The Big Lie – the complete book online - 29 Technology

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Chapter 29

The day after Doomsday

Technology

The grassroots Canadian consumer watchdog called “Adbusters” expresses its opposition to the materialistic values of consumerism by subversive escapades such as defacing advertising posters. In 1999 it promoted a nationwide “Buy Nothing Day” – by printing that message on T-shirts and selling them.

On 2 April 1993, which swiftly became known as “Marlboro Friday”, the bell seemed to toll for the end of the fat years of advertising. Because tobacco taxes are low in the US, Philip Morris and other companies had been able to milk margins of 40 per cent or more from their premium brands for years. Then discount retailers started selling unadvertised brands at half the price, and in an economy mired in recession smokers stampeded to them. Early in 1993 these off-brands shot up from 30 to 40 per cent of the market. Philip Morris panicked, and instead of toughing it out by defending brand value at all costs as the marketing textbooks counsel, the company slashed prices on its leading brands by 20 per cent.

Philip Morris had let down the side. Not only did its own profits and share value fall sharply, but BAT also lost 15 per cent of its market valuation. The shock-waves spilled out of the tobacco sector, spreading a global price war to nappies, motor cars, condoms, pullovers, newspapers, and perfumes. Even robust brands like Benetton and VW had to slash prices. All over the world sales fell and stock market valuations shrank for brand-rich companies such as Kellogg’s, Procter & Gamble, and Heinz. Tomkins, the conglomerate that had just taken over Rank Hovis McDougall, was constrained to write off the £600 million at which the RHM brands were valued.

To marketing men and women it looked like Doomsday. Virtually unassailable global reputations had been built on the premise that brands are worth more, but now it looked as though advertising had over-exploited brand equity. Despite all the smoke and mirrors of illusion, was genuine brand value perhaps something more intrinsic to the product? In 1994, when the advertising agency Young & Rubicam asked consumers to identify Britain’s twenty most distinctive brands, the names they volunteered were not products in the Unilever or Procter & Gamble stables, but those with a mythic content: Rolls-Royce and Porsche motor cars, Irn Bru soft drink, and Le Creuset cookware. Few were massive advertising spenders, perhaps because their markets were small, or perhaps because established brands which are really different don’t need to advertise. Amongst the big, popular brands of goods and services, there was a decreasing perception of intrinsic difference, as the supermarkets demonstrated by undercutting major brands with own-label imitations.

The supermarkets themselves were under threat. The UK retailer which increased floor space most quickly in 1994 was not a high-quality advertiser like Sainsbury’s or Tesco, but the discount retailer Kwik Save. US-style warehouse discount stores and “category killers” pioneered by Wal-Mart and Costco moved into Britain that year. The supermarkets responded with a vicious price war spearheaded by their own lines of cheap products, such as Tesco’s “New Deal” pricing line and Sainsbury’s “Essentials”. They too had chosen to sacrifice their expensively purchased brand identities on the cut-price altar. In the High Street consumers became accustomed to virtually continuous sales, even pre-Christmas. There had long been a profit shift from manufacturing to retail; now it seemed to be feeding through to the consumer. As the economic noose choked growth in the nations of the West, the suspicion dawned that the hard-up consumer might finally have figured out how the advertising shell game works and was starting to buy on price rather than promise.

At the same time mass media, with their mass economies of scale, were fragmenting. They were returning to an earlier model. The last great technological paradigm shift affecting advertising had been television. When TV advertising began in the US fifty years ago there was no national coverage and major advertisers were sceptical of the new medium. In its early days television was tarnished by the downmarket image of the Veg-O-Matic vendor. Huge chunks of airtime were dispensed cheaply to small sales promotion companies which sold kitchen gadgets, wonder cleaners, magic polishes, and other gimmicks – the kind of thing you see demonstrated in the upper balconies at the Ideal Home Exhibition. The market stall was their provenance, and these hucksters recognised the demonstration power of the new medium. Taking advantage of cheap rates and slack regulation, they filled the off-peak hours with hard-sell commercials which mesmerised audiences for ten or fifteen minutes – all produced live on camera, of course.

These pioneers had a singularly uncluttered view about the purpose of advertising: it was expected to sell goods then and there – and it worked. Until rates stiffened, driving the early pitchmen out of the TV temple. Yet the hard-sell tradition is alive and well today, and living in the ghettos of cable and satellite and morning and late night terrestrial television, wherever airtime is sold at distress prices. Measured in terms of “minutage”, that is the sheer amount of time bought rather than its cost or the size of the total audience reached, during the 1990s the world’s largest advertiser was not Coca-Cola, nor P&G. This laurel was claimed by a small international company called Interwood, which marketed the latest versions of the gadgets, wonder cleaners, and magic polishes of the 1950s. Companies like this specialise in “As-Seen-on-TV” marketing, often supported by direct response ads in the press. They always know exactly how effective their advertising is. Their business model is simple and immediate. Did the advertisement bring in enough orders to pay for itself, and a bit more? If it did, run it again.

