Professor Malcolm McDonald is one of the world’s top educators in sales and marketing. He has written over 50 books on the subject and hundreds of articles. He is a frequent speaker at international conferences and has worked with the senior leadership team of many global organizations to help them grow more effectively. He is an Emeritus Professor at Cranfield University and a Visiting Professor at Henley, Warwick, Aston and Bradford Business Schools.
In this series of videos, we’re talking about marketing, shareholder value, and what makes a good company. And we can’t talk about marketing without, at some point, talking about branding.
And Malcolm has got rich experience in the branding arena. He’s been involved with a great company called Brand Finance, which actually does brand valuations.
Many of his books cover the subject. So it would be really good, Malcolm, just to get your thoughts on this.
And, as ever, I’ve got a very simple (simple being short) very short question for you, which is: What makes, in your experience, a good brand?
Malcolm: Perhaps of all the questions you’ve asked, maybe this is the easiest for the simple reason that there is so much manifestation of excellent branding around us in our everyday lives that you don’t need a degree in marketing to begin to understand what makes a successful brand.
Successful brands endure
What I will do is just draw your attention to – sadly he’s not with us anymore. He died a few years ago – but a guy called Laurie Young, and he wrote this article in Market Leader in Quarter Two, 2011, and it was called “Products die but brands live forever.”
And there were hundreds and hundreds and hundreds of brands. And it’s most extraordinary when you look at some of the brands and how old they are.
For example, Stella Artois was around in 1336, would you believe?
And even something like Coca-Cola is 150 years old, and I think it’s still successful and you get Gillette about 120 years old and so on and so forth.
But you know, I’ll tell you what the components in my view are of a successful brand. But I think you have to try and nail the jelly to the wall, if you’ll excuse the expression, in terms of what we think a brand is.
The brand is not just the logo
The simplest manifestation of the brand is, of course, the logo, and the world is awash with logos, and most of them are as useful as a bird-of-prey with a squint.
And it amazes me. Nobody gives a toss about your logo.
I reckon there are probably 15 or 20 logos in the world that any normal human being would actually recognize.
I’m not saying logos aren’t important for signage and things like that, but I was highly amused when I see Chief Executives coming in.
And the first thing a new Chief Executive tends to do is to start messing about with a logo. It costs a fortune and nobody gives a damn about the thing anyway.
The intangible value can be much higher than the tangible value
The second level of a brand is that sort of larger bundle of associated intellectual property rights. Like for example, Guinness, their recipe, and Mercedes, their engineering processes.
That’s the second very important element of branding. But the third one, which is really what most branding is about, is about the holistic company or organizational brand.
And what’s interesting, and not a lot of people realize this. But if you look at balance sheets today in the United Kingdom, about 65% of all corporate value is not tangible assets. It’s in intangible assets.
And in America, it’s about 73% of all corporate value is in intangible assets. And it’s those intangible assets that make money from an organization, not offices and lorries and factories.
I mean, for example, when Nestlè bought Rowntrees, the last thing they wanted was a factory in York. What they wanted was the brands and all those wonderful things that come with it.
[Editor’s note: Rowntrees now claims to be “vegan-friendly.” ]
And you’ve heard me quote this before, but I will quote it again. Procter and Gamble paid £31 billion to buy Gillette, and, you know, Ed, they only got £4 billion worth of tangible assets.
Now, Procter and Gamble aren’t stupid. Now that throws some light on the importance of intangible assets and brands.
Because everything a company does, if you think about it, manifests itself – well, everything a company does – from R&D to after-sales service, manifests itself in the offer that you make to the customer. That offer has a name on it, which, of course, is the brand.
So what is a successful brand? I’ll just draw it to a close now. And I’ve just made a shortlist here.
Trust is key
First of all, successful brands build trust. We do trust them. They’ve been around – many, many brands as I’ve already said – have been around for years and years and years.
They have a price-quality trade-off, offer consistently superior value, make the brand famous, easy to recognize, and that brings in advertising and all that kind of stuff.
They also make it easy to buy, which of course is distribution, logistics, and what have you. In other words, they get their basics right.
Now there’s more to it than that, obviously. But that’s where I’m going to draw this to a close and say most of the brands that have been around for years and years and years We trust them, we love them and we pay good money to buy them. So long live powerful brands.
Thank you for asking me this question about brands because I’m quite passionate about brands, Ed.
Ed: That was very good of you, Malcolm.
