The Chasm between Advertising and Promotion

Response to Al Ries' AdAge Article:

Dear Al,

Your article that appeared in AdAge today caught my interest.

The topic is one that I have repeatedly presented to clients and prospects -- how our agency fits into their marketing mix.

I use to have large corporate clients until I envied the gods and fashioned a product of my own design "Liquor Ice Cream," and have been tumbling to earth ever since.

I watched as these clients relied more and more upon price promotion and less and less upon advertising. When I was in the Army I got a Diploma for Public Relations. At my agency I use to write a press releases for the trade journals about campaigns we were doing for accounts -- at first, really just to tack on a few extra hundred dollars on the invoice, and just because I could do PR. But in time I found that the clients like seeing their names in articles and liked being called by media sources to reference press releases. Soon my agency did PR as brand-promotion, acting as the publicist for the brand touting its promotional activities. So in the early eighties we were practicing Integrated Brand Promotion first just for extra billing, then because we found we had a strategic difference over other agencies it became an integral part of the agency.

So I constantly lectured clients on the very points you wrote about in your article. Although I had an entirely different take on it. If you open the attached Word document you'll read why and how. I had to accept price promotion that my clients did as it became ever more prevalent - I had to learn how to become a part of it, telling them that every dime you spend should somehow advance and contribute to the brand, not cheapen it. To do so I had to accept that price promotion is a marketing tool that is predictable in advancing sales, volume and profits whereas advertising is not. Every marketing VP or director could show me data to prove that this is so.

Daryl

The Chasm Between Advertising and Promotion.

By Daryl J. Orris, Ph.D.

In a recent article by AL Ries for AdAge he attacks what he coins as “Discountus.” Using a broad range of Brands from Department Store Retailers and Service Brands to Apple’s newest product innovation, the iPad, he uses each to prove his thesis that “discounting” tarnishes the brand and ultimately lessons the brand’s category position. (The full article follows this response.)

Al Ries is really pointing up the differences between Advertising Agencies and their clients, Product or Service Marketers. Having been on both sides of the desk, I have a compassion for both sides but understand the need for what appears to be opposing views. During the eighties my advertising agency worked on several major international brands. In the early eighties our billings were 90% media and 10% production, by the end of the decade those figures switched to 90% production and 10% media. What had occurred was an increased dependence upon promotion.

In hindsight, categories just became more competitive and retailers began to wield more power over manufacturers. The need for manufacturers to compete within the category against rival brands had begun in earnest with the advent of low price-point generic and store brands.

Now marketers are not only dealing with intense competition from established brands within the category, but now they had to contend with the generic and store brands that were priced lower then they were. Category brands had “positioned” them within the category using advertising and public relations to differentiate them and used discounts and deep discounts to maintain or increase shelf space. With the new generics and store brands priced lower to begin with, a new pricing paradigm developed where category leaders and established brands began discounting during peak sale periods where volume would make up for the lost profits from discounting. Promotional Pricing now became a marketing tool used by marketers because of the quantitative accuracy of predicting sales, volume, and profits; whereas, advertising was not at all predictable, not matter how well positioned the brand was.

During the sixties and seventies retailers discounted brands within categories themselves without perks from manufacturers. Competitive manufacturers began offering retailers discounts and deep discounts to promote their brand(s) during peak or off sales periods. In the seventies retailers increasingly began to evaluate brands within each category and began to allot shelf or floor space accordingly. Manufacturers countered with their own promotions and unit discounts during a specific sales period, and as an added spiff, touted local market advertising to promote the brand(s) to attract even more customers to come into the store. Ultimately retailers began to take more control over their shelves and floor space to the point where many manufacturers were merely renting space to offer their brands to the retailer’s customers. After WWII America was on a continuous growth path for every brand and category. But finally in the late seventies and early eighties a threshold for volume was achieved where there were enough retailers, products and services existing so that these excesses led to more competition and strategic marketing for each of them. Retailers needed more then location to be successful, product and service brands were in increasingly competitive categories with ever-increasing choices for consumers.

