.
But when Aldi and Lidl expand their assortments won't this also increase their cost base and undermine the simplicity of their business model?
So, I think that one of the main problems for Tesco and other big players such as Metro or Carrefour is that the buyers are wrongly incentivised. Thus, retailers end up with the deals that their suppliers want to sell and not with what the consumer wants, while increasing their own retail operating costs tremendously.
Are you seriously claiming that big players such as Tesco haven't done any category management over recent years?
So why are retailers generally so reluctant to trim their assortments?
There are three main reasons. Firstly, buyers have too much power and manufacturers too much stuff to sell, so retailers are paid to have huge assortments on their shelves.
Secondly, retailers are always scared that there might be a customer who wants a particular brand and that this customer will take his or her whole shopping basket somewhere else if they don't stock it.
Thirdly, retailers believe, wrongly in my opinion, that if they reduce their assortment significantly they will be less attractive to shoppers.
At the beginning of this month, Sir Stelios Haji-Ioannou opened his first easyFoodstore at Park Royal in London where he aims to undercut Aldi and Lidl. Has their trading-up strategy made them vulnerable to a torpedo below the waterline from competitors with an even more low-priced business model and streamlined assortment?
Theoretically it's possible, but I have my doubts because Sir Stelios is trying to compete with Aldi and Lidl on their strong point. If you look at the P&L of most retailers, the cost of goods sold makes up around 70 to 80 per cent of sales. So retailers need scale, and if they don't have scale, they are going to have a problem competing with retailers the size of Aldi and Lidl.
Why do you think there is so little store differentiation in retailing? And why are the few exceptions like Trader Joe's, Wegmans, Whole Foods or Waitrose never total market leaders?
My main message to retailers who want to differentiate would be: "Dare to be bad in order to give yourself a chance to be outstanding!" The problem with retailers is that most are afraid of being bad at anything and try to hide it if they are.
They have to make a choice because you can obviously never be the best at everything. You cannot have the best promotions, the most promotions, the lowest prices, the best stores, the best loyalty programme, the best assortment and private label as well as the best service etc.
By trying to be good at everything simultaneously, retailers become average and mediocre and they all end up looking the same.
Retailers are also in a very different situation to manufacturers. If I am KitKat, I simply have to be available throughout the country, but if I am Tesco, I have to win in every store locally. So retailers all need to compete and to satisfy the consumer at a local level.
That's easy to demand, but how do you win locally?
Retailers must give more power to local store managers. I understand that retailers need scale and therefore a degree of central coordination, but they have to give their store managers room to manoeuvre or they won't win locally.
Regrettably, none of them do because they think their store managers are not good enough and don't trust them.
When I ask German retailers how important their store managers are, they all say very important. But when I ask by how many percentage points a good store manager can boost sales as opposed to a bad one, they all have different opinions and don't seem to know.
This is partly because statistical analysis is a tricky issue with trade unions who also have mandatory seats on company boards in Germany.
The difference between a good store manager and a bad one is very asymmetric. The negative effect of a bad store manager is bigger than the positive effect of a good store manager.
But the real problem when one goes to a Rewe, Tesco or a Carrefour, is that most store managers are average. This is because the bad ones are eventually kicked out and the good ones don't want to stay store managers. The good ones become district managers etc. and move up, so retailers generally end up with mediocrity at store level.
This is a pity because giving the store manager more autonomy is a huge opportunity to differentiate.
In your book you cast doubt on received wisdom in the trade that Days of Payment (DOP) are the key to retailer profitability. How come, then, German retailers have grown big since the 1960's precisely through extending payment dates?
Length of DOP cannot be the only key to profitability because Walmart, for instance, has shorter delays in payment than some smaller retailers.
The importance of DOP also depends on the relative cost of capital for the various players involved. One has to understand that many European retailers, such as Metro, Carrefour, Casino or Ahold, were family-controlled for a long time. Family companies tend to have a perceived higher cost of capital and are therefore quite interested in longer delayed payments.
Why is that?
Family companies can get the capital they need to grow in four different ways: They can retain profits; they can go to the banks and obtain loans; they can go to the stock market and raise new equity; or they can go to their suppliers.
This is why retailers often demand that their suppliers finance them. After all, there are thousands of them and their individual influence on your company is minimal.
Shouldn't the whole idea of delayed payment be less important in times like these when interest rates are extremely low?
Theoretically, yes, but, although the cost of capital is currently very low, retailers don't think that way. When interest rates inevitably rise, they most certainly do not intend to reduce the DOP they have negotiated in the past.This strategy, however, has limited potential because DOP are already generally long, and various EC countries are beginning to impose maximum limits. Obviously there will always be some fiddling on any rules imposed, but you can't fiddle too much.
So how else can retailers find the capital they need to grow?
I would argue that net profit margins are generally so small in retailing that improving them only a little will act as an amazing multiplier.
There are two ways to increase your margin. One is to grow volume because retailers have high fixed costs. A big store has more customers, but doesn't create significantly higher costs. So if you increase volume, you are going to be more profitable. Of course the fastest way to get more volume is to cut prices!
But there is another way that won't destroy value-added: differentiation, which is where I come back again to the store manager. In other words, giving more influence to local store managers will increase customer traffic and therefore volume, which, in turn, will increase margin far more than haggling with suppliers for yet another delay in payment.
Do you believe that e-commerce can be a means of differentiation for food retailers?
If one looks at past revolutions in retailing, innovations such as the supermarket or the hypermarket changed the industry in only five to ten years.