And actually, as you’re making your closing comments there, Malcolm, I was thinking the same thing about the Malcolm McDonald brand. It’s trusted, people love it and they’re prepared to pay good money for it as well. So thank you very much for your time with us today.
Again, I’m sure there are really good nuggets there that people will find really helpful in their own businesses.
So thank you again, Malcolm, truly wonderful having you with me and talking about this. We have ended up having a lot of these conversations in cars and trains and planes.
But actually, it’s really good, it is really good to schedule some time and actually, focus on it and have a proper conversation.
That’s really good and thank you, Malcolm. And you enjoy the rest of the sunshine that we’re having here in the UK at the moment.
Transcript: How Does a Good Market Strategy Help to Create a Good Company?
Hello, everyone. I’m Edmund Bradford and I’m delighted to have with me today Professor Malcolm McDonald. We’re going to be talking about marketing, shareholder value and how that connects to being a good company.
And in this video, we’re going to be looking specifically at that link to being a good company.
So Professor Malcolm Mcdonald, thank you again for joining us.
How do you think a good market strategy can contribute to a company being a good or a better company in the future?
Some useful academic research
Well, Ed, I think of all the questions you’ve asked me over the past few years, that’s probably one of the easiest to answer and there is quite a lot of research to back up what I’m saying. Let me give you an example. I had a Professorial colleague at Cranfield called, Professor Hugh Davidson, probably quite well known to anybody who’s listening to this.
He did some research over a number of years and he wrote this book called The Committed Enterprise. I forget how many respondents there were but I think it was something like 30 major companies that over many, many years had been successful.
And it was interesting that every single one of those organizations had been good citizens and properly embraced what we call CSR (corporate social responsibility).
A tale of two companies
If you bring yourself up-to-date and look at a company like Unilever, I was privileged to be sitting in an audience recently when we were interviewing Paul Polman who was the group Chief Executive of Unilever. I can tell you that, and it isn’t just window dressing, every single thing that Unilever do: its ethical behavior permeates everything they do.
If I may, I’ll just read out a quote from Paul Polman. He said, “If you want to make the company grow longer-term, you have to get out of the rat race of quarterly reports and quarterly behavior. Many companies manipulate their behaviors and their spending to avoid missing expectations.”
And I mean, this is true. This is what he did and it’s quite interesting. Over ten years, the share value as tripled of Unilever. All of that hand-in-hand with CSR and good behavior. So a real exemplar.
You compare that with somebody like Enron. There may be people listening to this who can’t remember Enron. But Enron was focused on budgets and the short term, and people used to cheat and lie. And they got to the point where they even broke the law. And you know what happened to that organization.
The problem with cost-cutting
Now, just a quick aside here and that is that cost-cutting is not a strategy. I know, Ed, you’ve heard me talk about it before. I call it “anorexia industrialosa” or an excessive desire to be leaner and fitter leading to emaciation and eventually death. And I say, well, how many pence are there in a pound? How many cents are in a Euro? How many cents are there in the dollar? It’s finite. There are only so many of those you can cut.
I’m not suggesting you shouldn’t be cost-effective. What I’m suggesting is that you need to go back to the fundamentals of understanding your markets, understanding the needs of people in those markets and making an offer to them that makes people want to buy from you rather than from somebody who’s got something similar.
The goal: to create value
So to summarize this and to me, it’s easy to say this is very difficult to achieve the way Unilever has done it. But to me, what we should be doing is trying to build great relationships with markets and customers. If you can create value for customers, that’s great for those in the company who create that value. It’s great for all stakeholders and it’s great for the planet.
And that’s really where, I say, it’s not easy to do. But there are organizations around like Unilever, one of the biggest companies globally, that live and breathe good corporate behavior and the results are showing financially.
So that’s possibly not a direct answer to your question Ed, but they’re just my thoughts off the top of my head.
The moral: market strategy enables sustainability
No, you have answered it, and they’re excellent thoughts. And we’ve talked about Unilever before on these videos, and they’re a really good company to think about.
One interesting aspect of Unilever is how, when they were looking at having better labor conditions with their tea plantations.
They realized that actually there was going to be a problem if you pay your suppliers more money, of course, the danger is that you’re going to have to put the prices up, and therefore lose market share.
But they did their market research and realized that there was some price inelasticity there, and they could actually put prices up if they targeted tea in the right segment.
And I think for me, there’s a moral there that marketers and market strategy have a big role to play in companies becoming more sustainable because you can point your products, your brands, your whole company, towards those customers that are interested, that have those sort of needs.