More and more retailers, product and service brands have become commodities and increasingly subject to price competition. Al Ries points to innovation and the creation of new categories using Apple’s success in this arena as an example, when in fact that is the way it has always been, There was once a time when there was only a single Ketchup, a single Airline, and it goes on and on. Manufacturers are more adept at competition by creating me-too products as witnessed by the new Tablet category created by Apple.

Today in 2011, it is clear that brands have lost to retailers. Grocery retailers like ALDI offer only their private label brands and occasionally feature established brands as special offers. Many grocery retailers have sided with major established brands and tout high-end quality positioning to fend off challenges by discount retailers.

Department stores have continually lost out to discount department stores where only a few of the leading retailers remain with Walmart becoming the world’s largest retailer. Both department store and grocery stores exist in highly competitive local categories that are dominated by pricing. Little noticed or reporting was done when Walmart went into the food business and quickly usurped all previous food store retailers; becoming the nation’s largest food and beverage distributor and retailer. The speed of Walmart’s dominance in the Retail Grocery Business only goes to prove that price discounting dominates grocery store marketing, as it dominates department store retailing.

Against this background it is clear why discount pricing dominates all brands from every product and service category. Marketers use price promotion because it is a predictable marketing tool that they can rely on to move products and services, much more reliable then advertising or public relations.

Pricing has always been a marketing function, as has promotion. Promotion as a term has been construed as a price-discounting component to an entire discipline in and of itself that then advances brands. Retail Science has grown exponentially from the General Store to today’s Super-Walmart, and so have brands and branding. Increasingly manufacturers who create new products or services do so by creating not only the innovation but now an entire category for it. iPad comes in a variety of shapes and sizes – they anticipated the competition prior to launching the product itself. Al Ries uses Apple as an example without citing the fact that Apple has been its own manufacturer and retailer since its inception. I bought my first MacIntosh Computer directly from Steve Jobs at a Science Fair held at the University of California at Berkeley in 1977. More then any other company, Apple created its own competition by creating innovative products controlling and defining the category and by retailing them, they bypassed established retailers.

Now to the Chasm between Advertising and Promotion

Don Schultz of Northwestern University has been pushing a joint educational program for Marketing and Advertising for a decade. His contention is that Marketers and Advertising Agencies are at odds with one another, with each not fully understanding the function and purpose of the other. He is an advocate for a joint Marketing-Advertising Program where both disciplines gain an increased understanding and knowledge of the other.

Advertising Agencies have increasingly lost their clout with manufacturers, service providers and retailers as their categories matured, just as each have developed an ever-increasingly competent marketing component, exclusive of advertising agencies; and, they have increased the services they offer to integrated brand promotion using advertising, public relations and promotion to advance manufacturers, service providers and retailers brands. Originally Advertising Agencies provided media placement, then gradually began producing advertisements. During the seventies and eighties more and more manufacturers, service providers and retailers created in-house advertising agencies, and media placement agencies that displaced the traditional advertising agency. The fragmentation of media following 911 and New Media has left ad agencies scrambling to consolidate services and promoting its media expertise and buying power. More interesting is how advertising agencies are promoting new media and expanding it and their role in it. As new media become more monetized and predictable, advertising agencies will attempt to use its antiquated business model from Television and apply it to new media. Manufacturers, service providers and retailers see new media as free media for them to use to promote its brand(s).

Promotion as a separate discipline unique from advertising is here to stay. While advertising is not a predictable indicator for sales, volume and profits, promotion is. Manufacturers, service providers and retailers Marketing Staff use promotion as a marketing tool to differentiate them from the competitors within their categories. More and more, promotion has become strategically important to marketers to advance their brand(s). Advertising as a term in 2011 has become an integration of all known promotional tools, as well as innovative new ways to promote brands, expanding its original role of creating advertisements and placing media. The advertising agencies degree of specialization is what differentiates it from others within its category and appeals to marketers of manufacturing, services and retailing sectors. Successful advertising agencies continue to expand their traditional roles and continue to find innovative new ways to advance brands just as manufacturers, service providers and retailers continue to do the same.

Al Ries’ position is that:

“Discountitus is turning brand believers (those who are brand loyal) into brand agnostics (those who are influenced by price or innovation). The lure of a "big discount" is enough to seduce a consumer into thinking that all brands in the category are pretty much alike.”