Cable and satellite television created a proliferation of viewing channels, which began to mount a serious challenge to the dominance of the traditional telecasting networks. In the US, new channels reduced the audience share commanded by the traditional networks by almost half between 1980 and 1998. In the 2000/2001 televiewing season, advertising-supported cable television accounted for 42 per cent of all viewing. Cable offers a much wider selection of channels; fibre optics could extend the choice to as many as 500. In Britain, when two competitive satellite television operations were launched at the end of the 1980s to viewers who were already paying a TV licence fee, many observers thought both were doomed. Yet in 1994 the survivor, Rupert Murdoch’s upstart British Sky Broadcasting, went public in an offering which valued the business at some £5 billion, substantially more than the entire ITV network. Cable television developed more slowly, but by 1998 these new alternatives accounted for more than a fifth of all the hours Britons spent watching commercial channels.

The new technology revived television’s market trader roots. In the fragmented media world there was always time and space going cheap. Lengthy “infomercials” appeared on European television, while in the US and the UK entire channels on cable TV were devoted to shopping, with credit card orders placed by phone. The two main players were Home Shopping Network, an unreconstructed pavement hawker, and QVC, which, using a softer sell, by the mid-1990s claimed to have built a constituency of repeat purchasers in 47 million American homes. What did they buy? A lot of junk like food dehydrators and zircon jewellery. But the medium also set out stalls to sell ladies’ fashion, and not at distress prices. The preferred creative strategy is a straightforward pitch delivered by a well-known personality, mixing sales patter with “entertainment” in the time-honoured tradition of the pavement peddler. Often these celebrities bring a powerful authority to their role, because they are selling designs which bear their own name. And, true pitchmen, they have no inhibitions about boring their audience. Their “infomercials” are programme-length shows. On QVC the American icon Diane Von Furstenberg launched a range of silk clothing purportedly designed by herself, and chatted to viewers who called in. In less than two hours she sold 29,000 items to 19,000 customers for a total of $1,200,000. Joan Rivers peddled jewellery, and that queen of conspicuous consumption, Ivana Trump, flogged $220 suits in volume. “In the department store”, she said, “you sell a couple of dresses. When you go on television you sell hundreds of dresses in a couple of hours”.

Consumer durables advertise on shopping TV too. In 1994 Volvo aired half-hour commercials to entice customers into their showrooms, and claimed to have sold 100 cars. Kodak showcased its compact disc visual technology, Photo CD, while Sharp introduced a new camcorder on cable TV. The TV shopping channels claim that the core group of purchasers are not couch potatoes but professional people and managers who have little time to shop and are disenchanted with the crowds at department stores. By 1993 cable television was selling $2.2 billion worth of goods annually in the US. That was tiny fragment of total retail turnover, but sales had grown sixfold over the previous six years.

Advertising agencies were rattled. In 1994, the world’s best-known brand, Coca-Cola, abandoned the traditional advertising agency relationship in favour of specialised project groups. It replaced the blockbuster “one-world” approach with as many as forty different commercials playing riffs on a generalised theme, “Always”. These were aimed at the discrete audiences attracted by new TV outlets such as MTV and sports channels. Because of the great inroads made by cable pay-TV, mighty P&G, which put 90 per cent of its budgets into the medium, began questioning the future of advertising-funded television in the US. Harking back to the heyday of radio broadcasting in the 1930s and 1940s, when American advertising agencies also produced the network programmes in which their commercials appeared, P&G began once again to make its own show, the comedy series Northern Exposure. In the UK the liberalisation of broadcasting regulations had also encouraged a trend towards programme sponsorship, which replaces commercials and largely eliminates the need for advertising creativity. With these portents in the breeze, agencies were contemplating their navels and struggling to reinvent themselves by integrating various other marketing functions within their services.

Proliferating television channels were just one of a number of structural changes sweeping brands, retailers, and advertising agencies into the 21st century on a technological tsunami. In all media technological advances were creating more efficient opportunities to address special interest groups, even individuals. The dynamic between the brand and the consumer began to splinter into many pieces, and fault-lines opened up. There were more radio stations, more newspapers and magazines. There were more cross-media connections: when the home shopping television channel QVC launched in the UK in 1993, the satellite TV channel Sky Television bought a minority share in it. And – horrors – the floodgates opened to direct marketing media: telephone selling, direct mail and leaflet drops, which could be more precisely targeted than ever before and where there was no traditional percentage pay-off for advertising agencies, and often no perceived need for their services. Non-traditional media started to eat into advertising budgets.

