Friday 7 November 2008

Boom and Bust Marketing

Despite assurances from Gordon Brown at the Labour conference in 2000 that we would not return to the days of boom and bust, here we are in 2008, tumbling out of a boom and right into a bust. There are probably many reasons for this that I'm not qualified to discuss, but it would appear one of the primary reasons is an overheated and overvalued housing market. A market which created a great amount of perceived wealth and was encouraged and hailed as an indicator of our successful economy.

There was no real recognition that it was essentially a bubble waiting to burst – like the internet bubble before it and the tulip market bubble way back in the 17th century. Opinions differ as to why they form – whether it's simply greed or herd mentality – but it's generally only in retrospect when the bubble has burst that we see it for what it was and people begin to recognise that demand goes down as well as up.

What's interesting is that while we see this at a macro level, its happening all the time in different markets. Through my work with various FMCG brands I was amazed to see that the number one measure of success for many brand marketers was penetration – the number of people who have the brand's product in their basket in a given period of time.

The movement of this measure in a positive direction has become critical to many and being the number 1 or 2 brand in penetration terms is the place most brand marketers want to be. Changing this measure can be relatively simple though – in the short term – by creating a sales promotion which targets a large number of people with a very compelling offer.

The problem is, the gain from this sales promotion is not real – many of the brand's existing customers have simply bought forward to take advantage of the offer and many others have only purchased it because of the offer. Sure it has introduced new people to the brand – some of whom will stay – but no where near the amount of people who were contained in the spike in penetration.

Now there is nothing wrong with this approach – generating awareness and creating trial is a key activity for any brand - the problem is believing that the spike in penetration is reflective of the actual customer base.

Where brands believe this, thus starts a never ending cycle of sales promotion – creating new promotions to follow quickly on the heels of the previous promotion so as to prop-up the penetration figure over time. This can be costly on two accounts – firstly the brand is literally buying this extra penetration with free product and secondly they are conditioning their existing customers to only purchase through offers.

As times get tough and budgets are reviewed, this constant over spend on sales promotion is going to result in some brands coming back down to earth with a bang as the penetration bubble bursts.

Ideally brands should be looking at how to maintain market share and grow this in a controlled and responsible way – not focusing on price reductions and volume lifts but focusing on brand values and recognising and rewarding existing customers. Sales promotion will always have its place to drive awareness and trial, but acquisition without a focus on retention is a slippery slope to boom and bust.

As Gordon Brown said a little prematurely back then - no return to short-termism – no return to boom and bust.