Make no mistake, this is a tough time. But there are three upsides to the coronavirus lockdown. First, there is a long-enforced pause in the tactical minutiae of daily business, which allows you to see the big picture. Second, the virus gives you the time to remedy the long-standing issues your moment of reflection has revealed. Finally, the pause in trading enables you to fix those issues once and for all, before the wheels of commerce grind into motion again.
Companies pay the price for being busy and successful, and it can hurt them. Not enough to stop and change, but enough to restrict future movement and success. The fact that a company is still busy, successful and big means no-one has the time, guts or motivation to fix the issues. Until now. Here is your COVID-19 spring-cleaning list.
Every company has too many brands. Add up decades of acquisition, extension, innovation and experimentation, and you usually arrive at a brand portfolio so large none of the leadership team can actually list all the brands they’re meant to manage. And they keep creating more. Coronavirus presents a time of customer pause, financial scrutiny and strategic clarity — the perfect window to tighten the brand portfolio. It’s a killer’s moon.
McKinsey used to have an awesome chart it would produce, at massive cost, showing a client’s brand portfolio on two axes. On the X axis were the brands the client company owned — from the biggest to the smallest. On the Y was each brand’s profit — note, not revenue — contribution to the business in the past financial year as a percentage of the company’s total profit.
It was a killer slide because you’d get the first three brands doing 75 per cent, then 45 per cent, and then 15 per cent of profits; then a hinterland of dozens of brands doing the empirical equivalent of the Birdie Dance. The three biggest brands added up to more than 100 per cent because the rest were either making very little or losing money. Companies love creating brands. They never kill any. The brand portfolio became the justification for its own existence. We can’t kill brands because we can’t kill brands.
Australian consumers are steering towards a simpler way of life and increasing their preference for local brands, according to Boston Consulting Group’s COVID-19 Australian Consumer Sentiment Snapshot, released in May.
Willingness to buy Australian brands has grown dramatically, with 37 per cent of consumers saying they would purchase locally — up 56 per cent from 2016. Institutions at the forefront of the crisis (healthcare, supermarkets and governments) have seen rapid gains in trust. Respondents expected to cut spending on travel (down 70 per cent) and luxury brands and products (down 45 per cent). They expected to spend more on daily essentials (up 31 per cent). Digital technology use by consumers has undergone a step change, with consumers purchasing through digital channels rising from 39 to 76 per cent in the past four years. COVID-19 drove more baby boomers to buy online for the first time while existing purchasers broadened their purchase categories. And, from Spiderman-like wrist-mounted disinfectant sprays to wristbands that buzz when you’re about to touch your face, a wealth of new COVID-19 products are on the way.
“Australians might feel nostalgic for a desire to return to normalcy — in line with other countries — but consumers’ predicted behaviour says ‘normal’ might be a long time coming,” says the report.
It’s the same for products. Just as companies have too many brands, they also have too many products. Most companies are doing 80 per cent of their profits with 20 per cent of their products. That prompts the question why anyone would be involved with the 80 per cent of products that make just 20 per cent of profits?
The simple answer is that they are looking at the wrong chart — the one with “sales revenue” in the title. If you like sales revenue, you’ll want as many products as possible. If you like profit, you’ll be ripping through the product mix like there is no tomorrow.
Coronavirus offers a golden moment to review the product portfolio and make the hard calls. By the time consumers start buying again, the pointless stock keeping units (SKUs) will not only be gone, customers won’t even remember they existed. You’ll have the focus and improved margins to do so much better as a result — and much-needed room to launch new products.
Channels of distribution
There is no area of greater inertia and dangerous legacy thinking than distribution channels. Companies have too many distributors, which creates umpteen problems at point of sale. There is always a recurring fear that — because we’re dealing with the sharpest side of the marketing machine, the place where products are sold — any change in distribution systems might impact sales. Suggest cutting advertising and the rest of the company kisses you like a long-lost brother. Recommend a reduction in distributors or retail infrastructure and you’re persona non grata.
The simple truth is, distribution should always reflect the business strategy of the company behind it. If you are a simple, direct brand, operate a simple, direct distribution system.
The biggest scandal in marketing is the way budgets are set each year. Most marketing departments are “given” their marketing budget after the finance team has (a) worked out how much money the company will make next year; and (b) applied a totally bogus percentage of sales to that number. It’s nonsense, but impossible to stop because the cycle of the business and the power of financial precedent are impossible to depose. Until now.
With most firms not expecting to resume advertising until September or later, a once-in-a-lifetime opportunity emerges to think about marketing budgets more deeply and avoid the traditional cyclical nonsense of top-down advertising-to-sales ratios. It’s normally hard to get a company to consider zero-based budgeting because it’s such a total shift in approach. But coronavirus has created a temporary zero base for many companies. They’ve had to stop spending marketing money and have in many cases also stopped receiving sales revenues. That means the budget clock has stopped.
You now have a rare opportunity to see marketing as an investment and make a new case for marketing money based on what it can do for the business, rather than on what was spent last year. Most companies will cut their marketing budgets for the rest of 2020. Many will cease their marketing spend completely.
The smart ones will spend to keep their brand salient and out there in the market.
Mark Ritson is a brand marketing consultant who has taught at Melbourne Business School, London Business School and MIT. This is an edited version of an article published in Marketing Week.