Direct marketing grew about 40 per cent in the UK in the early 1990s. Traditionally, this technique used the post or telephone to sell expensive products people don’t buy very often, such as cars or insurance polices. However, in 1992 British Airways spent more than £500 million on an advertising campaign offering free flights. Its purpose was to build up a vast database on air travellers which it could then use to target specific mailings to key customers, rather than trying to influence them through wasteful mass media advertising. In 1994 Heinz, which markets more than 300 food products in the UK, sent tremors through the advertising industry by abandoning conventional advertising for individual products. Instead of long-familiar campaigns like “Beanz meanz Heinz” on TV, posters, and magazines, a lavish colour leaflet dropped through your letterbox, but only if you lived in the right neighbourhood. It offered money-off coupons to try various products, plus a £10,000 prize competition which you could enter free, provided you completed a lengthy questionnaire which pried into personal details and your shopping and media habits. Heinz and other companies had long used techniques like this for more specialised products, such as baby foods, where it would be wasteful to try to reach young mothers by mass media. What was new was the application to mass products of broad appeal, low value, and high frequency of purchase – the natural constituency of mass media advertising.

There’s no such thing as a free lunch, even beans. Because you could buy a can of beans bearing a supermarket label for half the price of its brand, Heinz was building a database which could be used to target buyers of Tesco or Sainsbury’s own-brands and entice them back to its brand with special inducements. Unlike broad-scale “theme” advertising, direct marketing can be precisely aimed at the most productive customers and its effectiveness can be measured by results. Heinz still spent large sums on television, but switched the emphasis to overall brand values embracing the entire range, to nourish the belief that all Heinz products taste better and are more wholesome. It’s an approach which General Foods espoused thirty years ago, but now supported by much more efficient direct marketing initiatives for individual products.

Direct selling of insurance and banking by phone became the most exciting growth areas for consumer financial services in the 1990s. In a 1995 survey of 100 large British companies, conducted by the Manchester Business School, more than half said that database marketing would be their main promotional tool by the start of the new millennium. With the development of computer technology, visionaries predicted the end of mass marketing itself and urged companies to focus on “one-to-one marketing” which aims to exploit the maximum potential from the small fraction of a company’s best customers, rather than increasing their share of all potential customers. It’s an instinct door-knocking home improvement salesmen have followed for generations: first selling replacement windows, perhaps, then returning over the years to double-glaze all the windows in the house, clad the exterior with new siding, add patio doors, then a conservatory – and by then probably it’s time to replace the replacement windows. Over the years, mass media advertising had gradually shifted the goalposts away from selling to individuals to simply aiming to sustain awareness. According to the advocates of direct marketing, that’s because mass media are not much good at doing anything else.

Until recently the only way you could address a sales message to a single individual was extremely remote and inefficient: by post. New media have now opened up opportunities for quick and convenient two-way communication with individual consumers. Computers now enable companies to build durable personal relationships with great multitudes of people through frequency marketing programmes. Airline frequent flyer schemes owe their success to a crafty combination of personal rewards designed to build customer loyalty:

 

In 1980 . . . the average business traveler had a half-hour tolerance for delay before changing airlines. Booked on American from O’Hare to LaGuardia, you’d walk next door to United if your plane was more than 30 minutes late. By the late eighties, this tolerance had increased to 3 1/2 hours.1

 

It’s not just the free travel that achieves this astonishing influence on behaviour. The airline has extended the hand of friendship to the business traveller. He has been assured that the airline knows who he is and what his needs are likely to be. The airline has told him that it thinks he is important and values his worth. The airline provides him with an individual record of his purchases and recognises that he is a high-volume purchaser of the company’s products. It’s the nostalgic relationship you used to have with the corner butcher or fishmonger, who would save you scraps for your pet. That’s what every customer wants, and it’s a policy that holds out the reward of lifelong loyalty.

Supermarkets responded to manufacturers’ direct marketing attempts to win the loyalty of individual customers by launching their own schemes. Tesco was the first in Britain to offer supermarket loyalty cards, and this scheme was credited with bringing it level with the market leader, Sainsbury’s, by early 1995, and then outstripping all its rivals. All airlines now have frequent-flier programmes. Most supermarket chains promote club cards. So what happens when all competitors offer the same kind of bribes? Will loyalty schemes become the victims of their own ubiquity, like Green Shield trading stamps? Probably not, because as well as providing important databases for one-to-one marketing, they ultimately depend on quality of service, which can create an emotional preference for a particular brand or company. Retailers such as Tesco are close to their publics and obsessive about ensuring that the reality of their store operations has some resemblance to the images portrayed in their advertising.

 

There was life after Doomsday. “Marlboro Friday” was forgotten as the American economy revived and the Dow index of stock market prices began its record-breaking sprint to the end of the millennium. But, like the minor tremors that precede an earthquake, this slippage between the value of brands and economic cost was a cautionary reminder that when times are hard, reason begins to prevail over self-indulgence. At the end of the 1990s British retailers such as Asprey & Garrard and Hamleys, which had built flourishing businesses as brand names specialising in frivolous goods, were still acutely suffering the consequences of the setback to Far East economies in 1997.

There were still more turbulent times ahead for advertisers and their agencies. The recession had coincided with fundamental technological changes which fragmented advertising media and disrupted traditional ways of marketing: new printing processes, direct marketing, satellite and cable television were changing the rules forever. A staggering proliferation of media was now available, making both advertisers and agencies work harder for less return.

Then along came the Internet.

1 Don Peppers and Martha Rogers, The One to One Future, Currency Doubleday, 1993.