Discounting is a marketing tool used by manufacturers, service providers and retailers to maintain their sales, volume and profits during peak and low market periods. Brands are increasingly pretty much alike because of increased competition and the primary marketing tool to differentiate themselves within their categories is pricing.

He further states:

“In categories that have not been seriously contaminated, the cure for discountitus is a dose of positioning. But as Prophet, a leading marketing consultancy, reported in its latest state of marketing study: "Positioning has always been about differentiation. But in this unfolding environment, differentiation is short-lived."

We differ on that. The cure for discountitus is not differentiation. Nor is positioning essentially about differentiation, either.

Positioning is owning a word in the mind. As discountitus spreads its way through the marketing community, that word more often than not is "leadership."

Leadership is what makes Google the most powerful brand in the "search" category. Leadership is what makes iPod the most powerful brand in the "MP3 player" category. Leadership is what makes Heinz, Hertz, Haagen-Daz, Hellmann's, Home Depot and a host of other brands powerful in their categories.

But how to you get to be the leader? And how does the leader keep from catching the discountitus disease?”

Increasingly manufacturers, service providers and retailers depend not upon the “Telling and Selling” model of promotion, but instead want to make a brand lifestyle association with the consumer, to differentiate themselves within the category and with consumers. In the same manner that Nike has become a lifestyle statement and Coke has become “the real thing,” manufacturers, service providers and retailers work to have their brand(s) make a lifestyle association with consumers to avoid becoming a commodity controlled by price.

Al Ries then goes on to say:

“Leadership is what makes Google the most powerful brand in the "search" category. Leadership is what makes iPod the most powerful brand in the "MP3 player" category. Leadership is what makes Heinz, Hertz, Haagen-Daz, Hellmann's, Home Depot and a host of other brands powerful in their categories.

But how to you get to be the leader? And how does the leader keep from catching the discountitus disease?”

Al Ries thesis offers a very narrow point of view by defining leadership with these established brands. Several were first to the category and thus defined it. But in truth each use price promotion as part of its promotional mix. Who isn’t influenced by a price discount on Heinz Ketchup, especially Walmart’s $1.00 sale on 40 oz size during the peak summer sales period? Haagen Dazs and Hellman’s routinely offer retailers’ case discounts for volume buys and deeper discounts for retailer-flyer ads and promotion, in-store displays and features. They do this to maintain their category position and to move perishable stock before it becomes dated. Hertz offers tie-in promotions with travel agencies and airlines, and who can resist specials found in the Home Depots Weekly Flyers? At my Home Depot, the clerks know me by name.

Price Point marketing is an important marketing tool used by Manufacturer, Service Providers and Retail Marketers to predictably move their brands for reliable sales, volume, and profits. Advertising does not have to quantitative predictability of promotion. Marketers use promotional pricing to move out old products or styles and to maximize sales and volumes during both peak and low sales periods. This isn’t to say that advertising and positioning one’s brand within its category is not important – but instead to say that an Integrated Brand Promotion strategy that uses Advertising, Public Relations, and Promotion has more clout then using each separately. Price promotion is decidedly an effective marketing tool that has been time-tested and proved beyond doubt as a predictable and effective way to advance brand(s).

Al Ries states:

“When you're the leader in a category, you cannot be overtaken by a competitor who thinks differentiation is going to make a big difference.

And when you're the leader in the category and you lower the boom on price, you can inoculate the category from the disease of discountitus.”

Here I must completely disagree. When you are a category leader you are constantly challenged and bombarded by me-too competitors who have so completely mimicked your brand(s)’ uniqueness your only defense is using price promotion to maintain your leadership position. All too often manufacturers, service providers, and retailers are totally dependent upon using price promotion to position and differentiate their brand from me-too competitors within their category, because of the narrow differentiation between brands caused by keen competition.

Packaged Goods Manufacturers have used new product introductions to maintain their shelf position and SKU’s – exactly what Al Ries point to when he says: “Launch a new brand in a new category: Over the past few decades, it's become clear that the only way to become a leader is to launch a new brand in a new category.” Line or Brand Extensions should be added to that statement. That is what is happening in the ever-competitive battle for shelf space in retail stores. Retailers have created a competitive battle between packaged goods brands and manufacturers where volume and profits dictate a given brand’s shelf location and SKU’s.