And as you said in the earlier videos, Malcolm, try to steer away from the ones that may say they’re interested, but not when they get to the checkout and trying position yourselves better amongst the growing mass of consumers.
Let’s not forget B2B, Malcolm, the key accounts. So some people watching this may be serving Unilever. Those accounts themselves are generally interested in having a good supply chain.
Unilever has today launched a new initiative to encourage its suppliers to commit to reducing their greenhouse gas (GHG) emissions, in a bid to accelerate efforts to deliver on the consumer goods company’s target to achieve net-zero emissions across its value chain by 2039.
So marketing has got a good role to play in market segmentation, positioning, as well as helping the KAM community.
Is that right, Malcolm?
Hear, hear! Ed
Excellent. Okay, that’s great. Well, hopefully, that’s been helpful to everybody. I feel we are scratching the surface, but very, very useful.
In the final video, we’re going to get onto the subject of branding and get Malcolm’s views on what he thinks makes a really good brand.
So again, thank you, Malcolm. I look forward to catching up with you soon.
Transcript: How Does a Good Market Strategy Improve Shareholder Value?
Hello everyone this is Edmund Bradford and I’m delighted to have with me my good friend and colleague, Professor Malcolm McDonald. We’ve done a lot of things together, both at universities and out there with real companies.
Malcolm has over 30 years I would say (without putting too much of a number on it ) over 30 years of experience in marketing and is truly one of the great marketers out there in the world and in this short series of videos we’re talking about shareholder value , we’re talking about marketing and how they both connect together and also how they connect into just being a good company. So, welcome again Malcolm and thank you for joining us. So I’ve asked now that simple question about, how does a good market strategy improve shareholder value?
Wow! Again Ed, you are known certainly to me and those who know you for asking very difficult questions and this isn’t the easiest question to answer but I will give it a go. I mean first of all to put it in perspective what are the components of a marketing strategy anyway and you know I’ve sort of made a bit of a list here it’s not complete but it’s got the essential elements in it.
First of all, you need in an organization an inspiring vision. You need clear strategies, you need rigorous segment and brand positioning, you need consistent innovation, you need superior customer value, you need high employee morale, you need tight cost control and concern for all stakeholders.
Now what could be easier than that and the thing is I’ve got 127 scholarly references which obviously I won’t bore people with today but over a long, long period, these scholarly references have drawn a link between successful marketing strategies and long-run financial success – and you know, they are very similar to the list I’ve just (you know) spoken about. I mean firstly, you know you’ve got a deep understanding of how the market works. That’s common across all successful companies.
Correct needs-based market segmentation, not that garbage that’s taught in many places about socioeconomics and demographics and geodemographics. I mean, for example, just to get it out of the way, Prince Charles and Ozzy Osborne are both in socioeconomic group A but I don’t think they behave the same!
And you’ve got understanding customer needs. It sounds simple, hard to do but it’s a factor. And then differentiation, positioning and branding and planning for the future.
Now i know in my work, Ed, what kind of organization I’m going to be facing when I get the board of directors (the operating board of directors) and my first question to them is, without talking to each other, write down on a piece of paper (or type into your computer), “What are your key target markets in order of priority?” The second part of that question is pretty obvious: “Against each of these key target markets what’s your company’s sources of differential advantage?”
And invariably companies that haven’t got those characteristics, instead of talking about key target markets, they start wittering on about their products. And it reminds me of (you know) the near disaster that IBM had when they thought they were in the mainframe market and more recently (oh, and Gestetner thought they were in the duplicator market) and more recently Kodak thought they were in the camera and film market and Nokia thought they were in the phones market. It’s not products – and it hasn’t been for ages – that give you differentiation and create satisfaction for customers. It’s the way you relate to your customers and your markets.
I just want to, by way of closing this off, to give you one quick example of the silly notion that people have about what is called CSR, Corporate Social Responsibility. Of course you have to have it but it has to go hand-in-hand with shareholder value-added because if it doesn’t it’s not going to work.
I give you one example there is a famous chemical company that used to be the bellwether of the British stock exchange and it was a wonderful company. It was good to its employees, loved working for it. It was good to local communities, it was good to charities and so on and so forth. The problem was, it wasn’t as good as satisfying customer needs as the DuPonts and the Siemens of the world. Consequently, their shareholder value was not in the same category and started reducing. The result of that was hundreds of thousands of people unemployed, no more money for charities, no more money for local communities and so on and so forth. So I’m afraid, in order to be a good citizen you also have to create shareholder value and I hope during these brief few minutes, Ed, I’ve given you the components of what the successful strategies are so I better stop wittering on now and say that’s my answer.