But home delivery in the UK, which is generally recognised as one of the most advanced e-commerce markets in the world, has been around now for 20 years and still retailers haven't really cracked it. The segment remains well south of 10 per cent of the total market, so clearly something still isn't working.
So should traditional bricks & mortar food retailers diversify into e-commerce or not?
It's a prisoner's dilemma. I'm doing it because, if I don't and my competitor does, then I am going to lose some business. On the other hand, the retailer doesn't know whether e-commerce will eventually take off or not, but has to be ready if it does so. Currently, I doubt whether any retailers are really making any money with it if you properly account for all the costs involved.
So I would advise them to do it in a defensive way in order to profit from those online customers who generally spend more overall than most bricks & mortar shoppers do.
I would try to get the capability so that I would have the people, the know-how and the technology, if e-commerce takes off one day. But I would try not to commit too much or overextend myself because the economics currently don't look that great.
How about the UK's leading pure player Ocado? Will they be able to achieve a breakthrough?
They can't quite make it either because it's very hard to be profitable with fmcg exclusively online. Their numbers always improve, but they are still poor. Maybe they will find a new technology and/or a different model, or Amazon will buy them, but I have serious doubts.
So should Ocado sell up to Amazon?
It would buy them time and give them more scale because Amazon would be able to play at least some synergies. I am uncertain, however, how big Ocado are capable of becoming in the UK. After more than 15 years, they can't operate much beyond the confines of London's M25 ring road.
True, they are currently building a fourth fulfilment centre in Erith, but it's very capital-intensive and they still haven't achieved critical mass. So how much capex is needed?
You don't seem very keen on the concept of online home delivery for food at all?
I think I have a philosophical problem with it. Over the last 60-odd years retailers have been very good at passing on certain activities to the consumer in exchange for slightly cheaper prices.
Most of us now have to drive to the retailer, find the goods we want on the shelf and then lug them home again. Given that most consumers have a relatively low cost of time, they are willing to make that substitution.
But e-commerce goes in exactly the opposite direction, so perhaps retailers should be happy that it has stayed a niche for prosperous big city dwellers.
In your book you also seem to be at odds with advertising in cyberspace?
Would you want to watch the Super Bowl with your kinds on a Smartphone? Groupthink has it that the new media are going to dominate soon, but I simply don't believe it. Just for fun, let's look at the Top 10 Facebook pages for 'Germany' as of today. At the number one spot, with nearly 35m fans, we have the football team FC Bayern Munich.
Size: 17x1x24.4 cm
Available on: www.amazon.de www.amazon.co.uk
In fact, the most popular brand I could find was 'Amazon.de' with 3.8m fans, which is only a tenth as popular as FC Bayern Munich. Amazon.de was followed by German footwear & fashion online retailer Zalando (3.6m), stylefruits.de (3m), Coca-Cola (1.2m), Tchibo (1.1m), Jacobs (0.4m), and Nescafé (0.2m).
And do you know who is the number one on Facebook in my home country, Belgium? Jean-Claude Van Damme! That's what these young people are talking about! They are certainly not talking about Stella Artois, Grolsch or Coke. What social media miss out on is reach, and if penetration is key for brand growth, reach is absolutely vital.
What consequences can one draw from the fact that people don't mainly talk about brands on social media?
The point here is that the message and the content are far more important than the medium. If I have a nice story and a good video, I can show it wherever I want because people are going to find it.
The problem with social media and digital is that they are too fragmented. What brand manufacturers and retailers need is penetration, reach and audience, and, as many studies show, this can best be achieved today by TV.
But surely this is gradually changing?
It might do, but marketing people should measure the return on investment (ROI) instead of just talking up digital and cyberspace as they are doing at the moment.
Heineken, for instance, is moving a substantial amount of their communication money into social media. When I asked them whether they had measured ROI properly, they merely replied that it was more important to be ahead of the curve.
In your book you also take issue with the widely held notion that retailers are generally more powerful than brand manufacturers. But at our annual trade shindig in Berlin we have always seen suppliers dancing and fawning around retail buyers and never vice versa. Or are we journalists hallucinating?
No, you are seeing the reality. It is true that retailers have a lot of vertical power over suppliers, but they have little horizontal power with their competitors.
Retailers lack horizontal power because they are not differentiated and this dilutes their vertical power. So when one guy starts a special offer, everyone feels obliged to follow until they have used up all the money they have got from the supplier.
So retailers are very much like Robin Hood: Everything they 'steal' from the rich suppliers, they 'give' to the poor consumer. They almost act as if they were trade unions for the consumers!
But, at the end of the day, it all comes down to differentiation in retailing. Retailers' main problem is therefore not so much with suppliers but with themselves and their shoppers. They are so similar to each other that they are forced to give all their goodies to the consumer.
Why do you suggest that brand manufacturers should post their terms & conditions on the Web! Isn't this tantamount to suicide?
Not at all; retailers are often concerned that their competitors may be getting better rates. So, in order to avoid unnecessary suspicion and conflict, it would be far better if the terms & conditions of any deal are posted in a transparent way on the Web.
That doesn't mean that everybody gets the same, but it would mean that everybody gets the same options. It is like a buffet dinner rather than à la carte. Everyone can see what is there and choose what they want. Dear retailer, want to get a 50 per cent discount? Then buy a few million units!
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 three high-profile speakers from German retailing & the fmcg industry. All these individuals have achieved sustained success by breaking with standard marketing practices and rival even Corstjens as entertaining 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. His 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.
Get your signed copy
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...
ENROL NOW FOR "MARKETING MYTHS" WITH PROFESSOR MARCEL CORSTJENS IN FRANKFURT ON 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