Manufacturers use price discounting to predictably maintain their shelf position and SKU’s to compete against other competitive brands, generics and store brands. Me-too competitors have reduced brand differentiation and the category leader’s positioning and uniqueness. Consumers routinely complain about label and product confusion and when their favorite suddenly disappears or is reformatted, or re-sized. Finding and keeping brand-loyal consumers is becoming more and more difficult.

Packaged Goods can peak and defy change – we all saw what happened with New Coke. Coke has a brand-loyal franchise and it was the product innovator and the first in its category. Dr. Jon Pemberton apparently made the perfect product that defies any change. Whereas Durables and Electronics are in constant flux and change compared to Packaged Goods. Brands exist in unique categories and each is strategically positioned against category competitors as they do price promotion will always be part of the marketing mix.

This is not to negate Advertising. During down-economy periods even the most brand-loyal consumer will be lured by price promotion for trial and possibly switch brands. That is why Advertising is important to any brand, to maintain its unique positioning and importance to the consumer. To maintain that place in the Consumer’s Mind, as Al Ries puts it.

A Case-Study Example: Armour Hot Dogs versus Oscar Mayer

Advertising versus Price Promotion.

In the late eighties ConAgra’s Armour business unit Marketing Director approached my advertising agency. They asked us to beat Oscar Mayer Wieners during the two Hot Dog peak sales periods: Memorial Day and Labor Day.

They went on to give us category background data about the two brands. Once Armour Hot Dogs dominated as category leader positioned as: “The Dog Kids Love to Bite.” The jingle was: Fat kids, skinny kids, kids who climb on rocks. Tough kids, sissy kids, even kids with chicken pox love hot dogs, Armour Dot Dogs The dogs kids love to bite...

Then in the seventies advertising was curbed back and upstart Oscar Mayer launched its:

Oh I wish... Oh I wish I were an Oscar Meyer wiener! That is what I truly wish to be! 'Cause if I were an Oscar Meyer wiener! Then everyone would be in love with me! That coupled its Weiner Mobile and miniature Weiner Mobile model premiums made into small vehicles and whistles.

Oscar Mayer’ jingle and premiums usurped Armour’s #1 category position and they became the category leader.

Our assignment was to beat Oscar Mayer in the two peak Hot Dog sales periods – no matter what the cost.

When we had a creative meeting I explained the situation and one of my staff said: “this looks like a job for Superman!” I had earlier received a flyer about Superman’s fiftieth Birthday Celebration from Action Comics and the promotion they put together with the movie studio for a new Superman Movie that coincided with the 50^th birthday complete with a traveling Mall Show touting Superman’s 50^th and supported by a year-long advertising package to promote it, and the companies that sponsor the celebration. They were offering single category sponsorships. I contacted them and we bought food. So we enlisted the help of Superman to defeat a category colossus.

Our focus wasn’t on advertising Superman’s 50^th Birthday, but instead to beat Oscar Mayer in Hot Dog Sales in two peak sales periods. So our focus was on Class A Grocery Retailers and Independents’ buyers and store managers. We worked together with the Sale Force on a local market bases to ensure that each market was represented during the two peak targets.

Our advertising buy was national FSI’s for newspaper insertion prior to the two holidays and then spot newspaper ads to fill in areas not covered by the FSI’s. We developed premiums of a Superman Watch, and Superman Shorts to help celebrate Superman’s 50^th with Superman’s favorite hot dog, Armour.

A national public relations program was created that stated: Superman Picks Armour Hot Dogs to Celebrate his 50^th Birthday -- and, Superman’s Favorite Hog Dog is Armour! An illustration of Superman holding a hot dog accompanied the release. This was dropped to trade publications, newspapers (reminding them of the newspaper FSI and ad campaign), and to radio and TV. I wanted to say that Superman Bites Armour Hot Dogs, and word play bites that harkens back to “the dog kids love to bite,” but was told that Superman doesn’t eat by Action Comics. So we were directed not to put a hot dog in Superman’s mouth – he can hold hot dogs or give hot dogs to others, but he doesn’t eat – anything ever.