That’s excellent Malcolm and I know that you are a big believer in marketing not being in the basement of companies and in a way that it is dangerous being in the basement of companies. It needs to be in the boardroom of companies and there’s a big misunderstanding, I think, around marketing that ‘strategy’ is done by somebody else, somewhere else. Another function, another person and marketing – I remember you saying – marketing is really the people that blow the balloons (you know) at corporate events. So I think the point you’re making is that marketing has a major role to play in actually creating shareholder value by the impact and the influence that they have on the market-facing strategy that the company is adopting.
Of course and if you think about that example I gave you when I’ve got a board of directors there and I asked them what their key target markets are and what – in order of priority – and what their sources of differential advantage are. If they can’t answer those questions, Ed, it tells you straight away that whatever they think marketing is they haven’t got it in the organization. Because what is it that makes organizations successful? It’s actually selling something to somebody, you better know who you want to sell it to, you’d better understand their needs and you’d better make them an offer that makes them want to buy from you rather than from somebody else who’s got something similar.
Now I don’t care whether you call that “marketing strategy” or what but it’s a bit fundamental and if companies can’t answer those questions then I know they haven’t got successful marketing strategies and therefore they will either be in a growth market but they won’t be profitable for long or they’re about to go belly-up because sooner or later you have to get those components in place.
Thank you Malcolm, that’s excellent. That is a huge subject as we said but we’re deliberately keeping these little conversations short. In the next conversation we’re going to be talking about how a good market strategy helps you to be a better company. So thank you once again Malcolm and I look forward to speaking to you again shortly.
[00:00:05 –> 00:00:58]Edmund: Well, Hello, everyone. This is Edmund Bradford, and I’m delighted to have with me today, Professor Malcolm McDonald. And we’re talking about three things, really. We’re talking about shareholder value, marketing, and how that connects to being a good company. And in the last video, we just kind of got an introduction to the subject of shareholders and what shareholders are interested in. But I know I’ve heard about and talk about this a lot and it isn’t easy to package up into a few small minutes. I think it’d be interesting just to at least pick up on the subject of shareholder value-added, which can be very technical, but I think it’s worth just trying to get ahead around that particular area. So Hello, Malcolm, and welcome to the Interview again.
[00:00:59 –> 00:00:59]Malcolm: Hello Ed
[00:01:00 –> 00:01:08]Edmund: Could you summarize what is shareholder value and why anybody should care about it?
[00:01:08 –> 00:04:10]Malcolm: Well, I must say, it’s an enticing thought to try and make a topic like shareholder value-added interesting and exciting. It clearly isn’t other than to those people who benefit from it. In the main, these are shareholders. But let’s keep it simple. I mean, what is it? Well, everybody knows what net free cash flow is and its net free cash flow having taken account of the time value of money, and you think that’s not a difficult concept because of the time value of money, you’d rather have a pound or a dollar or a Euro today than you would in five years time. So having taken account for the time value of money, the cost of capital, which I’ll talk a little bit about because it’s not the most exciting topic in the world and of course, the risks associated with the company or the organization’s strategy. And let me give you one very simple example of this. If, for example, keeping the math simple, the cost of capital is 10% and you’re a small company and you’ve got £20,000 invested in your company. And as I say, the cost of capital is 10%. If you make a net profit net free cash flow of 1500 pounds, you have actually destroyed £500 worth of shareholder value. If you, on the other hand, make £2000 net free cash flow net profit, you have neither created nor destroyed shareholder value. If on the other hand, you’ve created, let us say £2500 worth of profit, you’ve created £500 with a shoulder value. And the question I ask most people, I say what sort of nutty what sort of idiot would deliberately set out to destroy shareholder value? Because the point is it started off with a guy called Rappaport and then morphed into what’s become shareholder value-added. Now the world is full of expressions like Return on Investment, Rona, DCF Payback, Net profit, EBIDTA, Brand Equity, Customer Equity, Customer Lifetime Value, and so on. Each one, in its own way, is very valuable and tells you something different. But the reality is that the one that has filtered to the top over the last 15 or 20 years is shareholder value-added. And, you know, if you rather than going into all the details, it’s quite important for marketers, for example, to understand what the cost of capital is because every organization has it. It’s the one hurdle you’ve got to get it over in order to justify investment funds.
