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How do large, established companies miss big decisions? What questions should they have asked?

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While we’ve been relaxing over the summer break a number of large, established companies have made surprising announcements. While they didn’t admit mistakes, they tried to pitch significant market challenge as a new strategy. It could be 'death by a thousand cuts'. Coca Cola, in contrast, has taken a quantum step - challenging the marketing theory it crafted. Let's see what happened.  

            

For 20 years, marketing textbooks have acclaimed “The Gillette Model”: where the tool (razor) is cheap but the actual product (blades) generates the profit. Gillette – founded in 1901 – relies on its R&D to maintain its 60% market share.

But, surprise, a pesky online provider has gained 8% of the market by getting you to sign up to receive blades for USD1 per month. Gillette’s response? Off to the courts to take trade practices action (breach of patents). So it will be distracted by legal action instead of asking the questions: 

  • Do customers really care about our product? Gillette doesn't have a direct link with the user. 
  • When do we know that innovation/investment in R&D is 'enough'?

Avon: No longer calling. It has sold the majority of its loss-making US business because 86% of group revenue – and 100% of group profit – is generated in the new markets of Brazil, Russia and Mexico. That's an amazing 'life cycle' example: where you grow out of a market. 

In 2012 a new CEO shifted the product range to include gifts, accessories and home goods to compensate for less-frequent purchase of cosmetics. Critics argue that she didn’t want to put the sales staff offside and didn’t address the real problems fast enough.

  • Did Gillette and Avon adequately assess key strategic drivers (particularly changed customer priorities and the commoditisation of products) or are these companies another “Kodak” scenario?
  • What metrics reflect looming changes in the market?
  • Why didn’t the Board notice and act soon enough? 

Every time a large established company that should be on top of every nano-signal gets it wrong I remember the recommendation of US management guru, Peter Drucker: that every business case should present a compelling case for not accepting/investing/doing more of the same. 

Yahoo: Big companies, big words

The language of large, established companies is often interesting. Sometimes they create new words. Yahoo's latest CEO hasn’t been able to create a new, competitive future in the two-year timeframe analysts expected and the share price is sliding. It has a lot of businesses, a few are doing well, many are not, and previous acquisitions have been 'written down' - meaning Yahoo couldn't make them generate revenue and profit.

Here comes the language. The CEO proposed to “spin off” – that is, to sell – through trade sale or Initial Public Offering – a part of its business (ideally, that can operate as a viable separate business). The part was its investment in Alibaba – so it’s a financial investment not a business. Interesting!

                                                     

  • How long does it take to turn a business around? I think it takes at least four years, not two. 

Coke is still it: In contrast, Coca Cola has decided to go against textbook marketing theory by scrapping the concept of individual brand ‘personalities’. Apparently it made some customer groups feel that Coke didn’t care about them. In big company language, Coke said that individual brand identities were extremely expensive, created ‘distortions in the market’ and sometimes conflicted with the parent brand. This made customers feel that they didn’t get the full benefits of the brand. When I understand that, I'll let you know...

The new ‘Taste the Feeling’ campaign aims to make us ONE, globally. It still uses sub-brands but with a positive message, such as Coke Life rather than Coke Light to position Coke away from the ‘sugar/carbonated/bad for your health’ press. Is this why Don Draper was smiling in the last episode of

The ad is fabulous. Called ‘Anthem’, it is designed for the global social media user. You can type ‘onto’ the screen and send images to every ONE you know. But all this wonder and technology has to translate to sales and an increased share price.

  • Not only is Coca Cola redefining marketing practice but its social media focus plays to the global mobile younger market in the emerging economies. Will the repositioning affect its broader market?
  • How do you convince the Board of endorsing such a radical change?

Here we have a large established company that is confident of doing something different. The leadership of the first three examples either didn’t care, didn't notice or didn't know how to generate revenue and profit despite market dominance and longevity. 

Let’s watch how the performance of these companies tracks over the next year. 


UPDATES 

  • In the November 2015 blog, we looked at why Sizzlers was being starved of capital and the factors contributing to that decision. I overheard a group of Gen Y's were recounting the "best-ever party" they attended on the weekend. A parent staged a "Farewell" party to the local Sizzler and booked it out for a full-on '70s party. The Gen Y's were excitedly discussing the food range: bacon bits, cheese and garlic bread - all those buffet items I'd long forgotten. "You could eat all you wanted", they enthused. Could Retro parties have saved Sizzler?


  • In the October 2015 blog, we examined Oroton's history and repositioning as a luxury brand. Its challenges (drop in Asia high net worth markets, high cost structure, writedown of acquisitions, testing new store design to encourage sales) has been mirrored in Prada's recent experience, trying to re-established itself as a luxury product. Luca Solca, retail analyst with ExaneBNP Paribus commented: "It could be tough to lure fashionistas away from Hermes or Chanel and sell them on more expensive brands that first built its success on nylon backpacks". Does your past catch up with you when things go wrong?


  • In the January 2014 blog, we worked out how many cups of coffee it takes to stay in business. Lavazza is entering the Australian market, attracted by the 7.4% annual growth (IBIS) and  by the 'capsule coffee' culture. Roy Morgan research claims Australians drink 9.2 cups of coffee per week and the number of people who own coffee makers has increased from 28% (2009) to 36%(2013).  How is your barista faring?

For education purposes only

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