Point-of-sale materials were created that promoted not only the hot dogs but also all of the related picnic items – condiments, buns, potato salad, potato chips, soft drinks, et.al., making it a total store event.

The Action Comic Promotion used TV, magazine, newspaper to promote the event and Armour was cited as an event sponsor. We sent out Superman T-Shirts packaged in a silver bullet, telling ConAgra salespeople to wear the t-shirt under their shirt and expose it during the sale presentation along with the silver bullet telling the buyers that Armour Hot Dogs will shoot through your stores faster then a silver bullet.

The yearlong campaign immediately yielded results. Armour obtained store ads, displays, and features in the retailers’ promotional vehicles – TV, radio, newspapers, flyers, and in-store features. Armour overtook Oscar Mayer that Memorial Day, and then again on Labor Day, becoming the Category Leader.

We beat Oscar Mayer. One would think that the next year they would come back to us again, but they didn’t. The campaign that resulted in a dramatic category position change was replaced the next year by a price promotion. Apparently Armour had caught wind of Oscar Mayer strategy of price discounting offering two for the price of one (BOGO – buy one, get one free) and countered with the same strategy.

The category offered BOGO for almost a decade following the Superman conquest – to the delight of consumers who received deep price discounts.

So in this case study an Integrated Advertising Campaign that used Advertising, Public Relations and Promotion unseated a long-time category leader only to be replaced by a price promotion the following year where Oscar Mayer regained its category leadership position.

Life’s a bitch, but sometimes being in the advertising business makes it even harder. What’s a guy to do when you move mountains, yet are merely seen as hired guns. I did go back and pitch ConAgra but when told of their unique way of dealing with advertising agencies I decided not to play. You can offer ideas to them, if they like it they pay, if they don’t like, you eat the costs. We didn’t play the game that way. We expected to be paid. But at the same time we never forced a client to pay for something they didn’t like or want, we’d go back to the drawing board and try again with a clean slate that included no charge for the previous effort. We would compete but expected a competition fee to do so. We were not an agency that worked as a non-profit dedicated to advance large international corporations. But I guess there were several that were.

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Discountitus, the Disease That's Sweeping the Marketing Community

Positioning Is the Only Cure

By: Al Ries

Published: July 06, 2011 AdAge

Last month, J.C. Penney hired a new chief executive who used to run Apple stores. In a New York Times article, here's how CEO Ron Johnson described his plans for Penney: "Take this great American brand and make it become something unbelievably exciting."

Fat chance.

Most department stores are infected 
You seldom see a department-store advertisement based on anything except a sale. The latest J.C. Penney ad was a six-page insert promoting a "Fourth of July sale."

In addition to dozens of "super hot buys," the insert features "Red Zone clearance, final-markdowns 80% off. New markdowns 50-70% off." Also featured is "jcpCA$H," offering consumers "$10 off any purchase totaling $25 & up."

Belk, Dillards, Kohl's, Macy's, Sears and most mainstream department stores are also infected by discountitus.

Kohl's, in particular. A typical mailing: "Start with these incredible sale prices of 20-60% off. Take an extra 15% off everything. Plus add a $5 bonus."

Airlines to pizza to car insurance 
In industry after industry, the discount is the focus of the advertising.

Here's the opening dialog of a typical Progressive commercial featuring Flo and a potential customer.

"Are you a safe driver?"

"Yes."

"Discount! Do you own a home?"

"Yes."

"Discount! Are you gonna buy online?"

"Yes."

"Discount!"

Over at Geico, "15 minutes could save you 15% or more on car insurance." Geico and Progressive are the biggest spenders in the category. Last year Geico spent $741 million on advertising. Progressive, $506 million. Longtime car-insurance leaders like State Farm ($453 million) and Allstate ($368 million) are lagging behind.

Penney vs. Apple 
Over at J.C. Penney, if Ron Johnson plans to use an Apple strategy to turn his company around, it's too late. Once discountitus has spread through an industry, it's awfully hard to eradicate.

Take airlines. Yesterday, airline companies competed on the basis of who could build the better brand. Today, airline companies compete on the basis of who can offer the bigger discounts. No wonder Southwest Airlines is a big winner, and most airline customers can't explain the difference between American, Delta and United.