[00:04:13 –> 00:05:47]Malcolm: That’s one side of it. I talked about the time value of money, the big one, however, and the complicated one is this expression. I use risk, the risk of the strategy of the organization. It’s extremely complex, and I don’t want to muddy the waters now, other than to say, you know, there’s a model called a capital asset pricing model, which explains how stock markets work. All I’d say is that, in summary, a normal, rational, risk-averse investor requires an increase in expected future returns for any more risky investment in order to compensate for any potential volatility. I mean, that, to me, is a blinding glimpse of the obvious, but risk assessment has risen very high on the agenda of those organizations and people like me who work with organizations globally in assessing risk. And the best companies in the world do assess risk. Formally, we call it due diligence, but the best companies have processes in place to make sure that they have taken account of risk in their predictions for shareholder value-added. I think probably I will stop there because, as I say, it’s not the most exciting topic in the world. But I hope I have at least explained how it works and why it is so important.
[00:05:47 –> 00:07:23]Edmund: You have Malcolm, and you’ve done that is normally when I hear you present this, you’ve got some charts and graphs and things to help. And I think in concept is actually quite simple, really, because what we’re saying is that an investor has different alternatives to where to put their money. And if you’re not delivering the minimum returns, the cost of capital that they’re looking for, they don’t need to invest in your marketing project or even your company at all. They can invest that money elsewhere and get a better return. So just because you’ve got a good payback plan, you’re making some good profit doesn’t necessarily mean that actually, you’ve reached the minimum cost of capital. And that cost of capital, as you said, is dependent on time, time adjusted returns, and is also dependent on the risk that’s factored into it. And that is a big area. And in a giving your book, for example, in marketing and finance book, you talk about different types of risk. For example, market share risk is one sort of risk. In our book we do together, there’s an implementation risk as well, that the objectives that you set out, the strategy that you laid out doesn’t get implemented successfully. So risk itself is a huge area. But I think in a way, marketers can’t shy away from it. Understanding risk and how it’s used as a major area to get head around.
[00:07:23 –> 00:07:46]Malcolm: Yeah. And I suppose it’s pretty obvious at the end of the day that if a company has a history of its profits going up and down and so on and so forth, it’s known as a volatile company, and therefore the shareholders will require a high return to take account of that risk. So it’s a pretty simple concept at the end of the day.
[00:07:47 –> 00:08:12]Edmund: Excellent. Thank you, Malcolm. Thank you for simplifying what can be very difficult and technical subject. I’m sure that’s really useful to a lot of people. In our next video, we’re going to be talking about how a good market strategy could improve shareholder value. So thank you again, Malcolm, for your time this morning. Much appreciated. And looking forward to our next conversation.
A key challenge for any company wishing to achieve long-term, sustainable, Good Growth is dealing with shareholder demands for short-term profits. But to what extent is this a real or a perceived problem? In this interview, Professor Malcolm McDonald discusses:
The alignment between profits and long-term success
The reality of sustainable consumer behavior
The future trend towards sustainable corporate behavior
Transcript: Are shareholders only interested in short-term profits?
[00:00:06 –> 00:01:19]Edmund : Hello, everyone. I’m Edmund Bradford. In this short series of videos, we’re going to be talking about a very important subject, which is shareholder value and how it links with marketing and just being a good company. And to help us with that particular topic, I’m delighted (and I mean that from the bottom of my heart) I’m delighted to have my good friend and colleague, Professor Malcolm McDonald with us. Now, I could do a very long introduction, Malcolm, but I will keep it short. I think the only thing people need to know really, is that you’ve been in this business “for 600 years” as you would say, and you’ve written over 50 books on the subject of marketing and finance, etc, etc. You’ve got a very good book – and I don’t mind giving it a plug – called “Marketing and Finance, Creating Shareholder Value” now in its Second Edition. So if anybody wants to know more about the subject, please go and check out that book. And so you’re one of the best people. I think we could have to talk about the subject. So Hello, Malcolm.
[00:01:19 –> 00:01:21]Malcolm: Good morning. Good afternoon. Good day.
[00:01:21 –> 00:01:37]Edmund: Should we start with this simple question of what is a shareholder and are shareholders only interested in short-term profits?