One reason why discountitus is spreading so rapidly is the internet. Clipping coupons is being replaced by typing on keyboards. Groupon and the other daily-deal websites are only one factor. Anybody who owns a computer today can get competitive prices on a host of items almost instantly.

Unless you want to spend the rest of your life doing discount marketing, you should be asking yourself, "What's the cure?"

Believers vs. agnostics 
Take a closer look at the consumer a company is trying to reach with its advertising and PR.

Psychologically, consumers can be divided into two categories: 1) Brand believers and 2) Brand agnostics. And they vary by category. They can be believers in one category (ketchup) and agnostics in another category (airlines).

Watch believers go through the Sunday supplements. They only clip coupons for brands they already use.

Watch agnostics go through the Sunday supplements. They ignore brands and clip coupons for categories. (Extreme agnostics don't buy anything without a coupon.)

Discountitus is turning brand believers into brand agnostics. The lure of a "big discount" is enough to seduce a consumer into thinking that all brands in the category are pretty much alike.

In categories that have not been seriously contaminated, the cure for discountitus is a dose of positioning. But as Prophet, a leading marketing consultancy, reported in its latest state of marketing study: "Positioning has always been about differentiation. But in this unfolding environment, differentiation is short-lived."

We differ on that. The cure for discountitus is not differentiation. Nor is positioning essentially about differentiation, either.

Positioning is owning a word in the mind
As discountitus spreads its way through the marketing community, that word more often than not is "leadership."

Leadership is what makes Google the most powerful brand in the "search" category. Leadership is what makes iPod the most powerful brand in the "MP3 player" category. Leadership is what makes Heinz, Hertz, Haagen-Daz, Hellmann's, Home Depot and a host of other brands powerful in their categories.

But how to you get to be the leader? And how does the leader keep from catching the discountitus disease?

Launch a new brand in a new category 
Over the past few decades, it's become clear that the only way to become a leader is to launch a new brand in a new category.

Like Apple did with the iPad, the first tablet-computer. Currently, the iPad has some 75% of the tablet market.

An also-ran that has been line-extended to death has no hope of ever becoming the market leader. The best it can do is to narrow its focus to shore up a position in a segment of the category.

Has Pepsi-Cola ever substantially increased its share of the cola market with Pepsi-Cola Retro, Pepsi Throwback, Pepsi Twist, Pepsi Natural, Pepsi Raw, Pepsi A.M., Pepsi Kona, Pepsi Light, Pepsi Max, Pepsi XL, Pepsi Blue, Pepsi One or Crystal Pepsi?

No, it has not. In fact, regular Pepsi-Cola has fallen behind Diet Coke to third place in the cola category.

What's next for Pepsi-Cola? More of the same. Pepsi Next.

Lower the boom on price 
If you read the papers, you know the regular price of most products or services on the market today is "50% off."

Every Thursday, our local newspaper, The Atlanta Journal-Constitution, features "This week's best deals." Last week, there were eight. One was "free." One was "40% off" and the other six were "50% off."

That's not unusual. By far, the vast majority of daily deals are 50% off or BOGO -- buy one, get one free.

When rumors of Apple's imminent launch of a tablet computer circulated on the internet, the pundits predicted the product would be priced around a thousand dollars.

Apple surprised them with a list price of $495. The company lowered the boom at a level that competitors had difficulty getting under. Today, you find the table-computer market remarkably free of discountitus.

Apple used the same strategy with its iTunes brand by insisting on a 99-cent price. (Don't feel sorry for Apple. The company is making its money on volume, not on margin.)

When you're the leader in a category, you cannot be overtaken by a competitor who thinks differentiation is going to make a big difference.

And when you're the leader in the category and you lower the boom on price, you can inoculate the category from the disease of discountitus.

There were many comments to this article but this one was the most interesting:

Positioning is the cure for discounting, but positioning isn't about differentiation - it is about leadership. And the only the way for a brand to be a leader today you argue is to launch a new brand in a new category. Isn't that called innovation? If every brand was innovative, what would be a unique brand position? And what about the practices of re-positioning and de-positioning?

George Potts

Director, Digital Strategy

Smith Brothers Agency

blog.smithbrosagency.com