[00:01:38 –> 00:06:18]Malcolm: Wow, Ed, you are a colleague and a friend, but you do ask very difficult questions. So let me think about the answer. First of all, there are many categories of shareholders, as you will know, from the individual to those who belong to things like mutual funds. For example, I’m an individual shareholder in a bank, but I also get to draw pensions from organizations like the University superannuation scheme which they invest on our behalf. And I don’t know how many of us pay attention to where they invest, but we assume that they’re decent human beings and don’t invest in organizations that are not good for our planet and society. But secondly, and I think this is most important, we know that there undoubtedly are shareholders who are not interested only in short term profits. But there’s really no conflict in this because, as I’ll show later, I hope I’ll spell out that most environmentally friendly companies also tend to be the most profitable. So there’s no conflict there. However, let me put one big “definite maybe” in here about all this, as often I perceive a big gap between what people say they’re going to do, what sounds good when being interviewed, and what they actually do. And let me give you an example. I mean, for example, more than 60% of younger consumers, according to Accenture, consider a firm’s ethical values before buying its products. The problem with that is if you look at Boohoo, for example, when it was revealed that they were paying their factory workers less than the minimum wage, did it affect them? Well, sales revenue is up by 41%. Profits increased by 37% to March 2021. And if you look at Amazon, you know, regularly criticized for their harsh employment conditions and aggressive tax avoidance measures. Yet customers spent more than £272 Billion with the company last year. And we’ll give you one last example: Volkswagen. They were found to have cheated on diesel emission tests. And yet, you know, five years later, the group achieved its highest market share ever, 22.1%. The reason, I think, is (perhaps it’s obvious or maybe it’s not obvious) that is if you ask someone, “Do you want brands to be ethical?” Nobody in their right mind is going to say, “No.” But the answer, of course, is that this social purpose will come very low on the list. Perhaps when money is involved and they get their wallets out, they get their purses out. Now, my personal view on this is that shareholders are very similar, but the consequences are grave indeed and just cannot go on. We have to change and we are changing and we will change. For example, the old Take, Make, Waste model for the past 250 years is no longer sustainable. We just don’t have resources such as land, forest, water, metals, and mineral fuels to keep up with demand. In fact, according to Accenture, we’ll consume three planets’ worth of resources every year by 2050. And this will translate into trillion-dollar losses for companies and countries that remain tied to using these natural resources. And one last point, which I will conclude on this first question, let me say that we’re just one small step away from one lucky person, owning more wealth than the bottom half of the world’s population. Currently, it’s 62 people. Now that cannot go on. There will be legislation, if nothing else, to change that. The world cannot go on in that mode. So maybe I haven’t answered your question Ed, but they’re my rambling thoughts on the question of, “Are shareholders only being interested in short-term profits?”
[00:06:18 –> 00:07:13]Edmund : I think that was excellent, Malcolm. I just wondered, because of course, you get different types of shareholder. Not all shareholders are created equal. And what some companies are finding is that, of course, some shareholders are actually more receptive to thinking about the long-term view, thinking about sustainability and ethics, for example. Do you think that actually, you could almost segment the shareholder market into different types of shareholders and almost in a way, they look for a balanced portfolio of products? You could also look for a balanced portfolio of shareholders with some that are more interested in the long term and some which are more interested in the short term. Can you borrow some thinking for marketing to do that?
[00:07:14 –> 00:08:11]Malcolm: Possibly that is a possibility, Ed. But all I would say is that by definition, the people who are shareholders tend to be better off people in the main, and they’re probably in the higher echelons of intelligence as well. It occurred to me that there is a change taking place, and increasingly there is a realization that it is those organizations who are good to the planet, who are also the most profitable. And I think that that will begin to come into play increasingly over the next five to ten years. So there is hope for us. And I think this endemic of short-termism is, in my perception, reducing slowly but surely.
[00:08:11 –> 00:08:29]Edmund: Thank you very much, Malcolm. That’s excellent. And in the next video, we’re going to be talking a little bit, and going to go down a little bit into a bit more detail, and talk about what we mean by ‘Shareholder Value Added.’ So for the moment, thank you very much for that Malcolm and I’m sure that has been very helpful to a lot of people.
As I write this, it appears that many countries may finally have a vaccine-led way out of the Covid pandemic. There will, inevitably, therefore, be more focus on the marketing function to help companies capitalize on rising demand levels.
However, as marketing once more assumes a more significant business role, concerns about the ethicality of marketing will increase. We had seen this already before the pandemic arrived. In the past few years, several measures to protect the consuming public have been introduced to counter the danger of exploitative marketing practices. Thus, children are seen as a vulnerable target throughout the world, and so there is often legislation to protect them from unfair practices. For example, there are advertising standards authorities in many countries to help regulate the advertising industry; consumer protection legislation often exists to prevent organizations from making false claims about their products or conspiring to fix prices. The long-running debates like the ones about the promotion and selling of tobacco and alcohol products promoted opposition amongst several people and interest groups.
Despite these, concern about unethical trading practices and irresponsible marketing remains. These have been amplified by many significant events over the first part of the 21st Century to a large extent. Thus, it is increasingly accepted that ‘global warming is a problem exacerbated by carbon emissions. In response, and with great difficulty, nations have agreed that if they are to be viewed as responsible, they have a role in helping to reduce these emissions. Simultaneously, the notion of responsible governance has assumed a higher profile as corporate scandals such as Enron in 2001, followed by the collapse of Lehmann Brothers and RBS in 2008, have focused attention on ethical trading practices. In particular, the ‘banking crisis’ of 2008 caused by decisions to reduce lending standards for mortgages leading to excessive sub-prime mortgages and unwarranted risk levels for banks have reinforced the need to monitor the way businesses create market products and services.
Other stories that have kept the debate going include:
The accusation by some advocacy groups that Nestlé inappropriately promotes its infant formula over breast milk in several developing countries
Greenwashing – the marketing tactic of misleading consumers about a product or service’s environmental friendliness.
Dannon having to pay up to $35 million in damages to consumers who said they’d been tricked into buying Activia for its purported nutritional benefits; when it was pretty much the same as every other kind of yogurt.
The mis-selling of PPI (Payments Protection Insurance) to UK mortgage applicants
To behave ethically, an organization and its members need to adhere to a collection of principles of right or moral conduct that shape their decisions. Ethical marketing is about whether a firm’s marketing decisions are morally right or wrong. Practicing ethics in marketing means deliberately applying fairness or moral rights and wrongs to marketing decision-making and the organization’s resultant behaviors and practices. A marketing decision’s morality can encompass any aspect of marketing, from advertising to the pricing of their product or service or the sourcing of their raw materials.
By consciously avoiding harmful actions or omissions by embodying high ethical standards and adhering to all applicable laws and regulations in the choices we make.
Foster trust in the marketing system.
By striving for good faith and fair dealing to contribute toward the efficacy of the exchange process as well as avoiding deception in product design, pricing, communication, and delivery of distribution.
Embrace ethical values.
By building relationships and enhancing consumer confidence in marketing’s integrity by affirming these core values: honesty, responsibility, fairness, respect, transparency, and citizenship.
Marketing is criticized for playing on people’s weaknesses
The range of criticism that is brought against marketing is that it can (and sometimes does):
Play on people’s imperfections such as envy, fear, uncertainty, and doubt to persuade consumers that they must use a particular brand of washing powder or own that brand of mobile phone
Deliberately hide practices that would devalue a product or service’s image, such as the use of child labor, poorly sourced ingredients, or excessive and unnecessary packaging
Inappropriately use stereotypes that reinforce prejudices or societal divisions; or that play on sexual imagery to sell a product
Employ high-pressure sales techniques to sell to consumers or to pressure vendors to buy more than they need and pushing items that will result in higher commissions for the salesperson even though they are not right for the customer
Infringe people’s privacy by using overly invasive market research or holding data about individuals they do not want to be held. While data protection legislation provides safeguards, people do not always know about the data-bases they are on
Promote excessive materialism by making products and services appear attractive by associating them with traits that people desire or think they have. Besides, the over-promotion of credit, it is argued, encourages people to consume more than they need
Use ‘Dark Patterns’ that exploit psychological attributes such as a tendency to scan read terms and conditions or information pages or pursue the path of least resistance. This is particularly relevant to internet site user-interface design where the designers make: the default for an extra (insurance or special delivery) is ‘opt-in’ rather than ‘opt-out’; extras are automatically added to one’s ‘basket’; it is easy to sign up but challenging to get out of or return a purchase
Move from information and persuasion into manipulation; so that people purchase something they don’t want.
All these can be supported with recent examples and some with long-standing standards. However, they imply that consumers’ powers of perception are limited and that their intelligence is sufficiently low that they will be ‘fooled’ forever.
In the longer run, no matter what `marketing’ is performed, the consumer will always be sovereign as long as they are free to make choices – either choices between competing products or the option not to buy at all. Indeed, it could be argued that by extending product choices and the range of techniques used to sell products, marketing is enhancing consumer sovereignty rather than eroding it.
It should be noted, too, that although ‘clever’ marketing activity may persuade an individual to buy a product or service for the first time, it is unlikely to be the influential factor in subsequent purchases unless there is real value in the product. Thus, many customers complain about the methods used by some budget airlines to boost their revenue on the back of meager cost ticket prices but stick with them because they see them as value for money despite their poor customer service and suspect marketing practices.
It also suggested that skillful marketing can create needs. The argument to support this would be that nobody wanted an Apple iPhone before it was invented and that marketing has made it a ‘must-have’ product that has provoked many competitive ‘look-alikes.’ This, however, confuses needs and wants.
Nobody specified an iPhone before it was invented, but there has always been a need for portable communications, entertainment, and practical applications. Previously, these needs had been met by some separate devices such as mobile phones, digital audio players, sat-navs, newspapers, games consoles, and so on. Now technology has made available a means of satisfying these needs using one device. Creating further applications and greater functionality has produced something that consumers find very useful. It is common to see people extolling the virtues of this product simultaneously as they admit to not wanting one before they experienced it. At the time of writing, similar views can be found about tablet computers and e-book readers.
In these examples, marketing’s contribution was to identify in as much detail as possible what a customer needed and then to persuade him or her that a specific product or brand would provide the most effective means of satisfying the latent and expressed needs. The key is in providing a unique set of benefits that match real needs.
Underlying this view of marketing is the belief that consumers seek satisfactory solutions to their buying problems; first, they acquire information about available goods and services and their attributes and, eventually, by choosing that product that comes closest to solving their problem.
Most criticism is leveled at advertising
Much of the criticism leveled at marketing is, in fact directed at one aspect of it: advertising. Advertising practitioners themselves are fully conscious of these criticisms. These include the ideas that advertising:
Makes misleading claims about product or services
Uses hidden, dangerously powerful techniques of persuasion
By encouraging undesirable attitudes, has adverse social effects
Works through the exploitation of human inadequacy.
Advertisers themselves would point to the fact that advertising in all its forms is heavily controlled in most Western societies and cannot by itself achieve sustained patterns of repeat purchase.
The debate about marketing ethics also often confuses marketing institutions with the people who work in them. There are dishonest business people who engage in activities that are detrimental to their fellow citizens. However, it seems a grave error to criticize marketing institutions because of a small number of unethical marketers’ practices. It is clear, for example, that there are advertisers who engage in deceptive practices designed to mislead and possibly defraud consumers. Nevertheless, the institution of advertising can be used to inform consumers about potentially beneficial new products, such as new energy-saving technologies, and promote non-profit community services, such as theatres and state education. This argument can, of course, be applied to all marketing activities.
Consumerism and Marketing
Ironically, consumerism is pro-marketing
Closely connected with the issue of ethics in marketing is the issue of consumerism. This can be defined as the process of fostering an emphasis on, or preoccupation with, the acquisition of consumer goods. The consumerist movement seeks to moderate this process by promoting such practices as honest packaging and advertising, product guarantees, and improved safety standards. In this sense, it is a movement or a set of policies aimed at regulating products and services, and standards in manufacturing, selling, and advertising in the interests of the buyer.
Ironically, consumerist movements’ aims are pro-marketing in that what they want is for marketing in business to be implemented in a sincere rather than cynical spirit. Cynical implementation of marketing practices, which consumerists claim has been all too common, is no better than high-pressure salesmanship or misleading puffery. The sincere implementation of a marketing approach entails respect for each individual customer served. An interpretation of the consumerist desire is that the relationship between a manufacturer and a customer, say, a capital goods market should be created in consumer markets. In so far as that is both economically feasible and what the consumer really wants, marketers should also want a more satisfactory relationship between organization and customer.
Customer, consumer and company objectives can all be satisfied by good marketing practice
The marketing of children’s toys provides an example of how customers, consumers and company objectives can all be satisfied by careful business practice. Today’s successful toy companies inform parents that their products are not potentially dangerous, not coated with lead paint, and not destroyed the hour after they are first pressed into active service. At the time of writing, Fisher-Price is still one of the most successful toy manufacturers. Since 1968 it has eschewed child-manipulative promotion, carefully tested its products with children for durability, safety, and purposeful play, and charged the prices necessary to make and market `good’ toys. The consequent sales and profit margins have been impressive.
On the other side of the coin, McDonald’s, one of the strongest brands in the world, has been forced to make its food offering healthier to comply with changing customer tastes and the demands of consumer lobbyists.
In the end, the difference between ethical and unethical marketing is in the intent.
The judgment about the ethicality of the plan is, however, down to the individual. In this, the extremes of intent never create problems; it is the grey or middle ground that is hard. To be an ethical marketing manager, it is therefore important to be ‘honest with yourself as well as others as to motivations and the moral codes you have decided to adhere to. Good intent should therefore support Good Growth and a more ethical economic recovery.